Words from the wise: Charlie Munger, Victor Haghani, Jack Raines, Vishal Khandelwal and Marc Rubenstein

Every week, I read many amazing articles from some of the smartest people in finance. When you read something good, there will always be something that’s etched in your brain. These are often profound observations about money, human behavior, markets, etc. These aren’t novel observations, but smart people have a way with words—they tell you what you already know in a different way. So I figured I’d share them here.

1. Victor Haghani on going back to the basics

Victor Haghani was one of the founding partners at Long Term Capital Management (LTCM). The collapse of LTCM is one of the greatest disaster stories in finance; it’s like the Hindenburg. He was on a podcast a few months ago and said something about his own personal finance journey that stuck me.

So I wasn’t really thinking about investing. Yet all of a sudden here I was. So the first thing that I did is I looked around at people that I respected, people that I liked, and I looked at what they were doing. All of them were actively trying to beat the market through different kinds of alternative and private investments, and angel investing, and doing trading in their own accounts – almost to a man, to a woman. And so I decided that’s what I should do too. You know, I knew all these hedge fund managers. It was my world. I thought I could assess managers. I thought I could find good investments, and that it would be fun. And so that’s what I started to do. So I did that for four or five years. And then one day – maybe around 2005-06, I just started to really take stock of what I was doing and what my life was like. I was spending so much time on it. I was paying so much in fees. And also as a taxable investor, I saw that what I was doing was highly tax inefficient as well: a lot of short-term capital gains, a lot of ordinary income, a lot of non-deductible business expenses for the US listeners. And so I sort of decided I really wanted to go back to basics and to start to move away from all these active, concentrated forms of risk and get to what I was taught when I went to the London School of Economics: invest in the market portfolio, get full diversification, be a long-term investor. And that started my different journey after working in an investment bank, in a hedge fund. Started, I guess, the third chapter of my relationship with finance.

2. Charlie Munger: It’s simple

While there are countless books, videos, and experts on personal finance, the core rules of success are really simple. Charlie Munger reiterated the same thing a while back.

“It’s so simple to spend less than you earn, and invest shrewdly, and avoid toxic people and toxic activities, and try and keep learning all your life, and do a lot of deferred gratification. If you do all those things, you are almost certain to succeed. If you don’t, you’re going to need a lot of luck.”

3. Vishal Khandelwal in praise of slowing down

I love this piece by Vishal Khandelwal. It’s like that oft-repeated cliche, “don’t forget to stop and smell the roses.” One of the tragedies of our time is that patience is in short supply. Everything has to be instant, from noodles to babies. But the most important things in life take time: health, wealth, love, relationships etc.

So, my advice to you if you are still reading this, is – Slow down a bit, my friend, in life and investing, and even climbing stairs. You will take a longer time, but then slowing down will leave you with lesser stress and exhaustion, and with a longer time.

4. Jack Raines on intrinsic vs. extrinsic problems

Cliches are cliches because they are true. It reminds me of another quote from author Terry Pratchett:

“The reason that clichés become clichés is that they are the hammers and screwdrivers in the toolbox of communication.”

Let me tell you a cliche: Money doesn’t bring happiness. Nobody likes not making money. You might love it or hate it, but you need money. But you can’t let the chase of money consume you. It’s important to realize that money is a means to an end, not the end itself. Money gives you options and freedom, and that’s about it. You’ll have to figure out what comes after, in other words, you’ll have to figure what’s your idea of a life well lived. Jack Raines wrote a beautiful post on what problems money brings and solves.

Type 1 problems are static: everyone has a specific amount of money that will take care of their material needs forever. Type 2 problems are dynamic: they continue to adapt to your life circumstances.

Type 1 problems are individualistic: what do I need to survive? Type 2 problems are pluralistic: What are my peers doing better than me?

Material problems don’t just disappear once you have some level of wealth. They get replaced by intrinsic problems.

I had also written something similar a while ago:

5. Marc Rubinstein on the Importance of position sizing

You can be the most gifted trader or investor, but if you don’t know how to size your bets, then you will either blow up or not make money.

Position sizing is often treated as a secondary consideration to identifying a good investment. But in portfolio management it is critical. On the identification side, “you only need to be right 55% of the time,” according to Walleye Capital CEO, Will England. The trick is to size picks appropriately. In his book, 10½ Lessons From Experience, Paul Marshall, founder of hedge fund firm Marshall Wace, describes the cost of poor position sizing. He identifies a contributor to his fund who gets 64% of his picks right yet fails to make money. His edge is 14% but he insists on betting on tails.

It’s something Nithin keeps talking about as well

Link: Nithin

Also, mandatory Varsity plug:


Interesting article that includes:

  • An interactive experiment based on your last point (position sizing)
  • Lifetime Buy & Hold returns
  • Day Trading vs Gambling (frequently discussed on our forums)