Charlie Munger: most people are too impetuous

If there is a myth in the investment circle, it is Warren Buffett and Charlie Munger. The former is the famous "stock god", while the latter is the "super think tank" behind the "stock god". How can you become a "super think tank" like Charlie Munger? Charlie Munger once said: "if you really want to do well in a certain field, then you must have a strong interest in it." In addition, you must be very diligent. Today, let's take a look at Charlie Munger's decades of wisdom in life.

1. Most people are too impetuous and worry too much. Success requires great calmness and patience, but it also needs to be enterprising enough when the opportunity comes.

It is foolish to judge the risk according to the volatility of the stock. We believe that there are only two kinds of risks: first, losing all one's money; and second, insufficient returns. Some good businesses are also very volatile. For example, See's Candy usually loses money for two quarters of the year. On the contrary, there are some terrible companies with stable business performance.

3, the so-called "profit before interest, tax, discount and amortization" is shit.

Buffett sometimes mentions "discounted cash flow", but I've never seen him count it. (Buffett replied, "Yes, if you still have to calculate the value that can be obtained, it will be too unreliable.")

If you buy an undervalued stock, you have to wait until the price reaches your intrinsic value, which is difficult to calculate. But if you buy a great company, you just sit there and stay.

6. We bought a textile mill (Berkshire Hathaway) and a California deposit and loan bank (Wesco), both of which later brought disaster. But when we buy it, the price is lower than the clearing value.

7. The Internet is extremely beautiful for society, but it is a pure scourge for capitalists. The Internet can improve efficiency, but there are many things that improve efficiency but reduce profits. The Internet will make American companies make less money rather than more.

8. Every investment expert in the market is rated above average, no matter how much evidence there is to prove that this is not the case at all.

9, same as article 5. If you buy a great company, you just sit there and stay.

Buffett spends 70 hours a week thinking about investing.

11. People calculate too much and think too little.

Whenever you feel that something is destroying your life, it is you. The idea that you always feel like a victim is the weapon that weakens you the most.

13, the tax law has decided that it is most cost-effective to buy a great company and wait for it to fly.

14. If you buy a stock with a compound interest return of 15% a year for 30 years, and you pay 35% tax when you sell it at last, your annual return will be 13.3%. On the other hand, for the same stock, if you sell once a year to pay tax, then your annual return is only 9.75%. Widening this 3.5% gap to 30 years is eye-opening (note: 30 years later, the former returns 42.35 times, the latter is only 16.3 times, the difference is 26.05 times).

15, the most important thing is to regard the stock as a small piece of ownership of the enterprise, and judge the inherent value by the competitive advantage of the enterprise. Look for opportunities where the future discounted cash profit is higher than the share price you pay. It's very basic. You have to understand the odds and place your bets only when you have a better chance of winning.

The common reason for people to go bankrupt is that they can't control their psychological entanglements. You have spent so much effort and so much money, the more you spend, the easier it will be to think: "probably it will soon be done. If you spend a little more, it will become …"... "that's how people go bankrupt-because they don't stop to think:" even if what I put into it is gone, I can afford it, and I can get back on my feet. I don't need to be obsessed with it. It could ruin me. "

17. When it comes to the mistakes I've seen in business in my life, the excessive pursuit of tax avoidance is a common reason for people to do stupid things. I saw someone make a big mistake in order to avoid taxes. Buffett and I are not oil diggers, but we pay all the taxes we should pay, and we are doing well now. If someone sells you a tax avoidance package, don't buy it.

I think we (the United States) are at or near the pinnacle of our civilization. I wouldn't be surprised if 50 or 100 years from now, we (the United States) can only compare with 1/3 of that of a certain country in Asia. If you want to bet, the best thing in the world in the future should be Asia.

In some ways, stocks are like a Rembrandt. Their prices are based on the prices of past transactions. Bonds are much more rational. No one would think that the price of bonds would be sky-high. Imagine if all the pension funds in the United States went to buy Rembrandt paintings, they would appreciate and attract a group of followers.

It is crazy to think that what happened in Argentina and Japan will never happen here (in the United States).

21. Real estate investment trusts (REIT) are more suitable for individual investors than institutional investors. Buffett still retains some cigarette butts (meaning that his early emphasis on Graham-style investments undervalues the corporate style), which makes him willing to buy some REIT with his own pocket money when people don't like real estate investment trusts and the market price falls by 20% off. This kind of behavior reminds him of the joy of picking up cigarette butts, so it's good for him to have some spare money to meddle with it.

