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Rupert Hargreaves
Rupert Hargreaves
Articles (1131)  | Author's Website |

Charlie Munger: What Investors Can Learn From Pilots

Munger's thoughts on searching for the right answers

February 17, 2020 | About:

In April 1998, Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) vice-chairman and billionaire investor Charlie Munger (Trades, Portfolio) gave a speech at the Harvard Law School class of 1984 reunion.

The text of the interview was later published in full in his unofficial biography, "Poor Charlie's Almanack."

Multidisciplinary education

The focus of Munger's speech was multidisciplinary education and how professionals in all sectors should pursue one. The guru told his audience that by using this approach, it would be easier for professionals to reach sensible conclusions to difficult problems.

This is particularly important for investors who have to make decisions regarding their investments every day.

Munger recommended examining the most "successful narrow-scale" education, taking the essential elements and then scaling them up.

The most suitable "narrow-scale" education, Munger declared, was that of pilots.

Pilots have to deal with a range of challenges on a daily basis, and they're trained to produce the best outcome in all scenarios. This training is then hammered home repeatedly throughout their careers with checklists, re-training and working with individuals who also provide critical responses to difficult questions.

Munger identified a six-element system pilots makes use of that could be helpful for any professionals that are looking to refine and develop their own decision-making process:

"In piloting, as in other professions, one great hazard is the bad effect from man-with-a-hammer tendency. We don't want a pilot, ever, to respond to a hazard as if it was hazard 'X' just because his mind contains only a hazard 'X' model.

And so, for that and other reasons, we train a pilot in a strict six-element system:

1) His formal education is wide enough to cover practically everything useful in piloting.

2) His knowledge of practically everything needed by pilots is not taught just well enough to enable him to pass one test or two; instead, all his knowledge is raised to practice-based fluency, even in handling two or three intertwined hazards at once.

3) Like any good algebraist, he is made to think sometimes in a forward fashion on and sometimes in reverse; and so he learns when to concentrate mostly on what he wants to happen and also when to concentrate mostly on avoiding what he does not want to happen.

4) His training time is allocated among subjects so as to minimize damage from his later malfunctions, and so what is most important in his performance gets the most training coverage and is raised to the highest fluency levels

5) 'Checklist' routines are always mandatory for him.

6) Even after original training, he is forced into a special knowledge maintenance routine: regular use of the aircraft simulator to prevent atrophy through long disuse of skills needed to cope with rare and important problems."

By learning from other disciplines, we can not only improve our own knowledge, but by following a multidisciplinary education, it is easier to find a solution to any given problem.

There's nothing wrong with being a specialist in any particular market or sector. We must always keep in mind, however, the old saying that for a man with a hammer, everything looks like a nail.

As Munger suggested, an investor or professional who is trying to improve their learning process can learn from the pilots' education framework.

As Munger summarized in his 1998 speech, to gain the best "broadscale education," we need to have multidisciplinary coverage of "immense amplitude" and raise our skill level to "an ever-maintained practice-based fluency."

On top of this, "forward and reverse thinking techniques" as well as "checklist" routines should be employed as a permanent part of the knowledge system.

Disclosure: The author owns shares of Berkshire Hathaway.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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