If a man is proud of his wealth, he should not be praised until it is known how he employs it.

Becky Ripley and Sophie Ward take a cold hard look at the psychology behind each of the seven deadly sins, in the order established by Pope Gregory the Great: pride, greed, lust, envy, gluttony, wrath, and lazy old sloth. Why have we evolved these ugly emotions? What’s going on in the brain and the body when we feel them? And how best can we live alongside them - in ourselves and with others?Greed is in the spotlight today. And we're not talking food. (That’s gluttony, we come to that later in the series.) We're talking greed for money, for land, for material things – and ultimately for control, status, dominance, power. The kind of greed that separates the "haves" from the "have nots". On one hand, greed is a great motivator, driving us all forward in our pursuit to get more of whatever it is we want. But at its ugliest, greed can come at a huge cost to other people, and to the planet. When does self-interested behaviour become selfish? And can we be greedy for the good? To guide us through this mess is evolutionary anthropologist Dr Anna Machin from the Department of Experimental Psychology at the University of Oxford, psychologist and social scientist Professor Paul Piff from the Department of Psychological Science at the University of California, Executive Director of the New Economy Organisers Network, Ayeisha Thomas-Smith, and a few wise words from Sir David Attenborough.Producer: Becky Ripley

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Seven Deadly Psychologies - 2. Greed

Poor Dad values traditional education, job security, and working for a steady paycheck. In contrast, Rich Dad focuses on financial education, entrepreneurship, and building wealth through assets, rather than relying on earned income.

1. Two Different Mindsets: Poor Dad vs. Rich Dad

"The poor and the middle-class work for money. The rich have money work for them."

Financial literacy is crucial for building wealth. It’s not about how much money you make but how well you manage it. Understanding how money works, how to invest, and how to build and protect wealth is essential.

2. The Importance of Financial Literacy

The key to financial success lies in understanding the difference between assets and liabilities. Assets generate income, while liabilities drain resources. Accumulating assets like investments and businesses helps grow wealth, while minimizing liabilities like debt is crucial

3. Assets vs. Liabilities

"An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket"

Rather than trading time for money in a job, focus on acquiring income-generating assets that work for you. Passive income from investments or businesses is a pathway to financial independence

4. Make Money Work for You

"The rich don't work for money. They make money work for them."

Wealthy people create income streams through assets, not through labor. They focus on building businesses, real estate, or other investments that generate continuous cash flow, reducing dependence on a paycheck

5. The Rich Don’t Work for Money

"You must learn to harness the power of your mind and not be afraid of failing. Failure is part of the process of success."

Always focus on building your own assets, whether that’s through investing, starting a business, or other wealth-generating activities. Even if you have a job, create income streams on the side that will eventually replace your need to work for others.

6. Mind Your Own Business

"The rich focus on their asset columns while everyone else focuses on their income statements."

Corporations provide strategic tax advantages and protect personal assets. Forming a corporation allows you to reduce taxes, reinvest profits more effectively, and protect wealth legally.

7. The Power of Corporation

"The reality is that the rich are not taxed. It's the middle class who pays for the poor."

Financial success requires taking calculated risks. Those who avoid risk miss out on opportunities to grow wealth. Understanding and managing risk effectively is essential for capitalizing on financial opportunities.

8. The Role of Risk

"In today's fast-changing world, it's not the people who are 'rigid' that succeed, but the people who are 'flexible.'"

Fear of failure prevents many people from pursuing wealth-building opportunities. Embrace failure as a part of the learning process. Those who succeed are not afraid to make mistakes; instead, they learn and adapt from them.

9. Overcoming the Fear of Failure

"Winners are not afraid of losing. But losers are. Failure is part of the process of success."

Focus on acquiring valuable skills that can help you in building wealth, such as sales, investing, or business management. These skills are more important in the long run than the security of a paycheck, as they can open doors to greater financial opportunities.

10. Work to Learn, Not for Money

Financial success requires action. Education alone isn’t enough; you have to invest, take risks, and start building assets. Start with small steps, but take the necessary actions to begin your journey toward financial independence.

