The legendary investor Charlie Munger turned 98 on Jan 1, 2022
Over more than 40 years he has compounded at an incredible rate of ~19.65% and served as vice-chairman of Berkshire Hathaway since 1978.
Here are 98 lessons from the maestro himself:
On patience:
“It takes character to sit with all that cash and to do nothing.
I didn't get to the top where I am by going after mediocre opportunities.”
On ignorance:
“Knowing what you don't know is more useful than being brilliant.”
On KISS (Keep It Simple Stupid):
“Simplicity has a way of improving performance by enabling us to better understand what we are doing.”
On “bucketing” your investments:
“We have three baskets for investing - yes, no, and too tough to understand.”
On learning:
“If you keep learning all the time you have a huge advantage.”
On teaching:
“The best thing a human can do is to help another human being know more.”
On planning:
“Opportunity comes to the prepared mind.”
On inverting the dumb:
“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 intelligent.”
On living frugally:
“Live within your income and save so you can invest. Learn what you need to learn.”
On buying great businesses:
“A great business at a fair price is superior to a fair business at a great price.”
On temperament:
“A lot of people with high IQs are terrible investors because they've got terrible temperaments.”
On patience:
“The big money is not in buying or selling, but in the waiting.”
On ideas:
“Take a simple idea, and take it seriously.”
On thinking different:
“Mimicking the herd invites regression to the mean.”
On bad incentives:
“Everywhere there is a large commission, there is a high probability of a rip-off.”
On trust:
“We just try to operate in a seamless web of deserved trust and be careful of whom we trust.”
On small steps:
“Strive to become a little wiser every day.”
On reading:
“In my whole life, I have known no wise people...who didn't read all the time -- not one, zero.”
On odds:
“Life, in part, is like a poker game wherein you have to learn to quit sometimes when holding a much-loved hand.”
On infrequent opportunities:
“Our game is to recognize a big idea when it comes along when one doesn't come along very often.”
On passion v/s IQ:
“I would argue that passion is more important than brainpower.“
On handling life:
“Assume life will be really tough, and then ask if you can handle it. If the answer is yes, you've won.”
On deserving:
“To get what you want, you have to deserve what you want. That world is not yet a crazy enough place to reward a whole bunch of people.”
On why he wanted to get rich:
“Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris -I wanted the independence.”
On theory v/s practice:
“I try to get rid of people who confidently answer questions about which they don't have any real knowledge.”
On reputation:
“Remember that reputation and integrity are your most valuable assets and can be lost in a heartbeat.”
On duty:
“Those of us who have been very fortunate have a duty to give back.”
On derivatives:
“The world of derivatives is full of holes that very few people are really aware of.”
On value v/s growth:
“The whole concept of dividing it up into 'value' and 'growth' strikes me as twaddle.”
On objectivity:
“Your life must focus on the maximization of objectivity.”
On change:
“Those who will not face improvements because they are changes, will face changes that are not improvements.”
On taking responsibility:
“Own your work and compound credibility.”
On misuse of good ideas:
“Good ideas are a wonderful way to suffer terribly if you overdo them”
On rationality:
“What is the secret of success? One word - rationality”
On wise behavior:
“Acquire worldly wisdom and adjust your behavior accordingly. ”
On bargain hunting:
“When you locate a bargain, you must ask, 'Why me, God? Why am I the only one who could find this bargain?'”
On selling good products:
“Deliver to the world what you would buy if you were on the other end.”
On patience v/s smarts:
“I did not succeed in life by intelligence. I succeeded because I have a long attention span.”
On adopting new views:
“Any year that you don't destroy one of your best-loved ideas is probably a wasted year”
On EBITDA:
“I think that, every time you see the word EBITDA, you should substitute the words “bullshit earnings.”
On envy:
“Envy is a really stupid sin because it's the only one you could never possibly have any fun at.”
On fast money:
“The desire to get rich fast is pretty dangerous”
On efficient free markets:
“Capitalism without failure is like religion without hell.”
On diversification:
“This worshipping at the altar of diversification, I think that is really crazy”
On checklists:
“No wise pilot, no matter how great his talent and experience, fails to use a checklist.”
On decisiveness:
“Most people are too fretful, they worry too much. Success means being very patient, but aggressive when it's time.”
On creating good incentives:
“The iron rule of nature is:
You get what you reward for. If you want ants to come, you put sugar on the floor.”
On stupidity:
“It's dishonourable to stay stupider than you need to be”
On investing vs running a business:
“Understanding how to be a good investor makes you a better business manager and vice versa.”
On extrapolation:
“It's stupid the way people extrapolate the past -- and not slightly stupid, but massively stupid.”
On focus:
“Our job is to find a few intelligent things to do, not to keep up with every damn thing in the world.”
On the value of forecasts:
“Listening to today's forecasters is just as crazy as when the king hired the guy to look at the sheep guts.”
