savant Cheat Sheet (DRAFT) by echoecho

obsessed with how businesses make money and effici­encies everywhere

focus on your personal growth curve

find mentors who you can learn from

be compet­itive

one of the biggest mistakes you can make is to make a lot of money by doing the wrong proces­s(es) as the fool starts to proceed with the hubris that they were actively knowle­dgeable on the subject and in turn, lose all that was accumu­lated.

being an investor is great as you get to live vicari­ously

liquidity is the vital element of any business.

people tend to overes­timate what they can do in the short-run and undere­stimate what they can do in the long-run.

except­ional behaviour, either good or bad, yields except­ional results. conven­tional behavior, on the other hand, yields conven­tional results.*

“If you are really good at accoun­ting, you might be good as a value investor. If you are strong in computers and math, you might do best with a quanti­tative approach.” “If you aren’t going to be a profes­sional investor, just index.”

the first group prefers minimal work and should invest in indexes, as they perform better than most active investors paying adviser fees. the second group enjoys learning about and analysing securities and can experiment with investing, but should not risk most of their resources. the third group consists of profes­sionals who may gain an edge, build skills, and earn excess returns, while the fourth group focuses on collecting fees and wealth, however there’s nothing really intere­sting in what they do.

the greater the risk you take, the more cautious you must be. Charlie Munger compares this to poker, where knowing when to fold a beloved hand is crucial. he advises folding early when the odds are against you and betting heavily when you get big edge as you don’t often.

most stock-­picking stories, advice, and recomm­end­ations are worthless, and it's difficult to identify and predict asset bubbles. the book "­Sup­erf­ore­cas­tin­g" by Dan Gardner and Philip Tetlock reveals that experts often don't provide valuable insights and tend to make inaccurate claims, they receive a lot of media attention because they make definitive claims. people who consider various possib­ilities can make slightly better predic­tions than chance. inside inform­ation can be dangerous, as it often leads indivi­duals to ignore obvious economic facts and act overco­nfi­dently. “given time, I believe that inside inform­ation can break the Bank of England or the United States Treasury. a man with no special pipeline of inform­ation will study the economic facts of a situation and will act coldly on that basis. give the same man inside inform­ation and he feels himself so much smarter than other people that he will disregard the most evident facts.”

the qualit­ative factors that promote and sustain high levels of ROIC and growth - the key metrics driving high cash flow generation and shareh­older returns.

there is value -- including margin of safety -- to be found in bankrupt or distressed companies because people panic or are forced to sell those companies' debt at distressed prices, even though there may be consid­erable marginal value in the underlying assets or businesses that can be realised by those with the patience and liquidity lend money or buy debt when nobody else will.

which is more important to you. keeping what you have or making more? One cannot do both. Every attempt to make more introduces the possib­ility of not having anymore of what one possess today.

= what is the economy, rates going to do. Which sectors of the economy are going to do best

example of this. china

most investors efforts to improve on the results of the market don’t work (short term trading, market timing etc.) hence why most mutual funds histor­ically have not outper­formed the S&P. (Referred to as beta market, if most of your returns come from the market)*

high degree of specia­lis­ation

(loans, corporate loans, loans for buyouts). Can get high single digits on high yield bonds and leverage loans (public, highly liquid) or low double digits on private loans for buyouts.

most bankru­ptcies don’t occur because a business is contin­uously loosing money but from when a business borrows money, times get though and when they go to re-finance their loan the bank assesses them less credit­worthy, bank does not have enough more or they have adjusted there standards to match the current economic climate.

the more risk you take, the higher a return you may achieve.*

people believe there is a direct and mechanical link if a company has a good event the securities do well and if they have a bad event such as earnings the security does poorly. However, that is not the case as there is a interm­ediate step which is other market partic­ipants reactions. It is not solely whether the event was prosperous but how partic­ipants react to the event that determines the impact on the security prices.

= too much money cashing too few goods causing prices to rise.

do not let your emotions dictate your trading. If your thinking and emotion is the same as everybody else then you cannot do the “out-t­hin­king” or “second level thinking” which is required to act against the herd to sell at high prices which are high because others are optimistic and buy at low prices because others are depressed.

= things that will happen in economy and companies (sales, profits etc.)

leverage trades, 2x-4x

acquis­ition of insurance companies (bypass LP/GP partne­rship and perfect the concept of capital alloca­tion)

- they make trades without good reason (for instance, buy every 5% or more drop during a crisis)

- shorting stocks that are up

- the stock price changed for a reason (there’s always a reason and the real question is whether it’s worthwhile to find out, as this takes precious time)

- valuations don’t matter (math is not an investment edge). the most important thing is why its cheap or expensive and “how” that changes

using leverage means investing with borrowed money. The upside can be substa­ntial when using leverage, but this also means that the downside can be disast­rous.

use the weekend to analyse why its happening and be thoughtful about it as oppose to attrib­uting it to “I’m not working hard enough, I’ll just work an extra two hours.”

if you have drawdowns at the start of the year it's the toughest as you don’t have any profits to off-set them.

the best trader makes money 63% of the time. Most are 50% to 55%. So you must ensure your losses are as small as they can be and that your winners are bigger.

know who you are as a trader.

modern portfolio theory “optimise based on a risk appetite, maximising expected returns”.

agnostic buyer of volati­lity.

the world isn’t about unanti­cipated exogenous events. The worlds is about built up accumu­lated endogenous risk in the system (In physics this is known as self-o­rga­nised critic­ality).

guy with the best brakes wins

“preve­ntion is better than cure”

rarely do you earn asymmetric returns betting on the expected outcome

the longer time passes without anything happening the more risk there is

very leveraged, 0% RWA, slightest change in the assured correl­ation in those mortgages wiped out all the capital in the whole banking system

government bonds treated as riskle­ss-risk reducing (levered gilts, LDI, pension schemes)

there is no transitory part in the debasement of a currency

klarman prefers cashflows not dividends.(†)

try and find stock market compar­atives it is trading more cheaply based on (†) and (††). For more complex companies break the company into pieces and compute the value of parts.

when investing, always aim to purchase assets at a signif­icant discount to their intrinsic value to protect against potential downside risk. This is especially critical in volatile or uncertain market condit­ions.


seek out underv­alued assets that the market may be overlo­oking, to find hidden gems with substa­ntial growth potential.

don’t miss out on potential invest­ments due to hesitation or procra­sti­nation. Be prepared to act when opport­unities arise. By being ready to act, you can capitalise on market opport­unities and achieve superior returns.

analyse the financial and qualit­ative aspects of a business, such as its manage­ment, compet­itive position, and industry trends, before making any investment decisions.

avoid hasty decisions and remain patient, even during short-term market fluctu­ations. This will help you avoid costly mistakes.