"The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth."

Although we have been successful in our careers, they have not turned out quite as we expected. We both have changed positions several times-for all the right reasons-but there are no pension plans vesting on our behalf. Our retirement funds are growing only through our individual contributions. Michael and I have a wonderful marriage with three great children. As I write this, two are in college and one is just beginning high school. We have spent a fortune making sure our children have received the best education available. One day in 1996, one of my children came home disillusioned with school. He was bored and tired of studying. “Why should I put time into studying subjects I will never use in real life?” he protested. Without thinking, I responded, “Because if you don't get good grades, you won't get into college.” “Regardless of whether I go to college,” he replied, “I'm going to be rich.”

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Kiyosaki is best known for his book Rich Dad, Poor Dad, the #1 New York Times bestseller. Kiyosaki followed with Rich Dad's CASHFLOW Quadrant and Rich Dad's Guide to Investing.

Robert T. Kiyosaki

Rich Dad, Poor Dad

The Art of War is governed by five factors:<ul><li class="ql-align-justify">The Moral Law - following your leader regardless of their life</li><li class="ql-align-justify">Heaven - night/day, cold/heat, times and seasons</li><li class="ql-align-justify">Earth - distances great/small, danger/security</li><li class="ql-align-justify">The Commander - wisdom, courage, strictness, benevolence</li><li class="ql-align-justify">Method and Discipline - marshaling of army in proper subdivisions, ranks among officers</li></ul>By considering these factors, you can forecast your victory.

Laying Plans

When you engage in actual fighting, if victory is long in coming, then men’s weapons will grow dull and their ardor will be damped. If you lay siege to a town, you will exhaust your strength.

Waging War

In the practical art of war, the best thing of all is to take the enemy’s country whole and intact; to shatter and destroy it is not so good.

Attack by Stratagem

The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy.

Tactical dispositions

The control of a large force is the same principle as the control of a few men: <ul><li class="ql-align-justify">it is merely a question of dividing up their numbers.</li></ul>

Energy

Whoever is first in the field and awaits the coming of the enemy, will be fresh for the fight; whoever is second in the field and has to hasten to battle will arrive exhausted.

Weak Points and Strong

After that, comes tactical maneuvering, than which there is nothing more difficult. The difficulty of tactical maneuvering consists in turning the devious into the direct, and misfortune into gain.

Maneuvering

When in difficult country, do not encamp. In country where high roads intersect, join hands with your allies. Do not linger in dangerously isolated positions. In hemmed-in situations, you must resort to stratagem. In desperate position, you must fight.

Variation in Tactics

We come now to the question of encamping the army, and observing signs of the enemy. Pass quickly over mountains, and keep in the neighborhood of valleys.

The Army on the March

We may distinguish six kinds of terrain, to wit: (1) Accessible ground(2) entangling ground(3)temporizing ground4) narrow passes; (5) precipitousheights(6) positions at a great distance from the enemy.

Terrain

The art of war recognizes nine varieties of ground: (1) Dispersive ground; (2) facile ground; (3) contentious ground; (4) open ground; (5) ground of intersecting highways; (6) serious ground; (7) difficult ground; (8) hemmed-in ground; (9) desperate ground.

The Nine Situations

There are five ways of attacking with fire: <ul><li class="ql-align-justify">The first is to burn soldiers in their camp</li><li class="ql-align-justify">The second is to burn stores</li><li class="ql-align-justify">The third is to burn baggage trains</li><li class="ql-align-justify">The fourth is to burn arsenals and magazines</li><li class="ql-align-justify">The fifth is to hurl dropping fire amongst the enemy</li></ul>

The Attack by Fire

Raising a host of a hundred thousand men and marching them great distances entails heavy loss on the people and a drain on the resources of the State. 	 The daily expenditure will amount to a thousand ounces of silver. There will be commotion at home and abroad, and men will drop down exhausted on the highways. As many as seven hundred thousand families will be impeded in their labor.