22. Smart people can't help suffering from the disaster of overconfidence. They think they have stronger abilities and better methods, so they are often tired on the more difficult road.

23. "dealer advantage" is a very interesting concept in modern financial management. The fund managers of those institutions look a lot like the heads of casinos, but on a larger scale.

If you want to be a leader, you must be a follower.

We are always learning, revising, and even subverting ideas. Quickly subverting your ideas at the right time is a very important quality. You have to force yourself to consider opposing views. If you can't convince your opponent better than your opponent, you don't understand enough.

In my old days, hamburgers were 5 cents each and the minimum hourly wage was 40 cents, so I witnessed huge inflation. But does it destroy the investment environment? I don't think so.

Most success in life and career comes from deliberately avoiding something: early death, the wrong marriage, and so on.

There are two kinds of mistakes: first, do nothing (see the opportunity but put it on the shelf), Buffett calls this "finger-sucking mistake"; second, we only buy the amount of potion bottles when we are supposed to buy things in piles.

29. Check the list frequently to avoid mistakes. You should master these basic wisdom. There is no substitute for going through the mental list (meaning ordinary mind) before comparing the list.

Litigation is notoriously time-consuming, laborious, inefficient, and unpredictable results.

31, investment with an annual return of 20% for 40 consecutive years exists only in the land of dreams. In the real world, you have to look for opportunities, then compare them with other opportunities, and finally only find the most attractive opportunities to invest in. This is your opportunity cost, which you learned in your freshman economics class. Nothing has changed in the game, so the so-called "modern portfolio" theory is stupid.

32. It is better to learn profound lessons from the tragic experiences of others than from your own. Some of our successes have been predicted for a long time, and some of our successes have been achieved by accident.

It is generally believed that the best-case scenario is that you sit in the office and wonderful investment opportunities are delivered to you one by one-- until a few years ago, people in the venture capital world enjoyed it this way. But we're not like that at all-we just look around like beggars for good companies to buy. For 20 years, we have invested in at most one or two companies a year. It is no exaggeration to say that we have dug three feet into the ground. There are no professional salesmen. If you sit there and wait for a good opportunity to come, your seat is very dangerous.

Our biggest mistake is not doing what we should do and not buying what we should buy.

You will make progress only if you learn how to learn.

36. We try to keep from doing stupid things for a long time, so we gain much more than those who try to do smart things.

The past performance of 37Perry BRK has been ridiculously brilliant. If we used leverage, even half as much as Murdoch, it would be five times larger than it is now.

When we bought Coca-Cola Company stock, it took us several months to save 1 billion US dollars in stock-- 7% of Coca-Cola Company's total market capitalization. It is difficult to become a major shareholder.

39. All big capital will eventually find it difficult to expand, so look for ways to get lower returns.

40, if you have less capital and are young today, you will have fewer opportunities than we did then. We came out of the Great Depression when we were young, capitalism was a derogatory term at that time, and the criticism of capitalism was even more rampant in the 1920s. There was a popular joke at that time: a man said, "I bought stocks for the sake of my old age, but I didn't expect to use it in six months!" I feel like an old man now. "your environment is more difficult, but that doesn't mean you can't do it well-it just takes more time. But fuck it, you could live longer.

41, with regard to the demographic phenomenon of the so-called "baby boom" (born in the United States in the 1950s and 1960s), its impact is much smaller than that of economic growth. Over the past century, the GNP of the United States has increased sevenfold. This is not caused by the baby boom, but by the success of American capitalism and the development of technology. The impact of these two things is so positive that the baby boom problem is a small fluctuation by comparison. As long as America's GNP grows by 3% a year, social peace can be maintained-enough to cover politicians' spending. If the development of the United States comes to a standstill, I can assure you that you will witness a real generation gap, and relations between different generations will be very tense. Baby boomers are the catalyst for this tension, but the root cause is the lack of economic growth.

42, in fact, everyone takes quantifiable things too seriously because they want to "develop" the statistical skills they have learned in school, so they ignore things that are not quantifiable but more important. I have devoted my whole life to avoiding this kind of mistake, and I think it's a good thing for me to do so.

