Charlie Munger (Trades, Portfolio) met Warren Buffett (Trades, Portfolio) in 1959 and the rest is history. In an interview with Fortune, Munger discussed what it has been like to work with Buffett for the past 50 years.Â
Munger has had an amazing impact on me in terms of rationality, logic, hard work and human misjudgement. In this YouTube video, Munger talks about the book "Influence" by Robert B. Cialdini and the laws of human misjudgement, which he says to be of the most importance. Starting at 19:40, Munger says “You're all going to be given a copy of Cialdini's book, and if you have half as much sense as I think you do, you will immediately order copies for all of your children, and several of your friends. You will never make a better investment.”
One important point Munger discusses is influence by authority. At 30:40 Munger discusses bias through the influence of authority. “You get a pilot and a co-pilot. The pilot is the authority figure. They don’t do this in airplanes, but they’ve done it in simulators. They have the pilot to do something where an idiot co-pilot would know the plane was going to crash, but the pilot’s doing it, and the co-pilot is sitting there, and the pilot is the authority figure. Twenty-five percent of the time, the plane crashes. I mean this is a very powerful psychological tendency."
I could not agree more with Munger on this statement. I just read the book "Softwar" by software giant Larry Ellison, who tells this story about his experience with power of authority and human misjudgement.
He still bitterly remembers a confrontation with his biology teacher at South Shore High School. She happened to be the mother of his best friend, Dennis Coleman, and the wife of Harold Coleman, a chemistry professor at the University of Chicago whom Ellison admired for his intellect and commitment to reason.
“I was having dinner over at the Colemans’, and she says to me, ‘Ellison’—she never called me Larry —‘I’m going to flunk you in biology because you don’t attend the labs.’ True, I was cutting lab to play basketball, but what’s attendance got to do with anything? I was getting As and Bs on the exams. I knew more biology than most of the people in the class. So I said, ‘What if I get the highest grade in the final, would you still flunk me?’ She said, ‘Yes.’ I said, ‘Let me get this straight: even if I clearly prove I know more about biology than anyone else in the class, I will be the only one in the class that flunks. Is that correct?’ She said, ‘Yes.’ I said, ‘Okay. I understand completely. That makes a lot of sense.’ It was yet more proof to me that school was just a bad joke—not that I needed any additional evidence.
Anyway, her husband, Dr. Coleman, noticed the absurdity of it all and suggested that if I did indeed get the highest grade on the final that I should get a C. She eventually agreed. I was sure that I could get everything right on the final. All I had to do was study for a change.
The only thing left that could go wrong was a tie. So as I left, I told her to make sure that the exam was hard; I didn’t want there to be a lot of people getting everything right. She was really pissed, and she gave us a very difficult final. I ended up earning my C by getting a 96 on the final while the second highest grade was around 60. I always thought it interesting how teachers, coaches, and other authority figures value obedience more than knowledge or skill, and effort more than results. They just love being the boss.
I have learned more from Munger than any other investor, and we can see how his genius and rationality has translated into the overwhelming success at Berkshire Hathaway (BRK.B, Financial). I truly feel like everyone should watch the YouTube video and purchase a copy of the book "Influence" to improve their logic, rationality and to ensure that they do not fall into the traps of human misjudgement.
Cheers to your investment success.