The Use of Spies

"There's not a dated maxim or vague prescription in it." — Newsweek Regarded as the world's oldest military treatise, this compact volume has instructed officers and tacticians for more than 2,000 years. From its origins in China, The Art of War traveled the world to inform the strategies of Napoleon and World War II generals. More recently, it has taken on a new life as a guide to competing successfully in business, law, and sports. All of The Art of War's concepts retain their value to modern readers, from the prudence of circumventing a strong opponent and taking advantage of a weak one to the wisdom of preparedness and flexibility. Other topics include strategy, tactics, maneuvering, communications, the treatment of soldiers, and the worth of well-trained officers. History enthusiasts, business thought leaders, and anyone intrigued by competition and rivalry will appreciate this elegant edition of the classic work.

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Software Engineering

Sun Tzu (孫子; pinyin: Sūnzǐ) is a honorific title bestowed upon Sūn Wu (孫武 c. 544-496 BC), the author of The Art of War (孫子兵法), an immensely influential ancient Chinese book on military strategy. Sun Tzu believed in the use of the military sciences to effect outcomes that would result in peace.In the author's name, Sūn Wu, the character wu, meaning "military", is the same as the character in wu shu, or martial art. Sun Wu also has a courtesy name, Chang Qing (Cháng Qīng).

Sun Tzu

The Art of War

Wealth is what you don’t see.

We often confuse being rich with being wealthy. Being rich means having a high income, but wealth is what you don’t spend.It’s the money that remains unseen and unspent. The ability to save is the true indicator of wealth.

1. Wealth is What You Don’t See

Luck and risk are both the reality that every outcome in life is guided by forces other than individual effort.

Success is often a combination of luck and risk. While you can’t control either entirely, it’s important to acknowledge their roles.Not all success is due to hard work, and not all failure is due to laziness.

2. Luck & Risk

Compound interest is the eighth wonder of the world.

Small, consistent actions lead to significant results over time. Compounding is one of the most powerful forces in finance, and most wealth is built gradually.

3. Compounding Matters

Controlling your time is the highest dividend money pays.

The true value of money is in the freedom it provides. Financial independence gives you the ability to control your time and make choices that align with your personal values.

4. Freedom is the Ultimate Goal

Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.

Everyone’s financial choices are shaped by their personal experiences. We all see money differently based on our upbringing, culture, and environment, so what works for one person may not work for another.

5. People Are Different

The most important part of every plan is planning on your plan not going according to plan.

Always plan for the unexpected. Building a margin of safety allows you to weather unpredictable circumstances without derailing your financial goals.

6. Room for Error

Enough is as good as a feast.

Constantly chasing more can lead to dissatisfaction. Knowing when you have enough and being content with it is crucial for long-term happiness.

7. Enough is Enough

The first rule of an investment is don’t lose money. The second rule is don’t forget the first rule.

Overconfidence can lead to financial mistakes. Stay humble and always recognize that the future is uncertain. Protect your wealth by avoiding reckless decisions.

8. Stay Humble

• Your support means the world to me! When you like and comment, it not only motivates me but also tells me that you’re enjoying the content. • Every like and comment encourages me to create even better posts just for you. • Plus, when you engage, you’re helping others discover content they’ll love, too! So, if you find value here, hit that like button and drop a comment. Let’s grow and learn together!

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Why chasing more money could leave you with less!

Doing well with money isn’t necessarily about what you know. It’s about how you behave. And behavior is hard to teach, even to really smart people. Money—investing, personal finance, and business decisions—is typically taught as a math-based field, where data and formulas tell us exactly what to do. But in the real world people don’t make financial decisions on a spreadsheet. They make them at the dinner table, or in a meeting room, where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together. In The Psychology of Money, award-winning author Morgan Housel shares 19 short stories exploring the strange ways people think about money and teaches you how to make better sense of one of life’s most important topics.

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Motivation & Inspiration

Morgan Housel is a partner at The Collaborative Fund. He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, winner of the New York Times Sidney Award, and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism. He lives in Seattle with his wife and two kids.

Morgan Housel

The Psychology of Money

The art of investment has one characteristic that is not generally appreciated. A creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to imrove this easily attainable standard requires much application and more than a trace of wisdom

Everything should be made simple as possible, but not simpler

It's not supposed to be easy, anyone who finds it easy is stupid.

