Munger
“All intelligent investing is value investing — acquiring more that you are paying for. You must value the business in order to value the stock.” – Charlie Munger
“We believe that almost all really good investment records will involve relatively little diversification. The basic idea that it was hard to find good investments and that you wanted to be in good investments, and therefore, you’d just find a few of them that you knew a lot about and concentrate on those seemed to me such an obviously good idea. And indeed, it’s proven to be an obviously good idea. Yet 98% of the investing world doesn’t follow it. That’s been good for us.” – Charlie Munger
“Your life must focus on the maximization of objectivity.” -Charlie Munger
“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. And 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.” -Charlie Munger
“You need to have a passionate interest in why things are happening. That cast of mind, kept over long periods, gradually improves your ability to focus on reality. If you don’t have that cast of mind, you’re destined for failure even if you have a high I.Q.” -Charlie Munger
“Here’s one truth that perhaps your typical investment counselor would disagree with: if you’re comfortably rich and someone else is getting richer faster than you by, for example, investing in risky stocks, so what?! Someone will always be getting richer faster than you. This is not a tragedy.” -Charlie Munger
“You’ve got to have models in your head and you’ve got to array you experience – both vicarious and direct – onto this latticework of mental models.” -Charlie Munger
“Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group… then to hell with them.” -Charlie Munger
“If it is wisdom you’re after, you’re going to spend a lot of time on your ass reading.” -Charlie Munger
“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero… You’d be amazed at how muchWarrenreads — at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.” -Charlie Munger
“Warren and I insist on a lot of time being available almost every day to just sit and think. That is very uncommon in American business. We read and think. So Warren and I do more reading and thinking and less doing than most people in business.” -Charlie Munger
“Finance properly taught should be taught from cases where the investment decisions are easy,” said Munger. “And the one that I always cite is the early history of National Cash Reigster Company. It was created by a very intelligent man who bought all the patents, had the best sales force, and the best production plants. He was very intelligent man and a fanatic, all of whose passions were dedicated to the cash register business. And of course, the invention of the cash register was a godsend to retailing. You might even say that cash registers were the pharmaceuticals industry of a former age. If you read an annual report when Patterson was the CEO of National Cash Register, an idiot could tell that here was talented fanatic – very favorably located. Therefore, the investment decision was easy.” – Charlie Munger[122]
“It’s a finite and very competitive world. All large aggregations of capital eventually find it hell on earth to grow and thus find a lower rate of return.” – Charlie Munger
“You need a different checklist and different mental models for different companies. I can never make it easy by saying, ‘Here are three things.’ You have to derive it yourself to ingrain it in your head for the rest of your life.” – Charlie Munger
“The beauty of a financial institution is that there are a lot of ways to go to hell in a bucket. You can push credit too far, do a dumb acquisition, leverage yourself excessively – it’s not just derivatives [that can bring about your downfall].” – Charlie Munger
“Generally, stocks are valued in two ways. One is the way that wheat is valued — in terms of its perceived practical utility to the user of the wheat. The second way is the way that Rembrandts are valued. And to some extent, Rembrandts are valued highly because they’ve gone up in price in the past…To us, investing is the equivalent of going out and betting against the pari-mutuel system. We look for a horse with one chance in two of winning and which pays you three to one. You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.” – Munger
“The model I like – to sort of simplify the notion of what goes on in a market for common stocks – is the pari-mutuel system at the racetrack. If you stop to think about it, a pari-mutuel system is a market. Everybody goes there and bets and the odds are changed based on what’s bet. That’s what happens in the stock market.”[123] – Munger
“If you have competence, you pretty much know its boundaries already. To ask the question [of whether you are past the boundary] is to answer it.” — Munger
Munger’s Three Great Lessons of Investing:
- “A great business at a fair price is superior to a fair business at a great price.”
- “A great business at a fair price is superior to a fair business at a great price.”
- “A great business at a fair price is superior to a fair business at a great price.”
“You need to have a passionate interest in why things are happening. That cast of mind, kept over long periods, gradually improves your ability to focus on reality. If you don’t have the cast of mind, you’re destined for failure even if you have a high I.Q.” — Munger
“How do some people get wiser than other people? Partly is is inborn temperament. Some people do not have a good temperament fo invesitng. They’re too fretful; the worry too much. But if you’ve got a good temperatment, which basically means being very patient, yet combine that with a vast aggression when you know enough to do something, then you just gradually learn the game, partly by doing, partly by sutdying. Obviously, the more hard lessons you can learn vicariously, instead of from your own terrible experiences, the better off you will be. I don’t know anyone who did it with great rapidity. Warren Buffett has become one hell of a lot better investor since the day I met him, and so have I. If we had been frozen at any given stage, with the knowledge we had, the record would have bene much worse than it is. So the game is to keep learning, and I don’t think people are going to keep learning who don’t like the learning process.” — Munger
“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero.” — Munger
“Most people will see declining returns [due to inflation]. One of the great defenses if you’re worried about inflation is not to have a lot of silly needs in your life — you don’t need a lot of material goods.” – Munger
“We try to think like Fermat and Pascal [would] if they’d never heard of modern finance theory.”[124] – Charlie Munger
Munger: Extreme success is likely to be caused by some combination of the following factors:
- Extreme maximization or minimization of one or two variables (e.g., Costco, NFM, Wal-Mart)
- Adding success factors so that a bigger combination drives success, often in nonliner fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often results are not linear. You get a little more mass, and you get a lollapalooza result.
- An extreme of good performance over many factors (e.g.,Toyotaor Schwab)
- Catching and riding some sort of big wave (e.g. Oracle)
Charlie Munger’s Psychology of Human Misjudgment
- Reward and punishment supperresponse tendency: incentives; Federal Express workers paid by shift instead of by hour; “If you would persuade, appeal to interest and not to reason.” Interest tends to drive behavior to the extremes.
- Liking/loving tendency: acts as a condition device that makes the liker or lover tend (1) to ignore the faults of, and comply with the wishes of, the object of his affection, (2) to favor people, products, and actions merely associated with the object of his affection, and (3) to distort other facts to facilitate love.
- Disliking/hating tendency: e.g., war, sibling rivalry; man also likes being liked, and so strives for the approval and favor of those around him;
- Doubt-avoidance tendency: brain wants a decision, any decision; flight-or-fight
