value added. But I don’t think brilliance alone is enough to do it. I think that you have to have a little of this discipline of calling your shots and loading up—you want to maximize your chances of becoming one who provides above average real returns for clients over the long pull. But I’m just talking about investment managers engaged in common stock picking. I am agnostic elsewhere. I think there may well be people who are so shrewd about currencies and this, that and the other thing that they can achieve good long term records operating on a pretty big scale in that way. But that doesn’t happen to be my milieu. I’m talking about stock picking in American stocks. http://ycombinator.com/munger.html The whole concept of the house advantage is an interesting one in modern money management. The terms of the managers of the private partnerships look a lot like the take of the croupier at
Monte Carlo, only greater. http://www.designs.valueinvestorinsight.com/bonus/bonuscontent/docs/Tilson_2006_BRK_Meeting_Notes.pdf#search=%22Charlie%20munger%20and%20foundation%20and%20croupier%22
Morals
Once you start doing something bad, then it’s easy to take the next step – and in the end, you’re a moral sewer. http://www.tilsonfunds.com/wscmtg04notes.doc
We believe there should be a huge area between everything you should do and everything you can do without getting into legal trouble. I don’t think you should come anywhere near that line. We don’t deserve much credit for this. It helps us make more money. I’d like to believe that we’d behave well even if it didn’t work. But more often, we’ve made extra money from doing the right thing. Ben Franklin said I’m not moral because of it’s the right thing to do – but because it’s the best policy. http://www.tilsonfunds.com/wscmtg04notes.doc
We don’t claim to have perfect morals, but at least we have a huge area of things that, while legal, are beneath us. We won’t do them. Currently, there’s a culture in Americathat says that anything that won’t send you to prison is OK. http://www.tilsonfunds.com/brkmtg04notes.doc
“With so much money riding on reported numbers, human nature is to manipulate them. And with so many doing it, you get Serpico effects, where everyone rationalizes that it’s okay because everyone else is doing it. It is always thus.” http://www.fool.com/BoringPort/2000/boringport00051501.htm
“The old culture had come out of poverty, out of English customs,” he said. “People did not have the vast sense of entitlement, that they were entitled to be rich. People were damned glad to have a decent job where they might advance.” http://blogs.barrons.com/techtraderdaily/2006/06/26/the-wit-and-wisdom-of-charlie-munger/
It is not always recognized that, to function best, morality should sometimes appear unfair, like most worldly outcomes. The craving for perfect fairness causes a lot of terrible problems in system function. Some systems should be made deliberately unfair to individuals because they’ll be fairer on average for all of us. I frequently cite the example of having your career over, in the Navy, if your ship goes aground, even if it wasn’t your fault. I say the lack of justice for the one guy that wasn’t at fault is way more than made up by a greater justice for everybody when every captain of a ship always sweats blood to make sure the ship doesn’t go aground. Tolerating a little unfairness to some to get a greater fairness for all is a model I recommend to all of you. http://www.originaldissent.com/forums/archive/index.php/t-14214.html
The cash register did more for human morality than the Congregational Church. It was a really powerful phenomenon to make an economic system work better, just as, in reverse, a system that can be easily defrauded ruins a civilization. A system that’s very hard to defraud, like a cash register, helped the economic performance of a civilization by reducing vice, but very few people within economics talk about it in those terms. http://www.originaldissent.com/forums/archive/index.php/t-14214.html
Mr. Market
“Ben Graham [had] his concept of “Mr. Market”. Instead of thinking the market was efficient, he treated it as a manic-depressive who comes by every day. And some days he says, “I’ll sell you some of my interest for way less than you think it’s worth.” And other days, “Mr. Market” comes by and says, “I’ll buy your interest at a price that’s way higher than you think it’s worth.” And you get the option of deciding whether you want to buy more, sell part of what you already have or do nothing at all. To Graham, it was a blessing to be in business with a manic-depressive who gave you this series of options all the time. That was a very significant mental construct….” http://ycombinator.com/munger.html
Models:
the great economist Keynes,. “Better to be roughly right than precisely wrong.” http://www.loschmanagement.com/Berkshire%20Hathaway/Charlie%20munger/The%20Psychology%20of%20Human%20Misjudgement.htm
Mutual Funds
“Mutual funds charge 2% per year and then brokers switch people between funds, costing another 3-4 percentage points. The poor guy in the general public is getting a terrible product from the professionals. I think it’s disgusting. It’s much better to be part of a system that delivers value to the people who buy the product. But if it makes money, we tend to do it in this country.” http://www.tilsonfunds.com/brkmtg04notes.doc
this mutual fund study is roughly right, it raises huge questions about foundation wisdom in changing investment managers all the time as mutual fund investors do. If the extra lag reported in the mutual fund study exists, it is probably caused in considerable measure by folly in constant removal of assets from lagging portfolio managers being forced to liquidate stockholdings, followed by placement of removed assets with new investment managers that have high-pressure, asset-gaining hoses in their mouths http://www.tilsonfunds.com/Mungerwritings2001.pdf#search=%22%20%22charlie%20Munger%22%20Outstanding%20investor%20digest%22
Newspapers:
“For years I have read the morning paper and harrumphed. There’s a lot to harrumph about now.” http://www.law.stanford.edu/publications/stanford_lawyer/issues/64/sl64.pdf
It is way less certain to be a wonderful business in the future. The threat is alternative mediums of information. Every newspaper is scrambling to parlay their existing advantage into dominance on the Internet. But it is way less sure [that this will occur] than the certainty 20 years ago that the basic business would grow steadily, so there’s more downside risk. The perfectly fabulous economics of this business could become grievously impaired.” http://www.fool.com/BoringPort/2000/boringport00051501.htm
Objectivity:
The life of Darwindemonstrates how a turtle may outrun a hare, aided by extreme objectivity, which helps the objective person end up like the only player without a blindfold in a game of Pin the Tail on the Donkey. http://www.poorcharliesalmanack.com/pdf/page146.pdf
Opportunities:
The general assumption is that it must be easy to sit behind a desk and people will bring in one good opportunity after another — this was the attitude in venture capital until a few years ago. This was not the case at all for us — we scrounged around for companies to buy. For 20 years, we didn’t buy more than one or two per year. …It’s fair to say that we were rooting around. There were no