<ul><li class="ql-align-justify">Second-level thinking</li><li class="ql-align-justify">Understanding market efficiency(and its limitations)</li><li class="ql-align-justify">Value</li><li class="ql-align-justify">The relationship between price and value</li><li class="ql-align-justify">understanding risk</li><li class="ql-align-justify">recognizing risk </li><li class="ql-align-justify">controlling risk </li><li class="ql-align-justify">being attentive to cycles</li><li class="ql-align-justify">awareness of the pendulum</li><li class="ql-align-justify">combating negative influences</li><li class="ql-align-justify">contrarianism</li><li class="ql-align-justify">Finding bargains</li><li class="ql-align-justify">pateint opportunism </li><li class="ql-align-justify">knowing what you dont know </li><li class="ql-align-justify">having sense for where we stand </li><li class="ql-align-justify">appreciating the role of luck</li><li class="ql-align-justify">investing defensively </li><li class="ql-align-justify">Avoiding pitfalls</li><li class="ql-align-justify">adding value </li></ul>

The  most important thing is.....

Few people have what it takes to be a great investors. some can be taught, but not everyone... and those who can be taught can't be taught everything.No rule always works.

The most important thing is...second-level thinking

one of the most important things to bear in mind today is that economics isn't and exact science. it may not even be much of a science at all,in the sense that in science, controlled experiments can be conducted, past results can be replicated with confidence, and cause-and effect relationships can be depended on to hold."One of the things i most want to emphasize is how essential it is that one's investment approach be intuitive and adaptive rather than be fixed and mechanistic.""The defitnition of successful investing is doing better than market and other investors"

"The defitnition of successful investing is doing better than market and other investors" and to accomplish that you need either good luck or superior insights.Remember your goal in investing isn't to earn average returns; you want to do better than average. Thus, your thinking has to be better than others

<ul><li class="ql-align-justify">First-level thinking says, "it's a good company; lets buy the stock". Second level thinking says, 'it's a good company but everyone thinks it's a great company, and it's not. so the stock's overrated or overpriced; let's sell.</li><li class="ql-align-justify">First-level thinking says, "The outlook calls for low growth and rising inflation. Let's dump our stocks." Second-Level-thinking says, "The outlook stinks,but everyone else is selling in panic. Buy!"</li><li class="ql-align-justify">First=level-thinking says, "I think the company's earnings will fall; sell."</li></ul>

What is second level thinking?

Second-level thinking says, "I think the company's earnings will fall less than people expect, and the pleasant surprise will lift the stock; Buy."First-level-thinking is simplistic and superficial; and just about everyone can do it(a bad sign for anything involving an attempt at superiority.) All the first-level thinker needs is an opinion about the future, as in " The outlook for the company is favorable, meaning the stock will go up".

Second-Level Thinker take a great many things into account:<ol><li class="ql-align-justify">What is the range of likely future outcome?</li><li class="ql-align-justify">Which outcome do i think will occur?</li><li class="ql-align-justify">What's the probability I'm right?</li><li class="ql-align-justify">What does the consensus think?</li><li class="ql-align-justify">How does my expectation differ from the concensus?</li><li class="ql-align-justify">How does the current price for the asset comporr with the consensus view of the future, and with mine?</li><li class="ql-align-justify">Is the consensus psychology that's incorporated in the price too bullish or bearish?</li><li class="ql-align-justify">What will happen to the asset's price if the consensus turns out be right, and what if i'm right?</li></ol>

First level thinkers look for simple formulas and easy answers, second level thinkers know that success in investing is the antithesis of simple. "Brokerage firms want you to think everyone's capable of investing-- at 10$ per trade. Mutual fund companies don't want you tp think you can do it; they want youto think they can do it. In the case, you'll put your money into actively managed funds and pay associated high fees.

