Every now and again you come across a book that you simply cannot put down because it is blowing you away with so many profound thoughts, questions and wisdom. I just happened to stumble upon one such book titled “Richer, Wiser, Happier” by William Green. I had first heard of this book when I was listening to William Green being interviewed on The Investor’s Podcast’s show. Since then, I have heard of this book on several other channels and social media with very high recommendations. I stumbled on this book on another recent trip to the library and said to myself “Wow! I cannot wait to read this!”.
I was actually not sure what to expect from this book before reading it. Would it be simply a collection of interviews with famous investors? If yes, how it be different from the countless interviews I have already seen of these same investors. Would I learn anything new? Maybe yes, maybe no. But would there be an underlying theme common to all interviews?
All my doubts were dispelled very early in the book as I was going through the contents and reading the introduction. William has cleverly focused on crafting the chapters in this book such that each chapter corresponds to one central theme that is broadly stated such that it is applicable not just to investing, but life in general. And all of the learnings and content from the various interviews with the investors have been organized such that they would fit in this theme.
I cannot even begin to imagine the amount of material William Green must have collected for this book. Just to give you a sense of this, here is a partial list of investors that William interviewed or consulted in preparation for this book: Charlie Munger, Howard Marks, Joel Greenblatt, Bill Miller, Mohnish Pabrai, Guy Spier, Jeffrey Gundlach, Li Lu, Peter Lynch, Bill Ackman, Mario Gabelli, Sir John Templeton, Jack Bogle and so on. To distill learnings from so many smart individuals into a coherent and engaging 250-odd page book is a herculean effort.
So to further condense this book in a blog post is almost an impossible task and something that I will not even begin to attempt. Instead, I will focus on some of my key learnings from this book.
Simplicity is the Ultimate Sophistication
The best investors have the discipline not to be swayed by distractions. Have a simple strategy that makes sense to you and stick with it through thick and thin.
– Joel Greenblatt
One of my biggest learnings from the book is the importance of being disciplined and having a simple, repeatable strategy. This is just a simple, yet profound idea and it is equally applicable to dividend growth investors such as myself. If you have been investing in the market over the last 2 years, you would have seen the hype surrounding stocks related to Electric Vehicles (EVs). Then the advent of other meme stocks or various cryptocurrencies where concepts surrounding valuations have been thrown out of the window. There would be comments thrown around the internet where people would “pity” dividend growth investors because of lack of capital appreciation in their portfolios.
It is extremely difficult to remain disciplined and stick to the slow and steady strategy such as dividend growth investing in the face of so many distractions. But this is what separates the serious long-term investors from those investors who keep shifting from one strategy to the other every other day of the week.
Dividend growth investing is also a relatively simple and straightforward strategy. If you understand the essence of it, you will be hugely successful with it.
Intelligent people are easily seduced by complexity while underestimating the importance of simple ideas that carry tremendous weight… when you apply a handful of such simple but powerful ideas with obsessive fervor, the cumulative effect becomes unbeatable.
– Mohnish Pabrai
And the idea that one can build a sound foundation of knowledge in investing built around such simple ideas was something that I kept finding as a common advice amongst many of these famous investors. This is one of my biggest takeaways from my book.
Beware of your emotions and biases
People are crazy and emotional. They buy and sell things in an emotional way, not in a logical way, and that’s the only reason why we have any opportunity… So if you have a way to value businesses that’s disciplined and makes sense, you should be able to take advantage of other’s emotions.
– Joel Greenblatt
Most people get led astray by being excessively careless and optimistic when they have big profits, and by getting excessively pessimistic and too cautious when they have big losses.
– Sir John Templeton
The reluctance to reexamine our views and change our minds is one of the greatest impediments to rational thinking. Instead of keeping an open mind, we tend consciously
and unconsciously to prioritize information that reinforces what we believe.
– Charlie Munger
I have written about how the investor’s biases can be a huge impediment to evaluating any investing opportunity. Emotions are similar. Unsurprisingly, this came up repeatedly in the book as well. In my opinion, for any investing strategy to be successful, the investor needs to develop a solid mindset such that he/she can stick with a strategy even during turbulent times.
