The promise of the book Richer Wiser happier by William Green is to show us how the world’s greatest investors win in markets and life.
The remarkable thing about this book is that there is a big focus on mindset.
Hy, my name is Julian. I‘m a husband, dad and business owner from Berlin, Germany. On this website and corresponding YouTube channel, I‘ll share with you some proven strategies on how to live a rich and meaningful life.
In this review, I’ll share my book highlights with you. So, as always, this is not a complete summary but a collection of my key takeaways.
Here is a table of content, so feel free to directly skip to the section that interests you most.
As much as I made this video for you, I made it for myself because I want to live by the investment and life principles presented in this book.
Overview: Main Ideas of Richer Wiser Happier
Before we begin, let me give you a quick overview of the main ideas of this book. They are:
- Copying other successful investors can be a brilliant idea (chapter 1)
- Whenever possible, we should buy stocks and the maximum point of pessimism (chapter 2)
- Being flexible is one of the most essential character traits of successful investors (chapter 3)
- Playing not to lose will bring better long-term results than playing to win (chapter 4, chapter 5, and chapter 8)
- Simplicity beats complexity when it comes to investing (chapter 5)
- Having the proper habits helps when investing (chapter 7)
- How not to make stupid mistakes (chapter 8)
In chapter 1, the author shows how the Indian investor Mohnish Pabrai approached the challenge of becoming a billionaire.
The author writes:
“He didn’t attempt to reinvent the wheel by devising a new algorithm to exploit subtle pricing anomalies in the markets. Instead, he identified the most skillful player in this particular game, analyzed why he was so successful, then copied his approach with scrupulous attention to detail. “
Pabrai calls himself a “shameless copycat. “If you care a lot about being original and coming to your own conclusions, then simply copying other great investors might not be for you.
According to the author, it boils down to whether you care more about winning OR coming up with your own unique approach.
In the case of Mohnish Pabrai, being a copycat made him a billionaire. Personally, my knowledge and experience when it comes to evaluating companies are pretty limited.
If this also applies to you, how could we ever hope to find the right stocks to buy?
Also, if you are like me, then you might not want to spend the same amount of time studying the stock market as people like Warren Buffett and Charlie Munger have done for several decades now.
It looks like their assessment of what is a good investment produces far superior results than we’d ever be able to make.
Chapter 2 Highlights: Are you willing to be lonely?
In chapter 2, the author goes back in history to give some examples of how the famous investor Sir John Templeton invested his money. He was able to realize extraordinary results. A superior mindset can explain a large portion of that good luck and fortune.
Sir John Templeton regularly used prayer-like affirmations to help him overcome difficulties and to stay centered.
Before I share with you the one affirmation that Sir John Templeton liked to use a lot – and before I share his six lessons for a successful investor, here is what I find fascinating about this investor.
He had already lived during the Great Depression in 1929 and still lived during the Dot.com crash in 2001 until he died at age 95 in 2008.
In what the author calls “the bet of a century, “when Germany invaded Poland in 1939, Sir John Templeton invested when almost no one else dared to do so.
He said, “If this is going to develop into a world war, which companies will prosper?”
On page 42 of the Kindle edition, the author writes:
“Psychologically, it’s tough to love a money-losing company that has burned all its investors. But Templeton said he bought eight hundred shares of Missouri Pacific for $100.”Richer, Wiser, Happier: How The World’s Greatest Investors Win in Markets and Life
Then, railroads prospered during the war, which led to his stocks going up 40 times.
It takes a lot of guts to pull off something like this. He basically bought at the point of maximum pessimism – and he did this repeatedly, turning him into the well-known investment legend he is.
6 lessons we can learn from Sir John Templeton
Now, as promised, let me share 6 lessons we can learn from Sir John Templeton. They are:
First, “Most people get led astray by emotions in investing. They 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.”
“Second, said Templeton, beware of your own ignorance, which is probably an even bigger problem than emotion. . . . So many people buy something with the tiniest amount of information. They don’t really understand what it is that they’re buying.”
Third, you should diversify broadly to protect yourself from your own fallibility.
Fourth, said Templeton, successful investing requires patience.
Fifth, the best way to find bargains is to study whichever assets have performed most dismally in the past five years, then assess whether the cause of those woes is temporary or permanent.
Sixth, said Templeton, “One of the most important things as an investor is not to chase fads.”
Richer, Wiser, Happier: How The World’s Greatest Investors Win in Markets and Life
What I find most fascinating about Sir John Templeton is that at a time when self-help books and affirmations weren’t used a lot, he recommended replacing any negative thought with the following statement:
“I give thanks for the abundance of good in my life.” When faced with difficulties, he suggested uttering a phrase such as “This comes to bless me.” He also sought to eradicate any “aimless, undisciplined thinking” that failed to serve the “high aims” of his life.”
This approach probably also helped him get over his first wife’s death and find himself responsible for raising three children alone.