If your behaviour is conventional, you're likely to get conventional results- either good or bad. Only if your behaviour is unconventional is your performance likely to be unconventional, and only if your judgements are superior is your performance likely to be above average--- "DARE TO BE GREAT", SEPTEMBER 7,2006

The upshot is simple: To achieve superior investment results, you have to hold nonconsensus views regarding value, and they have to be accurate. That's not easy. The attractiveness of buying something for less than it’s worth makes eminent sense. So how is one to find bargains in efficient markets? You must bring exceptional analytical ability, insight or foresight. But because it’s exceptional, few people have it.“Returns and How They Get That Way,” November 11, 2002"

Those who consider the investment process simple generally aren’t aware of the need for— or even the existence of—second- level thinking. Thus, many people are misled into believing that everyone can be a successful investor. Not everyone can. But the good news is that the prevalence of first- level thinkers increases the returns available to second- level thinkers. To consistently achieve superior investment returns, you must be one of them.

In theory there’s no diff erence between theory and practice, but in practice there is.

The Most Important Thing Is . . . 
Understanding Market Efficiency (and Its Limitations)

The theory included concepts that went on to become important elements in investment dialogue: risk aversion, volatility as the definition of risk, risk- adjusted returns, systematic and nonsystematic risk, alpha, beta, the random walk hypothesis and the effi cient market hypothesis.

“Chicago School Theory”

<ul><li class="ql-align-justify">There are many participants in the markets, and they share roughly equal access to all relevant information. They are intelligent, objective, highly motivated and hardworking. Their analytical models are widely known and employed.</li><li class="ql-align-justify">Thus, market prices represent accurate estimates of assets’ intrinsic value, and no participant can consistently identify and profit from instances when they are wrong.</li></ul>

Efficient market hypothesis

<ul><li class="ql-align-justify">If prices inefficient markets already refl ect the consensus, then sharing the consensus view will make you likely to earn just an average return. To beat the market you must hold an idiosyncratic, or nonconsensus, view.</li><li class="ql-align-justify">although the more efficient markets often misvalue assets, it’s not easy for any one person—working with the same information as everyone else and subject to the same psychological infl uences— to consistently hold views that are different from the consensus and closer to being correct. Th at’s what makes the mainstream markets hard to beat— even if they aren’t always right.</li></ul>

Consensus and non-consensus view

The most important upshot from the efficient market hypothesis is its conclusion that “you can’t beat the market.” One of the greatest ramifi cations of the Chicago theory has been the development of passive investment vehicles known as index funds.According to investment theory, people are risk-averse by nature, meaning that in general they’d rather bear less risk than more.For them to make riskier investments, they have to be induced through the promise of higher returns.“The higher return is explained by hidden risk.”

Index funds and risk

Once in a while we experience periods when everything goes well and riskier investments deliver the higher returns they seem to promise. Those halcyon periods lull people into believing that to get higher returns, all they have to do is make riskier investments. But they ignore something that is easily forgotten in good times: this can’t be true, because if riskier investments could be counted on to produce higher returns, they wouldn’t be riskier.

In fact, some asset classes are quite efficient. In most of these:• the asset class is widely known and has a broad following;• the class is socially acceptable, not controversial or taboo;• the merits of the class are clear and comprehensible, at least on the surface; and• information about the class and its components is distributed widely and evenly.If these conditions are met, there’s no reason why the asset class should systematically be overlooked, misunderstood or underrated

Second- level thinkers know that, to achieve superior results, they have to have an edge in either information or analysis, or both. They are on the alert for instances of misperception. second- level thinkers depend on inefficiency. Where might errors come from? Let’s consider the assumptions that underlie the theory of efficient markets:• many investors hard at work.• They are intelligent, diligent, objective, motivated and well equipped.• They all have access to the available information, and their access is roughly equal.• They’re all open to buying, selling or shorting every asset

A market characterized by mistakes and mispricings can be beaten by people with rare insight. Thus, the existence of inefficiencies gives rise to the possibility of outperformance and is a necessary condition for it. It does not, however, guarantee it.

