1/ Charlie Munger describes Buffett's approach to evaluating asset purchases:
"Warren is scanning the world trying to get his opportunity cost as high as he can so that his individual decisions are better."
He asks: of all the assets I could possibly buy, which should I buy?
"Warren is scanning the world trying to get his opportunity cost as high as he can so that his individual decisions are better."
He asks: of all the assets I could possibly buy, which should I buy?
2/ Munger: "In the real world, you uncover an opportunity, and then you compare other opportunities with that. And you only invest in the most attractive opportunities. That’s your opportunity cost."
When Buffett decides to buy a specific asset he is saying he would rather buy
When Buffett decides to buy a specific asset he is saying he would rather buy
3/ that asset over any other asset in the world including more shares in a business he already owns. Yes Buffett considers asset allocation too, but the point is he doesn't ask himself "should buy X?" Instead he asks: Is X the best opportunity of all available opportunities?
4/ What I find easiest is doing the stack rank of opportunities taking into account asset allocation. I believe that for me the probability of capturing alpha is much higher in private markets since those markets are much less efficient. Skill is more valuable in such markets.
5/ What is harder is understanding a point made by Howard Marks: "Assessing our cycle position doesn’t tell is what will happen next, just what’s more or less likely. But that’s a lot.“ Lower valuations due to a correction increase probability of a gain. google.com/amp/s/25iq.com…