One of the solutions to overcome this is something that Charlie Munger stated very eloquently as follows:
If Berkshire has made modest progress, a good deal of it is because Warren and I are very good at destroying our own best-loved ideas. Any year that you don’t destroy one of your best-loved ideas if probably a wasted year.
So it is important to seek out counter-arguments to your investment thesis for a particular company i.e. see why someone else might be bearish when you are bullish on a particular stock and vice-versa.
Don’t be afraid of taking a contrarian stance
Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive. Turn cyclicality to your advantage by behaving countercyclically.
– Howard Marks
The art of being wise is the art of knowing what to overlook….Ignore the flood of short-term financial data and recommendations gushing out of wall street, brokerage firms, which have an incentive to spur activity among investors, crank out estimates for next quarter’s EPS for thousands of companies….You need to be wired to not believe the bullshit, to not be listening.
– Nick Sleep
One common theme that I would observe among most of the investors interviewed in the book is an attitude equating to “I don’t give a f*ck what the world thinks about this, because I know I am right“. This attitude to go unorthodox, to think independently is probably very unique to most value investors. And there are times when I feel that dividend growth investing is also tied to value investing at some level, which makes dividend growth investors also share some of these qualities.
On this particular subject, I absolutely enjoyed reading about two investors called Nick Sleep and Qas Zakaria, who have a whole chapter in this book dedicated to them. Both Nick Sleep and Qas Zakaria have interesting backgrounds. Nick originally wanted to be a landscape architect and Qas, born in Iraq, wanted to be a meteorologist because he enjoyed reading weather reports. Eventually, they in meet in London and launch an investment fund called Nomad with a singular focus to return as much value back to their investors (their rough target was for every $1, they would return approx. $10 back).
In you look at the table above, for a 12 year period between Sep. 2001, to Dec. 2013, the Nomad fund very nearly achieved this goal providing a staggering annualized returns of 18.4% (after fees) in comparison to the 6.5% provided by the MSCI World Index.
One of the keys to Nomad’s success is the long-term view of thinking about investments. Quoting Nick Sleep here:
It’s all about deferred gratification. When you look at all the mistakes you make in life, private and professional, it’s almost always because you reached for some short-term fix or some short-term high… And that’s the overwhelming habit of people in the stock market. The ability to resist such urges is one of those big superpowers…You need to give it huge weight when you’re weighing what works.
As a part of this exercise, Sleep and Zakaria would perform, what they call destination analysis of every business where they would ask the following questions when analyzing:
- What is the intended destination for this business in 10-20 years?
- What must management be doing today to raise the probability of arriving at that destination?
- What could prevent this company from reaching such a favorable destination?
In their quest, they came across their idea of a business model where businesses would be run by far-sighted executives whose focus would be on building revenue over time. Their first case study was Costco (ticker: COST), a company I have covered on my blog before. The company was dismissed by Wall Street due to its low profit margins. What Wall Street was not seeing was that Costco was returning value back to its shoppers by marking up the sold good by no more than 15%, while other retail stores were marking them up by approx. 30%. In return, they would charge their members a nominal annual membership fee. What this would do was build up such enormous “brand-loyalty” because members would keep coming back to shop again and again. This business model was summarized by Sleep as “increased revenues begets scale savings begets lower costs begets lower prices begets increased revenues”. They coined this business model as scale economies shared and saw similar examples in other sectors such as Dell Computers, Southwest Airlines, Tesco and then finally, the grand-daddy of them all, Amazon. This became the bedrock of their investment strategy and their overall investment success.
I would be keeping an eye out to read more about Nomad and Nick Sleep in the near future, because I find it a fascinating story.
There is so much more to write about this book because the learnings are innumerable. Each chapter in this book could have been a book by itself! Which is why I think William Green did a phenomenal job in condensing it in a digestible manner. I have tried capturing a few notes I made while reading this book. You can find them on a Twitter thread here.
I think this is one of the best investment books that I have read in my lifetime and I am very glad that I read this book very early this year. I am hopeful that I can adopt the learnings from this book and inculcate them into my investing journey. I highly recommend everyone to go buy this book and read it, because you will gain a lot out of it. I will certainly be re-reading it several times again in the years to come.
Until next time, cheers!
Discl: Long COST