My views on the market, tech, and everything else

Charlie Munger on “Circle of Competence” (The Second Essential Filter)

 “We have to deal in things that we are capable of understanding.” Charlie Munger  http://www.youtube.com/watch?v=3XlBrohrIUc   “An Investor’s got to know His or Her Limitations” (Apologies to Clint Eastwood in Dirty Harry) Charlie believes that investors who get outside of what he calls their “Circle of Competence” can easily find themselves in big trouble.  Within a Circle of Competence a given investor has expertise and knowledge that gives him or […]

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Charlie Munger on Moats (First of the Four Essential Filters)

If there is anything fundamental about what Charlie Munger has learned about business it is this: “The difference between a good business and a bad business it is that good businesses throw up one easy decision after another. The bad businesses throw up painful decisions time after time.”  http://bit.ly/S5iN7K Why do some businesses create easy decisions?  The answer lies in microeconomics: if there is no significant “barrier to entry” which creates what […]

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Charlie Munger on Mistakes

 MUNGER’S METHODS  Chapter 1:   The Difference between a Good Business and a Bad Business Mistakes Charlie Munger learned about business in the best way possible: by making mistakes and being successful actually being in business. Reading about business is vital Charlie has said many times, but there is no substitute for wading in and actually taking the plunge as a business manager or owner.  It is through the process of […]

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Angel Investing and Power Laws

Warren Buffett’s view on risk is the right response to the data contained in the post by Robert Wiltbank on Angel investing returns. In an essay in which he discusses risk, Buffett advises: “… If significant risk exists in a single transaction, overall risk should be reduced by making that purchase one of many mutually-independent commitments.  Thus, you may consciously purchase a risky investment – one that indeed has a […]

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The Matthew Effect and VC Performance

Andy Rachleff wrote recently: “Cambridge Associates, an advisor to institutions that invest in venture capital, says that only about 20 firms – or about 3 percent of the universe of venture capital firms – generate 95 percent of the industry’s returns, and the composition of the top 3 percent doesn’t change very much over time.” Anyone who has looked at Cambridge data over time can see that the distribution of […]

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What is a muppet? Henry Blodgett:  “The definition of “muppet,” say those who live on the other side of the pond (where ‘muppet’ is apparently a common term on trading floors to describe the guy on the other side of the trade) is “idiot.” Can a muppet become an investor? David Swensen:  “Instead of concentrating on the central issue of creating sensible long-term asset-allocation targets, [muppets]  too frequently focus on […]

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