Some words of wisdom from Charlie Munger.
Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris – I wanted the independence. I desperately wanted it.
The fishing tackle manufacturer I knew had all these flashy green and purple lures. I asked, ‘Do fish take these?’ ‘Charlie’, he said, ‘I don’t sell these lures to fish.’
What you have to learn is to fold early when the odds are against you or if you have a big edge, back it heavily because you don’t get a big edge often. Opportunity comes, but it doesn’t come often, so seize it when it does come.
Do the best you can do. Never tell a lie. If you say you’re going to do it, get it done. Nobody cares about an excuse. Leave for the meeting early. Don’t be late, but if you are late, don’t bother giving people excuses. Just apologize. They’re due the apology, but they’re not interested in the excuse.
It’s not that much fun to buy a company that you hope liquidates at a profit just before it is destined to go broke.
The difference between a good business and a bad business is that good businesses throw up one easy decision after another. The bad businesses throw up painful decisions time after time.
Just out of our respective graduate schools, my friend Warren Buffett and I entered the business world to find huge, predictable patterns of extreme irrationality. These irrationalities were obviously important to what we wanted to do, but our professors never mentioned them. Understanding the problem of irrationalities was not easy. I came to study the psychology of human misjudgement almost against my will. I rejected it until I realized that my attitude was costing me a lot of money and reduced my ability to help everything I loved.
When it was over [initial real estate investing], I had $1.4 million as the result of my real estate involvement, that was a lot of money at the time. Some was in seconds [trust deeds], and so forth, form people who bought apartments. Later the seconds were paid. It was a substantial backlog of economic security. I did a total of five projects, then stopped. I didn’t like constantly borrowing more money. Also, it was an activity with many details, each crucial, difficult to handle as a full-time activity and extremely difficult as a part-time activity.
A partner ideally is capable of working alone, you can be a dominant partner, subordinate partner, or an always collaborative equal partner. I’ve done all three. People couldn’t believe that I suddenly made myself a subordinate partner to Warren. But there are people that it’s okay to be subordinate partner to. I didn’t have the kind of ego that prevented it. There always are people who will be better at something than you are. You have to learn to be a follower before you become a leader. People should learn to play all roles. You can divide up in different ways with different people.
[Benjamin] Franklin was able to make the contribution he did because he had [financial] freedom.
[About being a lawyer] There is now more money to be made from law, but less time to enjoy it.
I am a biography nut myself, and I think when you’re trying to teach the great concepts that work, it helps to tie them into the lives and personal ties of the people who developed them. I think that you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among the eminent dead, but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better in life and work better in education. It’s way better than just giving the basic concepts.
Our experience in shifting from savings and loan operation to ownership of Freddie Mac shares tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical things, will often dramatically improve the financial results of that lifetime. A few major opportunities clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind, loving diagnosis involving multiple variables. An then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.
Why shouldn’t we do more of what works well for us and what’s less complicated?
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. There must be some wisdom in the folk saying, ‘It’s the strong swimmers who drown.’
There are huge advantages for an individual to get into a position where you make a few great investments and just sit back, you’re paying less to brokers, you’re listening to less nonsense.
People underrate the importance of a few simple big ideas – the chief lesson is that a few big ideas really work.
The game of investing is one of making better predictions about the future than other people. How are you going to do that? One way is to limit your tries to areas of competence. If you try to predict the future of everything, you attempt too much. You’re going to fail through lack of specialization.
You don’t have to know everything. A few really big ideas carry most of the freight.
Like any good algebraist, the pilot is made to think sometimes in a forward fashion 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.
How do you learn to be a great investor? First of all, you have to understand your own nature. Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable and some losses are inevitable – you might be wise to utilize a very conservative pattern of investment and savings all your life. So you have to adapt your strategy to your own nature and your own talents. I don’t think there’s a one size fits all investment strategy that I can give you.
I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading. I don’t think any one book will do it for you.
Frequently, you’ll look at a business having fabulous results. And the question is, ‘How long can this continue?’. Well, there’s only one way I know to answer that. And that’s to think about why the results are occurring now – and then to figure out the forces that could cause those results to stop occurring.
In the U.S., a person or institution with almost all wealth invested, long-term, in just three fine domestic corporations, is securely rich. Long-term results will be superior by reason of his lower costs, required emphasis on long-term effects, and concentration in his most preferred choices.
Investors can have 90% of their wealth in a single company, if it is the right company.
Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris – I wanted the independence. I desperately wanted it.
The fishing tackle manufacturer I knew had all these flashy green and purple lures. I asked, ‘Do fish take these?’ ‘Charlie’, he said, ‘I don’t sell these lures to fish.’
What you have to learn is to fold early when the odds are against you or if you have a big edge, back it heavily because you don’t get a big edge often. Opportunity comes, but it doesn’t come often, so seize it when it does come.
Do the best you can do. Never tell a lie. If you say you’re going to do it, get it done. Nobody cares about an excuse. Leave for the meeting early. Don’t be late, but if you are late, don’t bother giving people excuses. Just apologize. They’re due the apology, but they’re not interested in the excuse.
It’s not that much fun to buy a company that you hope liquidates at a profit just before it is destined to go broke.
The difference between a good business and a bad business is that good businesses throw up one easy decision after another. The bad businesses throw up painful decisions time after time.
Just out of our respective graduate schools, my friend Warren Buffett and I entered the business world to find huge, predictable patterns of extreme irrationality. These irrationalities were obviously important to what we wanted to do, but our professors never mentioned them. Understanding the problem of irrationalities was not easy. I came to study the psychology of human misjudgement almost against my will. I rejected it until I realized that my attitude was costing me a lot of money and reduced my ability to help everything I loved.
When it was over [initial real estate investing], I had $1.4 million as the result of my real estate involvement, that was a lot of money at the time. Some was in seconds [trust deeds], and so forth, form people who bought apartments. Later the seconds were paid. It was a substantial backlog of economic security. I did a total of five projects, then stopped. I didn’t like constantly borrowing more money. Also, it was an activity with many details, each crucial, difficult to handle as a full-time activity and extremely difficult as a part-time activity.
A partner ideally is capable of working alone, you can be a dominant partner, subordinate partner, or an always collaborative equal partner. I’ve done all three. People couldn’t believe that I suddenly made myself a subordinate partner to Warren. But there are people that it’s okay to be subordinate partner to. I didn’t have the kind of ego that prevented it. There always are people who will be better at something than you are. You have to learn to be a follower before you become a leader. People should learn to play all roles. You can divide up in different ways with different people.
[Benjamin] Franklin was able to make the contribution he did because he had [financial] freedom.
[About being a lawyer] There is now more money to be made from law, but less time to enjoy it.
I am a biography nut myself, and I think when you’re trying to teach the great concepts that work, it helps to tie them into the lives and personal ties of the people who developed them. I think that you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among the eminent dead, but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better in life and work better in education. It’s way better than just giving the basic concepts.
Our experience in shifting from savings and loan operation to ownership of Freddie Mac shares tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical things, will often dramatically improve the financial results of that lifetime. A few major opportunities clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind, loving diagnosis involving multiple variables. An then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.
Why shouldn’t we do more of what works well for us and what’s less complicated?
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. There must be some wisdom in the folk saying, ‘It’s the strong swimmers who drown.’
There are huge advantages for an individual to get into a position where you make a few great investments and just sit back, you’re paying less to brokers, you’re listening to less nonsense.
People underrate the importance of a few simple big ideas – the chief lesson is that a few big ideas really work.
The game of investing is one of making better predictions about the future than other people. How are you going to do that? One way is to limit your tries to areas of competence. If you try to predict the future of everything, you attempt too much. You’re going to fail through lack of specialization.
You don’t have to know everything. A few really big ideas carry most of the freight.
Like any good algebraist, the pilot is made to think sometimes in a forward fashion 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.
How do you learn to be a great investor? First of all, you have to understand your own nature. Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable and some losses are inevitable – you might be wise to utilize a very conservative pattern of investment and savings all your life. So you have to adapt your strategy to your own nature and your own talents. I don’t think there’s a one size fits all investment strategy that I can give you.
I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading. I don’t think any one book will do it for you.
Frequently, you’ll look at a business having fabulous results. And the question is, ‘How long can this continue?’. Well, there’s only one way I know to answer that. And that’s to think about why the results are occurring now – and then to figure out the forces that could cause those results to stop occurring.
In the U.S., a person or institution with almost all wealth invested, long-term, in just three fine domestic corporations, is securely rich. Long-term results will be superior by reason of his lower costs, required emphasis on long-term effects, and concentration in his most preferred choices.
Investors can have 90% of their wealth in a single company, if it is the right company.
