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good day fellow investors if you want to be a great investor you need to know what to do and especially in these difficult volatile market times i feel that a lot of people don't know what investing is and in this video i want to focus on that because that's the only thing that can help you survive these times get stronger out of these times and even compound wealth at a faster rate today we're going to discuss lilu's 15 mental models for investors that have helped him really do great over time we made this video discussing lilu's last interview but now i have summarized more from his various rare interviews over time to put things into a list so that you can see okay this is the core of investing how does that fit you also watch the lilu interview because it's really packed with value because investing works no matter what the fed does no matter whether there will be a recession whether this or that no matter what erase the noise focus on fundamentals businesses and you will do well there is no other about lilu he is the manager of himalaya capital he is the only person that charlie munger gives his money to manage for him also finds ideas like void for berkshire and he did really really well over time plus 20 per year for a long period which means he is one of the greatest investors out there now let's go through the 15 things lilu tells you you have to know to be a great investor the first thing the market is created for speculators not for investors so we must take advantage from the market as investors don't fall into the speculative trap let's take an example here just let's take tesla over the last year just look at the ups and downs so from 600 up to what is this 1200 more than 100 and from then again down to 600 700 again that is the market and nobody can tell me that here here it was worth 600 then it was worth double in just six months and then six months later it's worth again half of it this is pure market speculation because everybody wants to buy something that goes up and not miss out and everyone wants to sell something that goes down and tesla is really a great example of that because the market is designed for people who are flawed in their thinking and are attracted because they like to trade and make fast money if you trade you're bound to make mistakes as emotions will assure that fear and greed open up the opportunities for value investors if we look at the current fear index this is it extreme fear now so a year ago it was neutral it was even bigger fear a month ago so it goes up and down if we just look at this and what it was a year and a half ago it was extreme greed and you can see here this extreme fear and greed periods measured by cnn i think it's really really insane how this works and then data shows that less than 5 of stocks are held by value investors 95 of stocks are held by speculators no matter the billions or the pennies they have most people are speculators and that's how the industry works and that's how the market works and that's why they cater for them not for you as a value investor also if we look at the most traded stocks in europe over may for on the hero you can see here everyone is chasing that tesla trading it or other companies so really really constantly chasing that stock performance instead of focusing on the businesses owning it for the long term no it's always about trading that's human nature and we have to take advantage of it and the way to take advantage of it is to think like a business owner not a stock market speculator so investment returns depend on the performance of the business nothing else and as lilu says don't think of yourself as a paper shuffler when you buy a stock but as an owner of the business let me give you a buffett example buffett owns apple burlington sees candy berger hat away energy and many other businesses and stocks does he focus on stock prices going up and down no he focuses on how much those businesses make and those businesses make 28 billion in cash flows directly to berkshire plus 8 to 10 billion in hidden earnings let's say 36 billion per year if you are an owner you focus on okay i have 36 billion created per year in value how does that fit me as an owner that's the mindset not as the stock price of berkshire goes up and down we'll discuss this example through the video and you can think as an owner if you have a long-term horizon what does buffett think buffett thinks okay how i'm going to redeploy those 46 billion and invest them compound them for more let's just put here 46 billion as initial investment no additions anymore length 20 years let's say buffet aims for an 8 interest rate and then let's see if he does i don't know 4 or 12.
over 20 years his 36 billion start can go to 167 billion to 400 billion 350. so that's the variance there but he's focused on creating value getting that money and reinvesting and he'll likely do eight ten percent that's the current yearly 46 billion will be compounded constantly to more and more billions and when you add each year of that then you know what warren buffett is doing and that's what you focus on there will be ups and downs there will be recessions there will be everything but you have to focus on what the business can do and you have to train to think as an owner that's why it's better to think as market cap not really stock price because if we look at the stock price of berkshire it goes up and it goes down but if you think as an owner then you look at the market cap 600 billion you look at the 36 billion in value created over time no matter what and then you say how does that 36 billion deal for me compared to the market cap i'm an owner of berkshire do i like the earnings do i like what they do with earnings and how does that add value for my for long term financial future because if those earnings compound this is the answer and you see how that compounds over time over the short term yes there are times when berkshire goes down 40 that's very very normal even when other stocks go up berkshire goes down 40 but you have to focus on the business those who focus on the businesses those do well because earnings compound not shenanigans like it was the case here when everyone was selling berkshire because there were other hot stocks we all know how that dot com story ended then we have to think as the market exists there to serve us not to be guided from the market most people look at here oh look the stock is going up berkshire is a great business buy buy buy oh berkshire is in trouble the stock is going down that's how most people look at things but investors look oh berkshire is cheaper what's the earnings what's the value of the business for me it's much better to buy berkshire here than to here that's simply mathematics that's logic but 99 of people don't get it and if you don't understand what you're doing if you don't know the earnings the