Source: Red and Green

01 Do not engage in anything outside of the margin of safety.

1

Suppose you hand me a gun that has 1,000 chambers and 1 million chambers, with only one chamber containing a bullet, and you say, 'Aim the gun at your temple, pull the trigger, how much do you want?' I won't do it. No matter how much you offer me, I won't do it.

If I win, I don't need that money; if I lose, the outcome is obvious. I don't want to do such things at all, but in the financial field, people often engage in such activities without thinking.

2

Assuming at the beginning of the year you have 0.1 billion dollars, if you don't leverage, earning 10%, and the success rate of leveraging is 99%, earning 20%, by the end of the year you have 0.11 billion dollars or 0.12 billion dollars, is there a difference? There is no difference at all.

If you die at the end of the year, the person writing your obituary might make a typo, writing 0.11 billion instead of your 0.12 billion. What use is the extra money? It’s of no use at all. Not to you, not to your family, and not to anyone else.

3

We basically have never borrowed money; of course, our insurance company has float funds, but I have never borrowed money at all. Even when I only had 0.01 million, I didn’t borrow money. Isn’t it different not to borrow money? I was also happy to invest when I had little money. I really don’t care whether I have 0.01 million, 0.1 million, or 1 million. Unless something urgent happens, like a serious illness requiring immediate funds.

4

If you have 1 dollar now and think that when you have 2 dollars in the future, you’ll be happier than you are now, you might be mistaken. Don’t think that making 10 times or 20 times will solve all the problems in life. Such thinking can easily lead you into trouble. Borrowing money when you shouldn’t, or taking shortcuts and engaging in behavior you shouldn’t, will leave you with no way to buy regret in the future.

A business that can be understood at 0.2 is a good business.

5

The American economist Henry Kaufman has a famous quote: 'There are two kinds of people who go bankrupt: one who knows nothing, and the other who knows everything.' I hope everyone can take this as a warning.

6

I prefer businesses that I can understand, and with this filter, 90% of the companies were eliminated. Some things should not be done if one knows they don't understand them.

7

I don't like easy businesses; easy businesses attract competitors. I prefer businesses with a moat. I hope to have a castle of great value, guarded by a duke who is both talented and virtuous, and this castle is surrounded by a wide moat.

I often tell the managers of Berkshire's subsidiaries to widen the moat. Throw crocodiles and sharks into the moat to keep competitors out. This relies on service, product quality, and cost, and sometimes on patents or business locations. What I am looking for is such a business. Where can such businesses be found? I seek good businesses among those simple products.

It's actually easy to understand; with the current economic situation being good and the management team being capable, I can roughly see what these businesses will be like in ten years. For some businesses, I can't predict what they will be like in ten years, so I don't invest.

For companies like Oracle, Lotus, and Microsoft, I can't understand what their moat will look like in ten years. Gates is the most outstanding business genius I have ever encountered, and Microsoft has a huge competitive advantage, but I really don't know what Microsoft will be like in ten years, nor can I accurately predict what Microsoft's competitors will be like in ten years.

However, I know what the gum business will be like in ten years; no matter how the Internet develops, it won't change our habit of chewing gum. It seems nothing can change our habit of chewing gum. There will definitely be more new varieties of gum, but will White Arrow and Yellow Arrow disappear? No.

If I imagine that I have 1 billion dollars, can I harm this company? Give me 10 billion dollars, and if I compete with Coca-Cola globally, can I harm Coca-Cola? I cannot do it. Such a business is a good business.

8

No matter when, it is important to know what you are doing in order to make good investments. It is necessary to understand the business; some businesses we can understand, but not all businesses are understandable.

9

Regardless of whether a company is Large Cap, Small Cap, Middle Cap, or Micro Cap, we only consider a few points: Can we understand this company's business? Do we like the company's management? Is the company's price cheap?

Buying stocks is buying companies, and a market downturn is a good opportunity.

10

If the company you invest in is not profitable, you will also find it difficult to make a profit.

11

After people buy Stocks, they watch the stock prices intently the next morning, letting the stock prices determine whether their investments are good, which is quite confused. Buying Stocks means buying a company, this is the most basic principle that Graham taught me.

Remember, what you are buying is not Stocks, but a portion of ownership in a company. As long as the company is doing well and the price you buy is not excessively high, your returns will be decent; investing in Stocks is that simple.

12

I prefer to see the market decline; during a significant drop, it becomes easier to buy good products and make better use of the money. To invest in Stocks, this is a principle you must first learn.

13

Be sure to have a reason for what you want to buy; if you cannot articulate your reason, then do not buy.

14

Some people treat buying stocks like horse racing, which is fine, but if you are investing, investing involves putting capital in and ensuring that you can withdraw it later with an appropriate ROI.

15

What we think about is not how to obtain super high ROI, but to always remember to never lose money.

16

The companies that are most worth buying are those that you feel are very expensive numerically and hard to buy, but you still really want to purchase.

04 Stick to your circle of competence and identify good businesses.

17

If you can't understand a business at first glance, even after spending another month or two, you still won't understand it. To understand a business, you must have sufficient background knowledge and be clear about what you know and what you do not know, this is key. What I often refer to as the circle of competence means being clear about your own circle of competence.