To me, an ineffi cient market is one that is marked by at least one of the following characteristics: • Market prices are often wrong. Because access to information and the analysis thereof are highly imperfect, market prices are often far above or far below intrinsic values.• The risk- adjusted return on one asset class can be far out of line with those of other asset classes. Because assets are often valued at other- than- fair prices, an asset class can deliver a risk- adjusted return that is significantly too high (a free lunch) or too low relative to other asset classes.

• Some investors can consistently outperform others. coz of the existence of(a) significant misvaluations (b) differences among participants in terms of skill, insight and information access, it is possible for misvaluations to be identified and profited from with regularity.Inefficient markets do not necessarily give their participants generous returns. Rather, it’s my view that they provide the raw material— mispricings—that can allow some people to win and others to lose on the basis of differential skill. If prices can be very wrong, that means it’s possible to fi nd bargains or overpay.

One of the great sayings about poker is that “in every game there’s a fish. If you’ve played for 45 minutes and haven’t fi gured out who the fish is, then it’s you.” The same is certainly true of inefficient market investing.

Think of it this way:• Why should a bargain exist despite the presence of thousands of investors who stand ready and willing to bid up the price of anything that’s too cheap?• If the return appears so generous in proportion to the risk, might you be overlooking some hidden risk?• Why would the seller of the asset be willing to part with it at a price from which it will give you an excessive return?• Do you really know more about the asset than the seller does?• If it’s such a great proposition, why hasn’t someone else snapped it up?

Something else to keep in mind: just because efficiencies exist today doesn’t mean they’ll remain forever.Bottom line: Inefficiency is a necessary condition for superior investing. Attempting to outperform in a perfectly effi cient market is like flipping a fair coin: the best you can hope for is fifty- fifty. For investors to get an edge, there have to be ineffi ciencies in the underlying process— imperfections, mispricings— to take advantage of.

The image here is of the efficient- market- believing fi nance professor who takes a walk with a student.“Isn’t that a $10 bill lying on the ground?” asks the student.“No, it can’t be a $10 bill,” answers the professor. “If it were, someone would have picked it up by now.”The professor walks away, and the student picks it up and has a beer.

Believer vs Non believers of EMH

Th e oldest rule in investing is also the simplest: “Buy low; sell high.” obvious— on the surface: it means that you should buy something at a low price and sell it at a high price. But what, in turn, does that mean? What’s high, and what’s low?On a superficial level, you can take it to mean that the goal is to buy something for less than you sell it for.

The Most Important Thing Is . . . Value

The random walk hypothesis says a stock’s past price movements are of absolutely no help in predicting future movements. In other words, it’s a random pro cess, like tossing a coin. We all know that even if a coin has come up heads ten times in a row, the probability of heads on the next throw is still fifty- fifty.Like￾wise, the hypothesis says, the fact that a stock’s price has risen for the last ten days tells you nothing about what it will do tomorrow.

The random walk 
hypothesis

Another form of relying on past stock price movements to tell you something is so- called momentum investing. It, too, exists in contravention of the random walk hypothesis. I’m unlikely to do it justice. But as I see it, investors who practice this approach operate under the assumption that they can tell when something that has been rising will continue to rise.

Momentum investing

Momentum investing might enable you to participate in a bull market that continues upward, but I see a lot of drawbacks. One is based on econo￾mist Herb Stein’s wry observation that “if something cannot go on forever, it will stop.” What happens to momentum investors then? How will this approach help them sell in time to avoid a decline? And what will it have them do in falling markets?

The way I see it, day traders considered themselves successful if they bought a stock at $10 and sold at $11, bought it back the next week at $24 and sold at $25, and bought it a week later at $39 and sold at $40. If you can’t see the fl aw in this— that the trader made $3 in a stock that appreciated by $30.

Day traders

value investing and growth investing. In a nutshell, value investors aim to come up with a security’s current intrinsic value and buy when the price is lower, and growth investors try to find securities whose value will increase rapidly in the future.

Value vs growth investing

To value investors, an asset isn’t an ephemeral concept you invest in because you think it’s attractive. It’s a tangible object that should have an intrinsic value capable of being ascertained, and if it can be bought below its intrinsic value, you might consider doing so. Thus, intelligent investing has to be built on estimates of intrinsic value. Th ose esti￾mates must be derived rigorously, based on all of the available information.