business how those things develop and the price you paid compared to the earnings then you will get destroyed by the market because the market is merciless when that happens if you want to see when there are no earnings when there is nothing how merciless can the market be just look at this so those who don't know what they are doing just following trends and living on exuberance and saying here how they expect 20 per year ahead from here those usually get punished because they are not focused on the businesses they are just gambling with other people's money so that's what happens if you don't know what you're doing and if you don't know what you're doing then you usually buy here and sell here because that's how things go and i think that most people don't know what they are doing because they are investing in index funds because that's the thing to do and that's it i don't want to think about it but there will be trouble ahead we discussed it a lot a little bit here try to educate people i try to do my best and that's all i can do and i thank you for your support and now what happens when your stock is down 50 if you know what you own then that is not a problem for you even if you don't have much money to buy more because you know that you have bought value and it's normal that stocks fall ray dalio says that at any given moment in time an asset class can crash 70 percent so i'm always ready for my portfolio to crash 70 percent and then see how to go about it and how to build wealth from there i know it will happen berkshire crashed 50 from top tick to bottom every 12 years over the past five decades that's a given and the key is that even if you don't have any money if you have a good business and you are a good investor you can sit through watching your portfolio down by 50 and not being affected at all so that's something that can happen and everybody will start thinking it's terrible my portfolio is down things are terrible but actually things are on a discount you will get some dividends you'll reinvest you will accumulate more wealth over time and that's about it eight stand on your own this is very important i have a research platform many customers and many are following me in what i do but i always tell them we are all different i can explain the risk and reward of your investment but you have to understand how it fits you because sooner or later the position any position can turn against you and if you don't have any insights into the business the risk and reward and what you took and how it fits you when it goes from 100 to 50 you aren't going to know if it will be back to 100 to 200.
that's the problem that's the the issue i have with people just following but i try to do my best and educate so that they know the risk and reward and then see how that risk and reward fits them now let's go on how to find businesses to own when opportunity presents itself here is the checklist is it cheap depending on your returns that you can get from the business is the business good virtual is a great business for example is the management trustworthy is there enough external validation for that buffett for example what else am i missing why it is cheap why does this opportunity exist in the market i made a video here that berkshire will deliver 10 over the next years that berkshire is trading at the p e ratio of 10 and it will not trade again that soon but why did this opportunity represent itself here because everyone else was chasing other things that will do much better over time so everything was here very very hot doing great it's time for the new world to come and therefore they were selling berkshire as they did here because there was something else and buffett is old that's why the opportunity was there and then of course it's to be curious about businesses about investing in businesses how much money does burlington northern santa fe do for berkshire do you know if you don't know then you don't invest in berkshire they're just investing in the stock price going up and down around six seven billion per year if you must know so be curious be a researcher look at things learn more about the things that impact your business read everything and over time you will accumulate enough knowledge to know about investing that's it you have to put in some time and then of course apply value investing full concepts there because value investing works no matter what so you are a business owner look for a margin of safety and the market is there to save serve you not to guide you what's your circle of confidence so stick to your circle of company we didn't discuss yet the margin of safety for the principles what does it mean so the margin of safety is a methodology and price is what you pay value is what you get if you get more value than what you have paid then you have a margin of safety venue is yes uncertain so it should be priced at the lowest possible price low price is equals good margin of safety if you buy good businesses i like to define it worst case scenario for the business am i still okay with and invest as an investor so if the price is that low that is pricing in the worst case scenario no growth for berkshire a year ago when 10 earnings yield p ratio of 10 am i okay with 10 yes and then you buy that's a margin of safety and then don't get confused by volatility on the market the market goes up and down but you have to focus on the business and how that business is evolving those are slow changes but if you're focused on the noise on the market you miss those slow business changes berkshire cash flows doubled this is not including the hidden earnings from the stocks over the last decade revenue doubled so no matter what was the ups and downs over 10 years you can see here how revenues doubled and if we look at the stock price it quadrupled over the tripled over the last 10 years now it's a little bit more exuberant but here it was in line with the double of the revenue so everything follows the business and the compounding if you buy at low prices you have a margin of safety and at the end it's all about you you have to be independent unemotional as much as you can be patient and extremely decisive when there is a opportunity to invest in that's how it works ask yourself questions about the business about investing and of course you must understand the power of compound interest the eighth wonder of the world and the answer for the average person is even if you find something that will compound at six seven percent berkshire now eight or nine percent you will seize it because you know this could be the most important opportunity of your life that's his advice for the average person if the prior 14 tips are too difficult so i really hope you enjoyed this lilu 15 mental models in this market this is the core of everything so thanks for watching and i'll see you in the next video
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