Chapter 3 Highlights: How To Deal With Uncertainty
The author dedicated chapter three to Howard Marks, a famous investor whose well-known memos are read and appreciated by people like Warren Buffett.
In this chapter, the author answers the question about how we can make intelligent decisions in an uncertain world.
William Green quotes novelists and famous philosophers to make some of his points. Howard Marks himself quoted the Taoist philosopher Lao-tzu in a 2006 memo:
“To be strong, you have to be like water: if there are no obstacles, it flows; if there is an obstacle, it stops; if a dam is broken, then it flows further; if a vessel is square, then it has a square form; if a vessel is round, then it has a round form. Because it is so soft and flexible, it is the most necessary and the strongest thing.”
While this quote probably helps us improve in all life areas, this wisdom is essential for an investor.
Why is that?
Because as an investor, we have NO control over many things. If a dictator starts a war tomorrow, this will probably affect the stock market, at least in some countries.
This is in sharp contrast to working on our own business or career. There, we have much more control over the outputs simply by focusing on the right inputs.
While it can be a virtue to be a bit impatient when it comes to our own careers or business, that strategy is usually not so intelligent in investing. In investing, a lot more patience and rational behavior are needed.
Thinking back to the stock market crash of 2008, that was a perfect time to invest. The issue was, however, that even experienced investors were scared. Even I remember there was talk about the world’s end as we know it.
For Howard Marks, the extreme uncertainty of 2008 created the following thought in his mind.
“I think you can reduce it to, either the world ends, or it doesn’t. . . . And if it doesn’t end and we didn’t buy, then we didn’t do our job. That made it awfully straightforward.”
Chapter 4 Highlights: The Resilient Investor
In chapter four, the author explores what mindset it takes to be a resilient investor. A big focus in this chapter is the story of the successful investor Jean-Marie Eveillard.
He was very unpopular in the 90s when the stock markets ran hot. He refused to buy stocks for a long time when everyone else bought a lot. He even lost his job because of this.
However, just a short time after losing his job, the markets crashed, and he started to invest on behalf of his new company, winning big time.
According to Jean-Marie Eveillard, it’s more rational to buy stocks at a time when they more closely reflect the actual worth of a company – or when stocks are traded at very low prices.
The main takeaway is that it’s worth being super patient and not buying stocks when they are clearly overvalued.
5 ideas to help us become more resilient as investors
The author closes this chapter by distilling 5 fundamental ideas to help us become more resilient as investors.
The following ideas are based on the teachings provided by some of the most successful investors of our time, including Warren Buffet, Ben Graham, and others:
“First, we need to respect uncertainty..” – which means we must accept and expect chaos, disorder, volatility, and surprise.
“Second, to achieve resilience, it’s imperative to reduce or eliminate debt, avoid leverage, and beware of excessive expenses, all of which can make us dependent on the kindness of strangers.”
“Third, instead of fixating on short-term gains or beating benchmarks, we should emphasize becoming shock resistant, avoiding ruin, and staying in the game.”
“Fourth, beware of overconfidence and complacency.”
“Fifth, as informed realists, we should be keenly aware of our exposure to risk and should always require a margin of safety.”
Chapter 5: Simplicity is the ultimate sophistication
In simplicity lies a lot of beauty. If you like minimalism, as the famous author Marie Condo advocates, then why not apply this mindset to all life areas, including your investment strategy?
Warren Buffett says that basic skills and simple behavior produce far better results when investing than difficult and complex behavior.
Warren Buffett: 4 criteria when selecting a stock
He follows a straightforward strategy when investing – and it goes like this:
“Writing to his shareholders in 1977, he [ Warren Buffett ] laid out his four criteria for selecting any stock: “We want the business to be (1) one that we can understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) available at a very attractive price.”
Investment legend Joel Greenblatt uses a straightforward formula as well. It goes like this:
…the entire secret of successful stock picking comes down to this: “Figure out what something is worth and pay a lot less.”
However, very few people know how to evaluate a business. Joel Greenblatt goes on to say:
“It’s a very small fraction of people that can value businesses—and if you can’t do that, I don’t think you should be investing on your own,” says Greenblatt. “How can you invest intelligently if you can’t figure out what something is worth?”* He adds that “most people should just index” because “they don’t understand what they’re doing.”
The main message here is that unless we copy other great investors as Monish Pabrai did by copying Warren Buffet, we probably shouldn’t be investing in individual stocks.
If you’re interested in learning more about indexing, I recommend an excellent Google talk. It’s called The Simple Path to Wealth by JL Collins. If you are watching this video on YouTube, you’ll find the link to that video in the video description below.
Personally, the distribution in my portfolio is 55% invested in ETFs and 45% invested in individual stocks, with Apple being the most prominent single position in my portfolio.
