Charlie Munger, Warren Buffett’s 95-year-old “sidekick,” shared some of his mental tricks to staying rational, and other bits of wisdom, in an interview at the end of January of this year.
The video was making the rounds on Twitter this week. If you’ve never had the experience, it’s worth watching.
For those who have listened to Charlie Munger more than a few times, much of it will sound familiar but it’s always a good reminder none the less. I’ve highlighted a few parts below.
On wonderful businesses with wonderful management.
We want to buy something that’s intrinsically a very good business, meaning that an idiot could run it and it would do all right. Then we want that business, which an idiot could run successfully, to have a wonderful person in it running it… I had a friend when I practiced law and he said, “If it won’t stand a little mismanagement, it’s not much of a business.” We like businesses that stand a lot of mismanagement…
On handling drawdowns.
I’ve had my Berkshire stock decline by 50% three times. It doesn’t bother me that much. That’s just a natural consequence of adult life, properly lived. If you have my attitude, it doesn’t really matter. I always liked Kipling’s expression in that poem called “If”. And he said, “Success and failure.” He says, “Treat those two imposters just the same.” You just roll with it. Sometimes it’s going for you, and some against, it’s all part of the same game.
On tricks of life.
There are all kinds of tricks that I just got into by accident in life. One I invert all the time. I was a weather forecaster when I was in the Air Corp. How did I handle my new assignment? Being a weather forecaster in the Air Corp is a lot like being a doctor that reads x-rays. You’re in the hangar in the middle of the night and drawing weather maps…but you’re not interfacing with a bunch of your fellow men very much. So I figured out the man that I was actually making weather forecasts for real pilots. I said, “How can I kill these pilots?” That’s not the question that most people would ask, but I wanted to know what the easiest way to kill them would be, so I could avoid it. And so, I thought it through in reverse that way, and I finally figured out. I said, “There are only two ways I’m going to kill a pilot.” I said, “I’m going to get him into icing his plane can’t handle and that will kill him. Or I’m going to get him someplace where he’s going to run out of gas before he can land, because all the airports are socked in.” I just was fanatic about avoiding those two hazards… It’s just like, a lot of practical problems in algebra. If you invert, you can solve it easily. If you don’t, you can’t solve it easily…
I have a whole bag of tricks like that. I’ve been through the ROTC both in high school and college. And the ROTC taught me to fire mortar shells or artillery shells one shot over, one shot short, and then kapow. Well, I never shot any damn shells, but I’ve been using that mental trick all my life. That’s how I determine what size to make something. Over and under and kapow.
On overcoming stupidity.
My grandfather would say, he basically thought it was sinful to be dumber than you had to be. I share some of that. What you can’t remove I think is forgivable, but to have an easily removable ignorance in your own head is really stupid.
On See’s Candy.
Well, here I want to confess something that will give you all encouragement because it will show how dumb we all were when we were young, and how we barely bought it. The price was $35 million, and they had $10 million in surplus cash, and they’re making $4 million a year. So hardly expensive.
And it was this iconic brand. It had been created by a woman who was 70 years old when she founded the company — very interesting story. At the very end, we were about $100,000 apart. Warren was used to saying, “Goddamn it, I’ll bid 20 and an eighth, and I don’t mean a quarter.” We just almost didn’t buy it. I would not… we just squeaked through. We made a wonderful decision, because we were just barely smart enough to make a no-brainer.
That teaches another lesson, too. We all start out stupid, and we all have a hard time staying sensible. You have to keep working at it. Berkshire would be a wreck today if it were run by what Warren and I knew when we started. We kept learning. I don’t think we’d have all the billions of stock of Coca-Cola we now have if we hadn’t bought See’s.
There were huge consequences of getting over that last stupidity. We threw out our typical firm business-like methods. What happened there, neither Warren and I deserve any real credit for. My partner, I had wonderful partners all my life. It was a petroleum engineer. He just said to Warren and me, he said, “You guys are all wrong on this.” He says, “This is a wonderful company, and you’re being way too chintzy. There aren’t many companies like this.” He changed our minds. Now, you know how we were smart enough to buy See’s, barely.
- Down the Rabbit Hole – E. Chancellor
- Here We Are: 5 Stories That Got Us To Now – M. Housel
- You Can Only Learn So Much From a Book – Klement on Investing
- Heads I Win – Albert Bridge Capital
- Day-Trading in the Age of Coronavirus – Math Investor
- Jason Zweig Q&A – WSJ+
- Cap-Weighted Benchmarks: Good Momentum Bets? – Factor Research
- Matt Ridley: How Innovation Works – Part 1, Part 2
- Bill Miller on the Classical Value Portfolio (podcast) – Masters in Business
- The Pandemic Shows Us the Genius of Supermarkets – The Atlantic
- On Knowing the Winged Whale – Hakai