After so many years of investing, has your investment return beaten the index? If not, then at least it should have beaten government bonds, right? What? It didn’t? Then your opportunity cost is huge. In Buffett’s view, if your investment return can’t beat government bonds over the long term, why not just buy government bonds? Here, government bonds are your opportunity cost. Duan Yongping holds the same view: The minimum opportunity cost in investing is the risk-free government bond yield. ...

If you’ve always lost money investing in the past, it may not be because you weren’t hardworking or weren’t lucky. 80% of the reason is that you did two things you shouldn’t have. First, you clearly knew a company wasn’t great, but as soon as the stock price rose, you couldn’t resist buying. Second, some businesses were too hard to understand. You thought you understood them, but you didn’t, and you bought them anyway. ...

After reading this passage from Charlie Munger, 90% of your investing problems will be solved! Why? Because this passage goes straight to the underlying logic of investing: Buying a stock is buying a company. Munger put it this way: Over the long term, investment returns are very unlikely to be much higher than the company’s average annual profits. If a company’s return over 40 years is 6%, and you hold this company during those 40 years, even if you bought at a very cheap price early on, your return won’t differ much from that 6%. Conversely, if a company’s return over the past 20 years is 18%, then even if you buy at an expensive price now, the returns you get in the future will still be very substantial. ...

95% of people haven’t understood a very simple investment principle: Why concentrate your investments? Simple. Investing is doing business. So you should do it like a business owner: within your circle of competence, truly understand one or two good businesses, then patiently wait for a buying opportunity, concentrate your investment, hold long term, and you can become very rich. In Charlie Munger’s view, a person has only a few big opportunities in life. Investing is no exception. Good opportunities are extremely rare. Once one appears, you must dare to bet heavily and concentrate your investment. ...

You’ve been investing for a long time. Why haven’t you made much money? The reason very likely lies in the moat. You know to invest in highly profitable companies. That’s not wrong. But when competitors see it, they also want a piece of the pie. What follows is an increase in product supply, falling prices, and thinning corporate profits. Such a company has no moat. If you invest in these companies, it’s no surprise you don’t make money. ...

What kind of business is a good business? Read on and you’ll fully understand why some companies become cash-strapped the more they grow, while others become richer and richer. When you invest, do you ever have this question: This company looks very profitable, so why doesn’t it have much cash on its books? One of the biggest reasons is that it plows most of the money it earns back into the business—building new factories, upgrading equipment—so in the end, of course, there isn’t much left in its own pocket. That’s a typical bad business. It looks profitable, but in reality it hasn’t earned anything. ...

Have you ever felt this way? You’ve clearly done deep research on a company. From its business model and corporate culture, everything looks good. But its valuation never comes down, so you never dare to pull the trigger. Then a few months later, you look back and find the price has risen a lot more, making it even harder to buy. So you keep slapping your thigh and sighing, “Man! If I’d known this would happen, I should have bought it!” ...

Do you feel anxious about your investments all day long? You panic when prices fall, and you panic when they rise. Why? Most likely because you do not really know what you bought and what you are holding. You need to settle one question at a fundamental level: what is real investing? In Duan Yongping’s words, buying a stock is buying a company, and buying a company is buying the present value of its future cash flows. ...

What separates people who achieve something from people who do not may not be talent at all. It may be one habit that everybody can adopt but 90% of people cannot sustain: reading every day. Charlie Munger said that most of the smart people he met in his life shared one excellent habit — they read every day. Buffett is a library on wheels; Munger is a bookshelf with two legs. The sheer volume they read astonishes me. ...

If you have $1,000,000 and plan to retire early on it, how much can you actually spend each year? Spend too much and you risk running out of money before you run out of time. Spend too little and you shortchange yourself for decades. Is there a withdrawal rate that is safe enough to last forever? There is. It is called the 4% rule. What the rule says Assume inflation runs at 2%. If your portfolio compounds at 6% a year, you can withdraw 4% of it every year without your capital shrinking. ...