You should have an understanding of all kinds of thinking in all disciplines and use them frequently-all of them, not a few. Most people are adept at using a single model, such as an economic model, to solve all problems. There is an old saying: "A carpenter with a hammer feels like a nail when he reads the words in a book." "it's a stupid way of doing things.

44, for me, dividing stocks into "value stocks" and "growth stocks" is nonsense. This division allows fund managers to talk and analysts to label themselves, but in my opinion, all reliable investments are value investments.

45. Of all the wise men I have known in my life, there is no one who doesn't like reading. Buffett and I can scare you by reading so many books. My child teased me that I was a book with two legs out.

We all like to read a lot, as smart people do, but this is not enough. You should also have an attitude of critical acceptance and reasonable application. Most people don't get the right focus when they read a book, and they won't apply what they have learned after reading it.

We often hear these questions from enterprising children. This is a very "smart" question. You look at a rich old man and ask, "how can I be you?" How can I be you quickly? "

48, it costs almost no capital if we want to open another See's confectionery. We have so much capital that we are drowning, so it is almost zero cost. For some pancake shops that are desperately short of money, it is crazy to set up franchises. We like to set up direct stores in order to better control the quality of service.

49. Shorting is very dangerous.

50, sitting in a short position and seeing that the stock price has risen sharply, this is a particularly infuriating thing. Life is too short to suffer such anger.

51. One of the most depressing things in the world is that you try your best to find a scam (and short the company), but watch the stock price continue to triple, and these swindlers celebrate with your money. and you have to receive a margin call from a securities firm. How can you touch a depressing thing like this?

52, the price of listing has become very high. It makes no sense for a small company to seek to go public. Many small companies are smuggling ways to get rid of the onerous burden of listed companies.

53. The bidding method of public bidding is designed to turn people's mind into a pot of porridge: because other people are also bidding, you feel that (your bid) has been accepted by society, and you will have a tendency to give back. You will fall into a "deprived super reaction syndrome" and feel (you must find ways to stop it) that your "good heart" has left you. In short, what I mean is that this way is designed to manipulate people's psychology and make people do stupid things.

The problem with secret bidding is that the subject matter is often won by those who have made technical mistakes, such as shell oil paying twice as much as Belic oil. In an open bid, it is impossible for you to pay twice as much as the losing party.

We prefer to spend a lot of money on places where we don't need to make any other decisions.

56, being able to understand the essence of investment can also make you a good business manager, and vice versa.

Here's an interesting thing: you may own a company worth 10 billion dollars, and this company may not even be able to borrow 100 million dollars. However, because the company is a listed company, the majority shareholders of the company can borrow billions of dollars with their small pieces of paper (shares) as guarantees. But if the company is not listed, it may not even be able to borrow one-twentieth of the money that major shareholders can borrow.

I often see some people who are not smart succeed and they are not even very diligent. But they are all learning machines that love learning; they go to bed every night with a little more wisdom than they did when they got up that morning. Man, it helps if you have a long way to go.

59, whether for business owners of private enterprises or shareholders of listed companies, the reference standard for trading should be the intrinsic value of the enterprise rather than the record of past transactions, which is the most basic concept of value, and I think it will never be out of date.

Buffett and I didn't get where we are today because we successfully predicted the macro-economy and bet on it.

The questioner came from Singapore, which is probably the most brilliant developing economy in world history, which is why the questioner called the 15% growth rate "conservative". But in fact, this is not "conservative", this is very arrogant. Only people from Singapore dare to call 15% "conservative".

I won't spend too much time regretting the past. Once I've learned my lesson, I won't get stuck in it again.

63, if you remove the best 15 from our investment decisions, our performance will be very mediocre. (the focus of the game) is not a lot of action, but a lot of patience. You should stick to your principles and attack vigorously when an opportunity arises.

64, we will throw some decision-making issues into the filing cabinet called "too difficult", and then look at other issues.

If you want to improve your cognitive ability, it is absolutely impossible to forget the mistakes you have made in the past.

In the 1930s, you could get more loans from a real estate mortgage than the price of a house. This is probably what happens in private equity right now.

Imitating a lot of people means being close to their average.

Many opportunities in life only last for a short period of time because of temporary inconvenience (grabbing it). For each of us, the opportunity is now or never, so you'd better be ready to act and be mentally prepared at any time.

69. Where there is a huge commission, there are often scams.

Admitting that you don't know something means that the dawn of wisdom is just around the corner.