That’s something I copied from Warren Buffet, and – at the time of recording this video – the stock has increased by 117%. I did emulate Warren Buffett, and I also happen to love Apple products.
In my portfolio, I have tried to cover many companies and world regions by focusing on a handful of ETFs and just 3 individual stocks. In this way, I have set up a super simple portfolio that takes me a minimum amount of time to manage.
Basically, this chapter is about the power of cultivating habits that help us succeed in investing and life.
After reading this chapter, I realized that a common thread among superstar investors is that they tend to read and learn a lot.
For example, Warren Buffett spends most of his time reading. After reading “Richer, Wiser, happier,” I know now that many super successful investors do that.
Great investors seem to think and analyze most of the time while only taking little action.
I realized that investing needs a different skill-set than what is required to progress in our career or grow a business.
While many things in life need a lot of action to work, being an investor requires us to be much more passive. I also read that women tend to be better investors because they are more patient and don’t play aggressively to win in the short term.
William Green writes:
“I think of the best investors as mental athletes. They strive constantly for an intellectual advantage—more information, better information, faster information, or simply a more nuanced interpretation of information that’s already out there for everyone to see. All that hard-earned knowledge compounds over time and pays off in unpredictable ways.”
In this chapter, six strategies are presented that will help us avoid stupid mistakes. The quote I liked the most in this chapter is from Charlie Munger, and it goes like this:
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” —Charlie Munger.
This perfectly summarizes how playing not to lose is more important in investing than playing to win.
6 strategies on how not to act stupidly.
What follows in this chapter are 6 strategies on how not to act stupidly.
#1: imagine a dreadful outcome; work backward by asking yourself what misguided actions might lead you to that sorry fate; and then carefully avoid that self-destructive behavior.
I liked that Warren Buffett himself communicated “What we don’t Do” things in his 2009 shareholder letter.
“Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be,” sticking instead “with businesses whose profit picture for decades to come seems reasonably predictable.”
Strategy #2, when it comes to not being stupid, is the…
“#2: … habit of actively collecting examples of other people’s foolish behavior.”
This includes errors of omission and one’s own mistakes. For example, Warren Buffett and Charlie Munger admitted in 2017 to having failed their investors by not buying Google and Walmart stocks when they were very cheap.
Strategy #3 is to learn from our own mistakes.
Strategy #4 is to help us avoid catastrophes. “Adherence to process” is an indispensable safeguard: “Always honor it because that’s going to keep you out of trouble.”
To make his point, the author uses the story of the investor Fred Martin, founder of the company “Disciplined Growth Investors.”
After graduating from business school, Fred Martin served as a US navy officer in the Vietnam war. Shortly before being stationed as a 24-year-old lieutenant on a destroyer ship, he learned about a US destroyer cut in half by an Australian aircraft carrier.
Apparently, on that destroyer ship, two inexperienced lieutenants weren’t careful while the ship’s captain was asleep. The consequence of this was the death of several hundred American soldiers who were stationed on that ship.
That story was enough for Fred Martin to be super careful and take extra safety steps when he was in the same situation as the lieutenants responsible for the horrendous ship disaster.
“One habit that he developed was to walk out on the wing of the bridge whenever his ship was about to turn, so he could confirm with his own eyes that the course was clear. That “simple rule” that you must “look before you turn” was “not part of our training,” says Martin. “But it should have been.” Looking back now in his seventies, he realizes how ingrained in him that wary attitude became.
Apparently, this cautious attitude really helped him become a successful investor.
Strategy #5 is to seek out “disconfirming evidence” that might disprove even (our) most cherished beliefs.
According to William Green, a major psychological problem is…
“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 reinforcing what we believe.”
An example of this is when we buy a specific stock. Before purchasing the stock, we might see both the pros and cons of investing in that stock… but after we have bought it, we are biased to believe that we made the right choice.
In that case, we only take in information that confirms we made the right choice. At the same time, we tend to ignore information that would tell us we might have invested in the wrong company.
An “…emphasis on adopting systematic analytical procedures is the sixth strategy in our epic quest to be non-idiotic.”
An example of this strategy would be performing a “bull” and “bear” analysis for every company we’d like to invest in.
In this scenario, we write one page about why we think a company is a good investment. Then, on a separate page, we write about why the same investment might actually be a bad idea.
Epilogue: Money does not make us happy!
The epilogue of Richer, Wiser, Happier is about how money alone does not make us happy.
Where it gets interesting is when William Green writes:
“For many of the most successful investors I’ve interviewed, that freedom to construct a life that aligns authentically with their passions may be the single greatest luxury that money can buy.”
Independence and freedom to work with whom we want, when we want, and how much we work is a big driver for many of the happier billionaire investors presented in the book.
With these words, I’d like to end this review of the excellent book “Richer, wiser, happier.”
If you watched my video until here, what is the one thing that resonated most with you – or what is an insight that you think might help you become a better investor?
Please let me know in the comments below.