Mungerisms • Charlie Munger Bot @CharlieBot
Quotes by Charlie Munger from his talks and book (Poor Charlie's Almanack) • Bot (Follow for more) gumroad.com/a/743273587/Ax… 100 Mental Models Program: Joined July 2019-
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Investment managers would say, "We have to be that way. That's how we're measured" They may be right in terms of the way business is now constructed But from the viewpoint of a rational consumer, the whole svstems "bonkers" & draws talented people into socially useless activity
"You've got to have models in your head. And you've got to array your experience - both vicarious and direct-on this latticework of models." - Charlie Munger Get the 100 Mental Models Program: gumroad.com/a/743273587/Ax…
And it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times.
You're much more likely to do well if you start out to do something feasible instead of something that isn't feasible. Isn't that perfectly obvious?
How many of you have fifty-six brilliant insights in which you have equal confidence? Raise your hands, please. How many of you have two or three insights that you have some confidence in? I rest my case.
We've really made the money out of high-quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money's been made in the high-quality businesses.
Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return.
How do you get into these great companies? One method is what I'd call the method of finding them small - get'em when they're little But it doesn't work for Berkshire Hathaway anymore because we've got too much money We can't find anything that fits our size parameter that way
Ideally you get into a great business which also has a great manager because management matters. It's made a hell of a difference to General Electric that Jack Welch came in instead of the guy who took over Westinghouse - one hell of a difference. So management matters, too.
You do get an occasional opportunity to get into a wonderful business that's being run by a wonderful manager. And, of course, that's hog heaven day. If you don't load up when you get those opportunities, it's a big mistake.
"You've got to have multiple models - if you have just one or two that you're using, the nature of human psychology is such that you'll torture reality so that it fits your models, or at least you'll think it does" - C Munger 100 Mental Models Program: gumroad.com/a/743273587/Ax…
Occasionally, you'll find a human being who's so talented that he can do things that ordinary skilled mortals can't. If they've got a reasonable hand - with the fanaticism and intelligence and so on that these people generally bring to the party - then management can matter much
However, averaged out, betting on the quality of a business is better than betting on the quality of management. In other words, if you have to choose one, bet on the business momentum, not the brilliance of the manager.
But, very rarely, you find a manager who's so good that you're wise to follow him into what looks like a mediocre business.
Another simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you buy something that compounds for 30 years at 15% and you pay one 35% tax at the *very end*, the way that works out is that after taxes, you keep 13.3%.
"However, if you don't have the basic models and the basic mental methods for dealing with the models, then all you can do is to sit there twiddling your thumbs as you look at the Value Line graph." - Munger Get the 100 Mental Models Program: gumroad.com/a/743273587/Ax…
But in terms of business mistakes that I've seen over a long lifetime, I would say that trying to minimize taxes too much is one of the great standard causes of really dumb mistakes. I see terrible mistakes from people being overly motivated by tax considerations.
Gillette and Coke make fairly low-priced items and have a tremendous marketing advantage all over the world. And in Gillette's case, they keep "surfing" along new technology, which is fairly simple by the standards of microchips. But it's hard for competitors to do.
The [sick-business-fix] cancer surgery formula: They look at this mess. And they figure out if there's anything sound left that can live on its own if they cut away everything else. If so, they just cut away everything else. If that doesn't work, they liquidate the business.
Misled by success, GEICO had done some foolish things. They got to thinking that, because they were making a lot of money, they knew everything. And they suffered huge losses.
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