2. Understand value (the present value of free cash flow).

10. Read (and keep an open mind).

6. Update your views effectively (beliefs are hypotheses to be tested, not treasures to beprotected).20 Most people prefer to maintain consistent beliefs over time, even when the facts reveal theirbeliefs to be wrong.  But great investors do two things that most of us do not. They seek information or views that are different than their own and... See more

Learning to focuson process and accept the periodic and inevitable bad outcomes is crucial.Great investors recognize another uncomfortable reality about probability: the frequency of correctnessdoes not really matter (batting average), what matters is how much money you make when you are rightversus how much money you lose when you are wrong (slugg... See more

make a point of reading material you do not necessarily agree with. Find a thoughtful person whoholds a view different than yours, and then read his or her case carefully. This contributes to being activelyopen-minded.

Making money in markets requires having a point of view that is different than what the current pricesuggests. Michael Steinhardt called this a “variant perception.”13 Most investors fail to distinguish betweenfundamentals and expectations. When fundamentals are good they want to buy and when they are poorthey want to sell. But great investors alwa... See more

Proper portfolio construction requires specifying a goal (maximize sum for one period or parlayed bets),identifying an opportunity set (lots of small edge or lumpy but large edge), and considering constraints(liquidity, drawdowns, leverage).

Thefirst is a fundamental understanding of how a company makes money. The idea is to distill the business tothe basic unit of analysis.  The second dimension is gaining a grasp of a company’s sustainable competitive advantage. A company has a competitive advantage when it earns a return on investment above the opportunity cost of capitaland ea... See more

Keith Stanovich, aprofessor of psychology, likes to distinguish between intelligence quotient (IQ), which measures mentalskills that are real and helpful in cognitive tasks, and rationality quotient (RQ), the ability to make gooddecisions. His claim is that the overlap between these abilities is much lower than most people think.