Life hacks and money knacks from ingenious investor Munger
Billionaire Berkshire Hathaway vice-chair talks Buddha, bass fishing and when to be bold
Charles Thomas Munger (born January 1 1924) is an American investor, businessman and philanthropist perhaps best known as vicechair of Berkshire Hathaway. He is also known as a fount of wisdom when it comes to investing, as illustrated below.
On money management “It’s natural that you’d have more brains going into money management. There are so many huge incomes in money management and investment banking — it’s like ants to sugar. There are huge incentives for a man to take up money management as opposed to, say, physics, and it’s a lot easier.
“I think it’s inevitable but terrible — a disaster for the wider civilisation. That I profited from being shrewd with money is not by itself satisfying to me. To atone, I teach and try to set an example. I would hate it if the example of my life caused people to pursue the passive ownership of pieces of paper.
“I think lives so spent are disastrous lives. I think it’s a better career if you help build something. I wish I’d built more.”
On the chances of success “We have a number of highIQ individuals … devoting extraordinary time to beating the market. They have new vehicles: hedge funds, LBO [leveraged buyout] funds, venture capital, international investing. In the nature of things, some will succeed.
“But I don’t think the mass of people’s results, even pretty sound, glued-together people, will be very high. Indeed, the average result has to be the average result. By definition, everybody can’t beat the market. As I always say, the iron rule of life is that only 20% of the people can be in the top fifth.”
On the real cost of failure “A typical fund might do well, the money comes in, and then there’s a big collapse. If you took into account the negative results at the end, with the big money in the fund, the overall result would be negative.
“If I were running the world, I’d require all people running mutual funds and investment funds to report results in two ways: the current way and perdollar year. The big funds would really look terrible because they took in really a lot of money and then collapsed.”
To understand what Munger is talking about here, consider a fund with $100 that has a spectacular year and doubles to $200, a 100% return. Money, of course, pours in (let’s say $800), chasing this performance, such that the fund grows from $200 to $1,000. Then, the fund falls by 50% the next year to $500. The fund’s internal rate of return is 0% (a +100% year followed by a 50% year), yet investors have lost a massive amount of capital: a $100 gain in the first year, followed by a $500 loss in the second year.
On the key elements to successful investing
“Most people are too fretful; they worry too much. Success means being very patient, but aggressive when it’s time. There’s something to be said for developing the disposition to own stocks without fretting. [But] temperament alone won’t do it. You need a lot of curiosity for a long, long time.
“You need to have a passionate interest in why things are happening. That cast of mind, kept over long periods, gradually improves your ability to focus on reality.
“If you don’t have that cast of mind, you’re destined for failure even if you have a high IQ.”
On investment opportunities
“A lot of opportunities in life tend to last a short while due to some temporary inefficiency, so you’ve got to be ready to act and have a prepared mind.”
On pension fund consultants
“Let’s compare pension fund consulting with bass fishing. You can go on the bass fish tour and catch bass and get prizes. Or you can go into the business of selling tackle and giving advice to bass fishermen. They are two different businesses.
“The people who choose the latter wouldn’t be very good at catching bass. That’s how Warren and I view things. We want to win the bass fishing tour, whereas pension fund consultants sell tackle.”
On how to get rich
“We get this question a lot from the enterprising young. It’s a very intelligent question: you look at some old guy who’s rich and you ask, ‘how can I become like you, except faster?’ My answer is that I did it slowly, inch by inch, taking losses when they occurred. If you want to do it with fast rapidity, then you’re talking to the wrong man, but I know my way works.
“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, not necessarily in fast spurts. If you live long enough — most people get what they deserve.”
On how to get a good spouse
“The single best way is to deserve a good spouse because a good spouse is by definition not nuts.”
On things to avoid
“If you want it short, try Buddha, who said: ‘I only teach one thing: I teach the cause of human sorrow and how to avoid some of it.’
That’s my approach: go around figuring out what doesn’t work and then avoid it — and when you get the sorrow, [learn] how to handle it. I think this is a very rational approach to the human condition.
“If you want to avoid sorrow, you gotta know the cause of sorrow. Avoid things like racing trains to the crossing, doing cocaine, and so on. A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage and so on.”
On mistakes
“There are two often overlooked types of mistakes in investing: 1) doing nothing and 2) buying with an eye-dropper things you should be buying a lot of. Since mistakes of omission aren’t visible, most people don’t pay attention to them.
“One trick in life is to get so you can handle mistakes. I like people admitting they were complete stupid horses’ asses.
“I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn. Forgetting your mistakes is a terrible error if you are trying to improve your cognition.”
On philanthropy
“I’m deliberately taking my net worth down. If it’s not below $1bn, it soon will be.
“My thinking is, I’m not immortal. And I won’t need it where I’m going.
“There’s nothing as insignificant as an extra $2bn to an old man. I’m soon going to be parted from all of my money. Why not give more of it away while I get the fun of giving it?”
SPEND EACH DAY TRYING TO BE A LITTLE WISER THAN YOU WERE WHEN YOU WOKE UP. DISCHARGE YOUR DUTIES FAITHFULLY