Value investing

What is it that makes a security— or the underlying company— valuable? There are lots of candidates: financial resources, management, factories, retail outlets, patents, human resources, brand names, growth potential and, most of all, the ability to generate earnings and cash flow. The emphasis in value investing is on tangible factors like hard assets and cash flows.Intangibles like talent, popular fashions and long- term growth potential are given less weight.

There’s even something called “net- net investing,” in which people buy when the total market value of a company’s stock is less than the amount by which the company’s current assets— such as cash, receivables and inventories— exceed its total liabilities.In this case, in theory, you could buy all the stock, liquidate the current assets, pay off the debts, and end up with the business and some cash. Pocket cash equal to your cost, and with more left over you’ll have paid “less than nothing” for the business.

Net-Net investing

value investing and growth investing. In a nutshell, value investors aim to come up with a security’s current intrinsic value and buy when the price is lower, and growth investors try to find securities whose value will increase rapidly in the future.intelligent investing has to be built on estimates of intrinsic value. Th ose estimates must be derived rigorously, based on all of the available information.

value investing vs growth investing

What is it that makes a security or the underlying company valuable? There are lots of candidates: financial resources, management, factories, retail outlets, patents, human resources, brand names, growth potential and, most of all, the ability to generate earnings and cash flow. • Value investors buy stocks (even those whose intrinsic value may show little growth in the future) out of conviction that the current value is high relative to the current price.

Growth investors buy stocks (even those whose current value is low relative to their current price) because they believe the value will grow fast enough in the future to produce substantial appreciation. Thus, it seems to me, the choice isn’t really between value and growth, but between value today and value tomorrow. Growth investing represents a bet on company performance that may or may not materialize in the future, while value investing is based primarily on analysis of a company’s current worth.Compared to value investing, growth investing centers around trying for big winners.

Let’s say you fi gure out that something’s worth 80 and have a chance to buy it for 60. Chances to buy well below actual value don’t come along every day, and you should welcome them. Warren Buffett describes them as “buying dollars for fifty cents.” So you buy it and you feel you’ve done a good thing.

Buying a dollar for cents

There, many people tend to fall further in love with the thing they’ve bought as its price rises, since they feel validated, and they like it less as the price falls, when they begin to doubt their decision to buy.This makes it very diffi cult to hold, and to buy more at lower prices (which investors call “averaging down”), especially if the decline proves to be extensive. If you liked it at 60, you should like it more at 50 . . . and much more at 40 and 30.

An accurate opinion on valuation, loosely held, will be of limited help. An incorrect opinion on valuation, strongly held, is far worse. Th is one statement shows how hard it is to get it all right.

Value investors score their biggest gains when they buy an underpriced asset, average down unfailingly and have their analysis proved out. Thus, there are two essential ingredients for profi t in a declining market: you have to have a view on intrinsic value, and you have to hold that view strongly enough to be able to hang in and buy even as price declines suggest that you’re wrong. Oh yes, there’s a third: you have to be right.

Buy it underpriced

Investment success doesn’t come from “buying good things,” but rather from “buying things well.”

The Most Important Thing Is . . . The 
Relationship Between Price and Value

Let’s say you’ve become convinced of the efficacy of value investing and you’re able to come up with an estimate of intrinsic value for a stock or other asset. Let’s even say your estimate is right. You’re not done. In order to know what action to take, you have to look at the asset’s price relative to its value. Establishing a healthy relationship between fundamentals— value—and price is at the core of successful investing.

When people say flatly, “we only buy A” or “A is a superior asset class,” that sounds a lot like “we’d buy A at any price . . . and we’d buy it before B, C or D at any price.” That just has to be a mistake. No asset class or investment has the birthright of a high return. It’s only attractive if it’s priced right.Bottom line: there’s no such thing as a good or bad idea regardless of price!

