Concept: Asset Pricing
Asset prices reflect expectations about future financial performance
Market sets a price, which implies certain assumptions
"Price is what you pay, value is what you get"
Technique: Investment Analysis
Use strategic and financial analysis to determine if expectations are too optimistic or pessimistic
Invert the problem (like Munger) to understand what you need to believe for the price to make sense
Measure competitive advantage ("moat")
Principle: Competitive Advantage
Cost of capital: a dollar should earn what it can elsewhere (opportunity cost)
Companies must be better than competitors
Low-cost producers have low margins and high capital velocity
Differentiated producers have high margins and low capital velocity
Concept: Complex Adaptive Systems
Interaction of many agents
Agents learn from their environment
System never settles down
Technique: Investment Decision Making
Use base rates (statistical foundation) combined with specific analysis
Premortem: Imagine why an investment turned out badly before making the decision
Redteaming: Organize people to challenge prevailing views
Insight: Investor Behavior
People tend to think they know the future better than they actually do
Keep an open-ended idea of how things might unfold
Extraordinary outcomes are a combination of skill and luck
Principle: Career Advice in Investing
Always look for "easy games" in investing
Consider opportunities in different geographies or niche areas
Build a reputation as a thought leader
Concept: Market Dynamics
Stock market exhibits both wisdom and madness of crowds
Understand expectations built into stock prices
Feedback between stock price and fundamentals (reflexivity)
Question: "What is the basic unit of analysis for a business?"
Connections and patterns:
The notes emphasize a holistic approach to investment analysis, combining quantitative (e.g., financial analysis) and qualitative (e.g., competitive advantage) factors.
There's a recurring theme of challenging one's own assumptions and biases in decision-making.
The ideas span from micro (individual investment decisions) to macro (market dynamics) levels of analysis.
Broader patterns:
The notes reflect a multidisciplinary approach to investing, incorporating concepts from economics, psychology, and complex systems theory.
There's an emphasis on continuous learning and adaptation in the investment process.
No significant dissonance was noted in the ideas presented.