Lessons from this meeting:
1. Focus on Falling–Knife Sectors Only with a Margin of Safety
- In industries facing secular decline (e.g., newspapers), require a valuation that discounts reasonably projected annual earnings erosion.
- Don’t rely on “it’ll get better soon”—demand enough of a price cushion to compensate for continuing headwinds.
2. Stick Strictly to Your “Circle of Competence”
- Concentrate on the few opportunities you truly understand rather than scattering capital broadly.
- A small number of great ideas can outperform dozens of “OK” ones—focus your research on your best prospects.
3. Prioritize Sound Process Over Trying to Forecast Markets
- Base each decision on solid facts and independent reasoning, not on where you think interest rates or GDP will go.
- Let prices “serve” you—act when mispricings arise and move on; don’t get emotionally whipsawed by short-term noise.
4. Treat Insurance Like Pricing Existing Risk, Not Creating New Risk
- Profits come from underwriting margin (premiums vs. expected losses), not from “gambling” on planetary catastrophes.
- Only write risks you can accurately estimate and where you can endure the worst-case cash drain.
5. Avoid Auction-Style Deals (“Strategic Buyer” Traps)
- Financial sellers in resale or buy-out auctions always seek the highest bid—don’t overpay to out-bid them.
- Wait to partner with original owners who sell for personal reasons, not just to flip for profit.
6. Look to Bankruptcy for Price Anomalies
- Complex Chapter 11 cases often jumble claim priorities and are ripe for mispricing.
- Be ready for legal-driven volatility—big, tangled restructurings can yield outsized returns.
7. Preserve Culture and Governance Through Succession
- A strong board of genuine owners ensures continuity; focus on institutionalizing incentives, not over-managing subsidiaries.
- True “independence” comes from having directors who don’t need the fees—align interests by picking those with real skin in the game.
8. Use LIFO and Company Data to Gauge Real Inflation
- Government CPIs often understate costs—study individual businesses’ LIFO adjustments or unit economics for true price trends.
- Tailor your inflation view to your own cost basket (housing, energy, food), not the “core CPI” that omits essential items.
9. Diversify Currency Exposure via Global Earnings
- Instead of low-carry currency futures, build earning power in multiple economies—foreign profits naturally hedge dollar weakness.
- A multinational footprint protects you if policy gaps push the dollar down over time.
10. Back “Proven” Brand Houses—Not Every New Disrupter
- In consumer staples, scale and brand equity (P&G + Gillette) fend off margin pressures from powerful retailers.
- Strategic tuck-ins make sense only when they strengthen your long-term moat, not merely to chase transient “synergies.”
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