On herd behavior:
“Crowd folly, the tendency of humans, under some circumstances, to resemble lemmings, explains much foolish thinking of brilliant men and much foolish behavior.”
On delayed gratification:
“Great investing requires a lot of delayed gratification.”
On winning in life:
“The game of life is the game of everlasting learning. At least it is if you want to win.”
On bad corporate management:
“In the corporate world, if you have analysts, due diligence, and no horse sense, you've just described hell.”
On avoidance:
“A lot of success in life and business comes from knowing what you want to avoid:
early death, a bad marriage, etc.”
On taxes:
“I think the idea that the hedge fund manager gets lower taxes than the taxi driver or the physics professor is insane.”
On politics:
“There's a tendency to think that our present politicians are much worse than we had in the past. But we tend to forget how awful our politicians were in the past.”
On being the bigger person:
“Always take the high road, it's far less crowded.”
On trust:
“The highest form that civilization can reach is a seamless web of deserved trust-not much procedure, just totally reliable people correctly trusting one another...”
On selling numbers:
“It’s an effective sales technique in America to put a foolish projection on a desk“
On perfection:
“There is no way you can live an adequate life without making mistakes.”
On understanding when NOT to do something:
“If something is too hard, we move on to something else. What could be more simpler than that?”
On reaching old age:
“The best armor of old age is a well-spent life perfecting it.”
On running models:
“Warren talks about these discounted cash flows. I've never seen him do one.”
On learning from the past:
“Forgetting your mistakes is a terrible error if you’re trying to improve your cognition. Reality doesn’t remind you.”
On reality:
“It's not supposed to be easy. Any one who finds it easy is stupid.”
On value investing:
“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.”
On inversion:
“Invert, always invert:
Turn a situation or problem upside down. Look at it backward“
On taking losses:
“You need patience, discipline, and agility to take losses and adversity without going crazy.”
On history:
“There is no better teacher than history in determining the future...there are answers worth billions of dollars in 30$ history book.”
On the brutality of life:
“Another thing, of course, is that life will have terrible blows in it, horrible blows, unfair blows. It doesn't matter.”
On cash and opportunity:
“The way to get rich is to keep $10m in your checking account in case a good deal comes along”
On compounding a little brilliance:
“You don't have to be brilliant, only a little bit wiser than the other guys, on average, for a long, long, time.”
On obvious v/s esoteric investments:
“We try more to profit from always remembering the obvious than from grasping the esoteric.”
On sit-on-your-ass investing:
“There are huge advantages for an individual to get into a position where you make a few great investments and just sit on your ass”
On how most investors believe:
“The world is full of foolish gamblers and they will not do as well as the patient.”
On being open minded:
“You must force yourself to consider opposing arguments. Especially when they challenge your best-loved ideas.”
On different business cultures:
“One solution fits all is not the way to go...You can't run all these places with a cookie-cutter solution.”
On thinking:
“We both (Warren Buffett) 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.”
On misuse of “synergy”:
“The reason we avoid the word “synergy“ is because people generally claim more synergistic benefits than will come. Yes, it exists, but there are so many false promises.”
On accounting tricks:
“I would argue that a majority of the horrors we face would not have happened if the accounting profession developed and enforced better accounting.”
On “overdoing” smartness:
“We recognized early on that smart people do very dumb things, and we wanted to know why and who, so that we could avoid them.”
On prediction & accuracy:
“I’ve never been able to predict accurately. I don’t make money predicting accurately.”
On kicking the can down the road:
“If you jump out the window at the 42nd floor and you're still doing fine as you pass the 27th floor, that doesn't mean you don't have a serious problem.
On the usefulness of accounting:
“You have to know accounting. It's the language of practical business life.”
On broadening your knowledge base:
“If you skillfully follow the multidisciplinary path, you will never wish to come back.”
On the failure of businesses:
“Over the very long term, history shows that the chances of any business surviving in a manner agreeable to a company's owners are slim at best.”
On bear market:
“It's in the nature of stock markets to go way down from time to time.”
On knowing stuff well:
“You just have to know a few simple things and really know them.”
On knowing your limits:
“Some people are extraordinarily good at knowing the limits of their knowledge because they have to be.”
On learning from the greats:
“I believe in the discipline of mastering the best that other people have ever figured out. I don't believe in just sitting down and trying to dream it all up yourself.”
On philanthropy:
“Those of us who have been fortunate have a duty to give back. Whether one gives a lot as one goes along as I do, or a little and then a lot (when one dies) as Warren does, is a matter of personal preference.”
On emotional strength:
“You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success.”
On learning after school:
“You are not going to get very far in life based on what you already know. You're going to advance in life by what you learn after you leave here.”
On probabilistic thinking:
“If you don’t get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one-legged man in an ass-kicking contest.”
On responsibility:
“An example of a really responsible system is the system the Romans used when they built an arch. The guy who created the arch stood under it as the scaffolding was removed. It’s like packing your own parachute.”