At the 2019 Daily Journal Annual Meeting Charlie Munger challenged his audience with a question.
An investment house asked its brightest young minds to offer their best ideas for market-beating returns.
Dov Gertzulin's DG Capital is having a strong year. According to a copy of the hedge fund's letter to investors of its DG Value Partners Class C strategy, the fund is up 36.4% of the year to the end of June, after a performance of 12.8% in the second quarter. The Class C strategy is Read More
They confidently applied those best ideas.
In Charlie’s words, “It failed utterly.”
Shocked and incredulous, they repeated the project twice with equally poor results.
“The definition of insanity is doing the same thing over and over and expecting different results.”—Anonymous, but widely attributed to Albert Einstein
Employing Untested Ideas
Charlie asked his audience why the project was doomed.
His response was studied silence.
Charlie elected to leave his audience “perplexed” rather than reveal the answer.
But as Charlie often says, “It’s so simple.”
Those “best ideas” were untested.
If science or engineering employed untested ideas planes would crash.
Patients would die.
Bridges would collapse.
“The great tragedy of science – the slaying of a beautiful hypothesis by an ugly fact.”—Thomas Huxley
If you treasure your brainchild so much you apply it without rigorous testing you have a prescription for disaster.
Untested ideas only work in movies and on TV.
“Beam me up, Scotty.”
The Scots gave us penicillin and the telephone but they tested them first.
"Genius is one percent inspiration and ninety-nine percent perspiration." - Thomas A. Edison
The morgue of failed ideas always has room for one more.
Not just dead ideas like alchemy.
But zombie ideas like communism and the job interview.
That continue to fail but refuse to die.
“What every man wishes, that he also believes to be true.”--Demosthenes
Appealing The Crowd
Many intuitive ideas have crowd appeal but simply don’t work.
Virtuous and charitable ideas may not work either.
Just because your heart is in the right place does not mean you’re right.
Give children medals if they lose, render them more fragile and less likely to succeed in real life.
Pay people who are unwilling to work, render them less likely to ever work.
Because only one thing encourages not working more than not working.
That’s not working and getting paid for it.
“Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”—Moses ben Maimon (Maimonides, Rambam)
How pleasant to think that the earth is the center of the universe and we are its masters.
How humbling to realize we are but animated specks upon a tiny rock in an incomprehensibly vast universe.
How long it took humanity to progress from the first thought to the second.
“Humility is nothing but truth, and pride is nothing but lying.”—St Vincent de Paul
Charlie Munger likes to point out that his namesake, Charles Darwin, was far more persistent and careful than he was brilliant.
And both Warren Buffett and Charlie Munger warn us about the genius with a 160 IQ who thinks it’s 200.
Better to hire the 140’s who think they’re 120’s.
They may have the humility to test their ideas before they proceed.
As Warren and Charlie often say, an overconfident genius may kill you.
On the other hand, they might just bring you a commercially viable electric car.
But rest assured they will have the humility to test it first.