I had the opportunity to listen to vice chairman of Berkshire Hathaway Charlie Munger speak via webinar back in December. The conversation was put on by Caltech and the good news is that the whole conversation is available for replay here.
There’s never a bad time to hear thoughts, wit, and wisdom from Charlie Munger. As one of the best investors of all time, my ears perk up whenever he speaks.
Here’s a brief summary of my favorite highlights:
Advice for the young:
“If you go into a career that’s very tough, you’re not going to do very well. And if you go into one where you have special advantages, and if you like the work, you’re going to do pretty well.”
Most dramatic economic transformation:
“Well of course there have been huge booms and huge busts. And that has been very interesting. And of course, the government has tried to do things that will dampen down the fluctuations and make recoveries from the busts happen faster.
And of course, that’s caused a fair amount of inflation in a life that’s lived as long as mine.”
On lives of companies:
“Over the long-term, big companies of America behave more like biology than they do anything else. In biology, all the individuals die and so do all the species, it’s just a question of time. And that’s pretty well what happens in the economy too. All of the things that were really great when I was young have receded enormously. It’s just like biology. They have their little time and then they get clobbered.”
How to deal with this change?
“Well, some people try to get on the cutting edge of change. So they’re destroying other people instead of being destroyed themselves. And those are the Googles and the Apples and so forth.
And in some ways, we just try to avoid big change…we’ve made that successful, not by conquering change, but by avoiding it.”
How to avoid mental biases:
“I try and keep it simple and fundamental as much as I can.
I just try and avoid being stupid. I have a way of handling a lot of problems. I put them on what I call my ‘too hard pile’ and I just leave them there. I’m not trying to succeed in my too hard pile.”
“What I would say is the single most important thing, if you want to avoid a lot of stupid errors, is knowing where you’re competent and where you aren’t. Knowing the edge of your own competency. And that’s very hard to do because the human mind naturally tries to make you think you’re way smarter than you are.”
“Well, my opinion on that is no better than anybody else’s. But…I think it’s quite likely that a year from now, the worst of that will be very thoroughly behind us. It’s amazing. I watched polio get totally killed by the vaccinations. And I think they’ll spread these vaccines over the world so fast it’ll make her your head swim. So I think this horrible COVID thing is very likely to shrink to insignificance in of course the next year.”
On the fallout of the pandemic:
“You’ve got to remember that I did not make my fortune, such as it is, by predicting macroeconomic changes better than other people. What Buffett and I did was we bought things that were promising. And then…sometimes we had a tailwind from the economy and sometimes we had a headwind. And either way we just kept swimming. That’s our system.
You’re trying to get the right answers, but you’re not really trying to predict what the economy is going to be like 18 months from now.”
Do smart people make better predictions?
A lot of smart people think they’re way smarter than they are, and therefore they do worse than dumb people.
On constantly consulting with experts:
“I don’t believe in just constantly consulting with experts and doing things that way. I might do that if I were building a chemical plant or something, but in investment decisions I think it’s very helpful to be able to yourself be pretty comfortable with the big ideas in all the disciplines.”
Investment returns be less over the next 10 years?
“The answer is yes. Because so many people are in it. And the frenzy is so great. And the systems of management, the reward systems are so foolish. That I don’t think it’s going to work…I think that returns will go down, yes. In real terms, the returns will be lower.”
How to be a great investor:
“Obviously you have to know a lot. But partly it’s temperament. Partly it’s deferred gratification. You got to be willing to wait. Good investing requires a weird combination of patience and aggression and not many people have it. It also requires a big amount of self-awareness and how much you know, and how much you don’t know. You have to know the edge of your own competency. And a lot of brilliant people are no good at knowing the edge of their own competency. They think they’re way smarter than they are. And of course, that that’s dangerous and it causes trouble.”
On what he’s most proudest of:
“Well. I’m proudest of avoiding some things I don’t like. I don’t like irrationality and I’ve worked to try and avoid it in my life.”
Conquer change or avoid it. Our world is rapidly evolving and new ideas and investment opportunities are springing up every day. As an investor you have two options. First option: you can invest on the cutting edge, like Sequoia Capital, but it’s really hard and expensive (or impossible. You or I can never invest with a group like them) Second option: you can avoid change. I think one of the best ways to avoid change is to be an index investor. You’ll never have to guess if the next thing will be a winner. By owning it all you guarantee yourself to be a part of the next successful wave of businesses.
Know our limitations. Our mission at Birchwood isn’t to discover and invest in the next company that makes billions. That’s our ‘too hard pile.’ We don’t spend any time doing that. It’s way past our edge of competency. What we spend a lot of time on is making sure our clients do not run out of money and pay less in taxes. We have a process that makes this achievable.
Elimination is sometimes the best way to solve problems. Make things simple and do less. You’ve got to be willing to wait for results rather than always be tinkering. Case in point: It’s January. Every year people make New Years’ resolutions. What if you did a New Years’ De-Resolution, where you decided to stop doing certain things? Stop scrolling through social media, stop watching the financial news, stop worrying what people think, stop trying to impress others, etc. etc. More isn’t always the answer.