If you’re a new investor or want to be a great investor, listen to Charlie Munger’s advice because he’s a “rich old man.” His financial success comes from avoiding typical human mistakes.
-Charlie Munger’s Advice Intro
-Advice For New Investors
-How To Become A Great Investor?
-How Bad Can The Stock Market Get?
-Recognizing Great Investments
-Be Competent Broadly
-Critical Thinking & Investing Success
Charlie Munger’s key piece of advice to a new investor is to include the engineering concept of Margin of Safety into your investing practice. And under-spend all your life, he said.
“All of this stuff is really quite obvious,” Charlie said, “and yet most people don’t really know it in a way where they can use it.” So it’s important to connect the dots between multiple disciplines and apply them in solving investing questions.
In response to a question about what career or experiences one should gain to become a great investor, Charlie said that you should have a generalized competency in dealing with words, numbers, and concepts. And then practice with that competency.
Then if you collect follies, inanities, and asininities the way he does, and stay away from the follies or mistakes of others, “when you’re as old as I am you’ll be a rich old man.”
When asked in March 2008 how bad the stock market can get, Charlie said that Berkshire hasn’t made its progress by making wonderful macroeconomic predictions. He and Warren Buffett figured out businesses that were more likely to do better than other businesses and invested in them. But there’s no simple solution to getting rich with “soft white hands,” implying you need to think for yourself what might be good investment opportunities that come along.
Someone asked how Charlie integrated his ideas on the lollapalooza effect and mental models to recognize a great investment? Charlie said some of the ideas were so simple. For example, the monopoly newspaper in each city made more money every year. In cities where there were two newspapers, one was slowly dying so they made sure to buy the one that was sure to win. “Does this strike you as a complicated idea?” he said.
When they bought their stake in the Washington Post, they turned $10 million into $1 billion. Charlie said “a lot of these things are perfectly obvious. You just have to train yourself, develop the knack of using the knowledge you have. It’s a knack, you have to work at it. It won’t come in over the transom because you’d like to have it.”
On how to invest and ignore groupthink, Charlie said, “I think to some extent I was naturally disrespectful of the received wisdom. And I wanted to figure it out better, and to some extent that was an inherited disposition. And I turned what many people would regard that horrible lemon into lemonade.” You can make his kind of lemon into lemonade, but he doesn’t know if you can make it out of marshmallows referring to people who fail to think and act independently of their peers.
One person asked about how multidisciplinary success can be rewarded as opposed to high degrees of specialization. Charlie said there needs to be some degree of specialization, especially when it comes to medicine. But he argues you can be quite competent in your specialized field, and also have the common sense over a broad area if you work at it appropriately.
Charlie said that all you have to have is the will and technique to have general competencies, without ruining specialized competencies. But he said that most people are happy in the shallows, which is suggesting that they are not willing to learn new skills and would rather stay ignorant.
Many people stay in their silos of expertise, and then don’t synthesize ideas in the real world. So your investing success hinges on how well you can critically think and synthesize multidisciplinary concepts to solve practical problems.
Charlie invoked economist John Maynard Keynes with the phrase “it’s better to be roughly right than precisely wrong.”
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