18

Everyone has their own circle of competence; what matters is not how large the circle is, but staying within its range. If there are thousands of companies on the Main Board and your circle of competence only covers 30 of them, as long as you know which 30 they are, that's sufficient.

19

As long as it's a good business, nothing else matters; timing can easily lead to pitfalls. If it's a good business, I don’t care about the big and small matters, nor do I consider how this year or next year will be.

For a good business, you can see how it will be in the future, but you don't know when it will happen. When looking at a business, you should focus on how it will turn out in the future and not get too caught up in when it will happen. Once you see what the business's future could be, it doesn't matter much when it will actually happen.

20

For me and my partner Charlie Munger, our biggest mistake was not doing what we should have done, rather than doing something wrong. Among these mistakes, we understood the business very well and should have acted, but for some reason, we hesitated and did nothing.

21

I do not study macro issues; the most important thing in investing is to clarify what is significant and knowable. If something is insignificant and unknowable, then it should be ignored.

22

The general approach of consulting firms is to first bring out their economists for a round, discussing the big macro picture, and then analyzing from top to bottom; we think all of that is nonsense.

23

When deciding whether to buy a company, we never use our feelings about macro issues as a basis. We do not look at predictions about interest rates or company earnings; it is useless.

In 2005, be a friend of time, make money without meddling.

24

Find a good investment opportunity in a year, then hold it continuously, waiting for its potential to be fully released. In an environment where people are constantly shouting quotes every five minutes, and where various reports are constantly shoved in your face, it is difficult to Hold still. Wall Street makes money through meddling, while you make money without meddling.

25

If everyone here were to trade their investment portfolios with each other every day, everyone would ultimately go bankrupt, and all the money would end up in the pockets of the middlemen.

Switching strategies, if you all Hold a portfolio made up of general companies and remain inactive for 50 years, you would all become very wealthy while your Brokerage goes bankrupt. The Brokerage is like a doctor; the more times they make you change medications, the more they earn.

If they give you one medication that cures your illness, they can only make one sale, one Trade, after which it's gone. If they can convince you that changing medications daily is beneficial for your health, it benefits them and the sellers, and you will lose a lot of money. Your health won't improve, and you'll suffer financial losses.

26

Any environment that encourages you to fidget unnecessarily should be avoided. Wall Street is undoubtedly such an environment.

27

Regardless of which company we buy, we do not set price targets at the time of purchase. For example, if we buy at 30, we never think of selling when it reaches 40, 50, 60, or even 100. We want the companies we Buy to be Bullish now and remain Bullish five years later.

28

The correct mindset when looking at a company is to consider whether it will become increasingly profitable in the long term. If the answer is yes, then there is no need to ask any other questions.

29

Time is the friend of good businesses and the enemy of bad businesses. If a poor business is held for the long term, no matter how cheaply it was bought, the final return will also be poor. If a good business is held for the long term, even if it was bought at a high price, as long as it is held over time, it will still yield excellent returns.

Businesses for diversified investment should not exceed six.

30

If not a professional investor and not pursuing the goal of achieving an excess return through managed funds, a high degree of diversification in investment should be considered.

31

If one truly understands business, the number of businesses one owns should not exceed six. Finding six good businesses is sufficient for diversification, and one can earn a lot of money.

I can guarantee that if money is not invested in the business one is most optimistic about and instead goes to start a seventh business, it will surely lead to failure. Few people succeed based on the seventh best idea, while many succeed based on the best idea.

32

If you ask me, if I were to invest all my capital into one company and leave it for twenty years, I would choose Procter & Gamble or Coca-Cola. Procter & Gamble has a more diversified product line, but comparatively, I believe the certainty of Coca-Cola is higher than that of Procter & Gamble.

Procter & Gamble can qualify as one of my top 5% companies, and it won't be crushed by competitors. However, looking ahead to the next two or three decades, I am more optimistic about the sales growth potential and pricing power of Coca-Cola.

33

I still prefer businesses that sell their products well. In recent years, McDonald's promotions have been increasing, and it has become more reliant on promotions rather than the quality of its products. In contrast, I prefer Gillette; people buy the Mach3 because they like the product itself, not just to receive some freebies.

Every night, think about how one or two billion men are growing beards while you sleep; you can sleep soundly knowing that men are growing beards. Also, consider that all women have two legs, which is even better. This method is much more effective than counting sheep; look for businesses like this.

A few pieces of advice for young people.

34

The shackles of habit are light at first, hardly noticeable, but later become heavy and impossible to break free from.

35

If there is someone that turns my stomach, but being with them could earn me 0.1 billion dollars, I would refuse outright; isn't it the same as marrying for money? No matter the circumstances, never marry for money; if already wealthy, it would be even more wrong.

36

I have a job that I love; back when I thought earning 1,000 dollars was a lot of money, I enjoyed my work. Classmates, do the work you love; if you only do jobs you don't like just to make your resume look better, then you are truly confused.

37

After achieving financial freedom, the work you want to do should be what you are doing now, as that is the ideal job.

38

Doing work you do not like feels a bit like saving your sex life for when you are older, doesn’t it? Whether sooner or later, you should start doing what you truly want to do.

39

We never think about things that have already passed. We believe there is so much to look forward to in the future, so why dwell on the past? There is no use in being entangled in past matters; life can only look forward.

40

Spend a lifetime doing what you love and interacting with the people you like.

Editor/Rocky