What are the companies worth? Eventually, this is what it comes down to. It’s not enough to buy a share in a good idea, or even a good business. You must buy it at a reasonable (or, hopefully, a bargain) price.<ul><li>You can’t make a career out of buying from forced sellers and selling to forced buyers; they’re not around all the time, just on rare occasions at the extremes of crises and bubbles.</li><li>Since buying from a forced seller is the best thing in our world, being a forced seller is the worst. This requires both long- term capital and strong psychological resources.</li></ul>

Investing is a popularity contest, and the most dangerous thing is to buy something at the peak of its popularity.The safest and most potentially profitable thing is to buy something when no one likes it. Given time, its popularity, and thus its price, can only go one way: up.

Buy it when its not known

<ul><li class="ql-align-justify">The positives behind stocks can be genuine and still produce losses if you overpay for them.</li><li>“Prices are too high” is far from synonymous with “the next move will be downward.” Things can be overpriced and stay that way for a long time . . . or become far more so.</li><li>Eventually, though, valuation has to matter.</li></ul>

<ul><li class="ql-align-justify">Benefiting from a rise in the asset’s intrinsic value.</li><li class="ql-align-justify">Applying leverage.</li><li class="ql-align-justify">Selling for more than your asset’s worth.</li><li class="ql-align-justify">Buying something for less than its value.</li></ul>

Consider the possible routes to investment profit:

“The market can remain irrational longer than you can remain solvent.”

Risk means more things can happen than will happen.                                                                          ---ELROY DIMSON

The Most Important Thing Is . . . 
Understanding, Recognizing, and controlling "RISK"

Investing consists of exactly one thing: dealing with the future. And because none of us can know the future with certainty, risk is inescapable.The first step consists of understanding it. The second step is recognizing when it’s high. The critical final step is controlling it. Because the issue is so complex and so important, I devote three chapters to examining risk in depth.people are naturally risk- averse, meaning they’d rather take less risk than more.

Risk

Especially in good times, far too many people can be overheard saying, “Riskier investments provide higher returns. If you want to make more money, the answer is to take more risk.” But riskier investments absolutely cannot be counted on to deliver higher returns. Why not? It’s simple: if riskier investments reliably produced higher returns, they wouldn’t be riskier!There are many kinds of risk. . . . But volatility may be the least relevant of them all. Theory says investors demand more return from investments that are more volatile.

do riskier investment give higher returns?

<ul><li>Falling short of one’s goal—</li><li>Underperformance—</li><li>Career risk— </li><li>Unconventionality—</li><li> Illiquidity—</li></ul>Theory says high return is associated with high risk because the former exists to compensate for the latter. But pragmatic value investors feel just the opposite: They believe high return and low risk can be achieved simultaneously by buying things for less than they’re worth. In the same way, overpaying implies both low return and high risk.

Investment risk comes in many forms.

"This is that rarity, a useful book."--Warren Buffett Howard Marks, the chairman and cofounder of Oaktree Capital Management, is renowned for his insightful assessments of market opportunity and risk. After four decades spent ascending to the top of the investment management profession, he is today sought out by the world's leading value investors, and his client memos brim with insightful commentary and a time-tested, fundamental philosophy. Now for the first time, all readers can benefit from Marks's wisdom, concentrated into a single volume that speaks to both the amateur and seasoned investor. Informed by a lifetime of experience and study, The Most Important Thing explains the keys to successful investment and the pitfalls that can destroy capital or ruin a career. Utilizing passages from his memos to illustrate his ideas, Marks teaches by example, detailing the development of an investment philosophy that fully acknowledges the complexities of investing and the perils of the financial world. Brilliantly applying insight to today's volatile markets, Marks offers a volume that is part memoir, part creed, with a number of broad takeaways. Marks expounds on such concepts as "second-level thinking," the price/value relationship, patient opportunism, and defensive investing. Frankly and honestly assessing his own decisions--and occasional missteps--he provides valuable lessons for critical thinking, risk assessment, and investment strategy. Encouraging investors to be "contrarian," Marks wisely judges market cycles and achieves returns through aggressive yet measured action. Which element is the most essential? Successful investing requires thoughtful attention to many separate aspects, and each of Marks's subjects proves to be the most important thing.

The Most Important Thing

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