71, even if you don't like reality, admit it-the more you don't like it, the more you should admit it.

We try to make money by remembering common sense rather than by knowing cutting-edge knowledge.

In the long run, the profit of a company's stock can hardly be more than that of this company. If the company earns 6% a year for 40 years, your final annualized return will be about 6%, even if you buy the stock at a big discount. But on the other hand, if the company's annual return on assets reaches 18% and lasts for 20 or 30 years, even if you look expensive when you buy it, it will still surprise you.

Just as workers must understand the limitations of their tools, so people who eat with their brains must know the limitations of their own brains.

75, many markets will eventually form two or three big competitors-or five to six. In some of these markets, no one can make any money at all. In some markets, every competitor is doing well.

For years, we have been studying why competition is more rational in some markets, where shareholders get good returns, while in others, competition makes shareholders lose all their money. Let's take the example of airlines. As we sit here, we can think of all the contributions airlines have made to the world-safe travel, better experiences, the ability to fly to your loved ones at any time, and so on. However, since the days of the Wright brothers, the profits returned to shareholders in this industry have been negative and a huge negative.

Competition in this market is so fierce that once deregulation, airlines begin to hurt shareholders. However, in other industries, such as cereal, almost all competitors are comfortable. If you are a medium-sized cereal manufacturer, you can get a 15% return on assets.

If your skills are particularly good, you can even reach 40%. But why does cereal make so much money? In my opinion, they still make so much money when they compete fiercely with all kinds of crazy marketing, promotion and coupons all day. I don't quite understand. Obviously, the factor of brand effect is found in the cereal industry but not in the aviation industry.

This may be a major factor. Or there is a consensus among cereal manufacturers that no one can compete so crazily-because if an Erlang regards market share as the lifeblood, for example, if I am the boss of Kellogg and I decide to grab 60% of the market share, I think I can lose most of the profits in this market.

In the process, I may destroy Kellogg. But I think I can still do it (occupy the market and eliminate industry profits). You should have the confidence to subvert people who are more senior than you, provided that their cognition is blinded by motivational biases or significantly influenced by similar psychological factors. But in other cases, you should realize that you may not have anything new to think of-your best choice is to trust experts in these fields.

We found that the "systems" that excel in business tend to have variables that are almost absurdly maximized or minimized-such as Costco's discount warehouse.

77, some situations are worse than sitting on a lot of cash with nowhere to invest. I still remember when I was short of money-I don't want to go back to that time.

78. If you always tell them your reasons (when giving instructions and demands), they will better understand your intentions and feel that your thoughts are more important, and they will be more willing to listen to you.

79, measure in and out, save money all the time, and put the money in an account where taxes can be deferred. Over time, you will accumulate a fortune. You don't need to think about it at all.

80. I try to stay away from people who pretend to know nothing.

81. I think it is a reliable way to learn by mastering the knowledge that has been sorted out by others first. I don't approve of the method of working behind closed doors to work out the results. No one is that smart.

82. I have an acquaintance. The house next to their house looks very inconspicuous, but it sells for 17 million dollars. There is an extreme bubble in the housing market.

Experience tells us that when the opportunity comes, if you are well prepared and do something simple and reasonable timely, decisively and boldly, you can miraculously make you rich. The occasional opportunity is often given to those who are always ready, always searching, and willing to analyze complex things. When the opportunity arises, all you have to do is use the ammunition you have saved cautiously and patiently, and place big bets on those bets that stand a good chance of winning.

84, this is an era that has never been seen before in capitalism. Compared with the past, we have the largest number of intellectuals in history who have devoted themselves to stock speculation and speculation. Many of the things I have seen remind me of Sodom and Gomorrah. Selfishness, jealousy, and all kinds of knockoffs. These things have happened before, and they have led to terrible consequences.

Our investment style is called focus investment, which is intended to hold ten stocks, not a hundred or four hundred. Good investment is hard to find, so it is obvious to me that we should focus on a few good ones. But 98% of the investment community don't think so. That's good for us.

86, you should beware of overly strong ideologies. It's very dangerous if you have only one thought on your mind.

Like Buffett, I have a strong desire to get rich. Not because I like Ferrari or anything, but because I like to be independent. I am desperate for independence.

88, every engineer-minded person will throw up when he sees accounting standards.

89. It's good for you to talk more about your failures and less to brag about your successes.