Mimicking the herd invites regression to the mean. Charlie Munger More Quotes by Charlie Munger More Quotes From Charlie Munger I think we have lost our way when people like the [board of] governors and the CEO of the NYSE fail to realize they have a duty to the rest of us to act as exemplars... You do not want your first-grade school teacher to be fornicating on the floor or drinking booze in the classroom; similarly you do not want your stock exchange to be setting the wrong moral example. Charlie Munger drinking teacher school If you can get good at destroying your own wrong ideas, that is a great gift. Charlie Munger great-gifts destroying ideas Our approach has worked for us. Look at the fun we, our managers, and our shareholders are having. More people should copy us. It's not difficult, but it looks difficult because it's unconventional - it isn't the way things are normally done. We have low overhead, don't have quarterly goals and budgets or a standard personnel system, and our investing is much more concentrated than average. It's simple and common sense. Charlie Munger simple fun average It's hard to predict what will happen with two brands in a market. Sometimes they will behave in a gentlemanly way, and sometimes they'll pound each other. I know of no way to predict whether they'll compete moderately or to the death. If you could figure it out, you could make a lot of money. Charlie Munger pounds two way The model I like to sort of simplify the notion of what goes on in a market for common stocks is the pari-mutuel system at the racetrack. If you stop to think about it, a pari-mutuel system is a market. Everybody goes there and bets and the odds change based on what's bet. That's what happens in the stock market. Charlie Munger odds goes-on thinking The interesting thing about it to me is the mindset. With all these "helpers" running around, they talk about doing deals. We talk about welcoming partners. The guy doing deals, he wants to do a deal and then unwind it in the near future. It's totally opposite for us. We like to build lasting relationships. I think our system will work better in the long term than flipping deals. I think there are so many of them [helpers] that they'll get in ea h other's way. I don't think they'll make enough money to meet their expectations, by flipping, flipping, flipping. Charlie Munger opposites running thinking We tend to buy things - a lot of things - where we don't know exactly what will happen, but the outcome will be decent. Charlie Munger decent outcomes happens Being rational is a moral Imperative. You should never be stupider than you need to be. Charlie Munger moral should needs Where you have complexity, by nature you can have fraud and mistakes. You'll have more of that than in a company that shovels sand from a river and sells it. This will always be true of financial companies, including ones run by governments. If you want accurate numbers from financial companies, you're in the wrong world. Charlie Munger government mistake running We don't claim to have perfect morals, but at least we have a huge area of things that, while legal, are beneath us. We won't do them. Currently, there's a culture in Americathat says that anything that won't send you to prison is OK. Charlie Munger moral perfect culture Derivative trading with mark-to-market accounting degenerates into mark-to-model. Two firms make a big derivative trade and the accountants on both sides show a large profit from the same trade. Charlie Munger degenerates sides two We only want what success we can get despite encouraging others to share our general view about reality. Charlie Munger views want reality Everyone caved, adopted loose [accounting] standards, and created exotic derivatives linked to theoretical models. As a result, all kinds of earnings, blessed by accountants, are not really being earned. When you reach for the money, it melts away. It was never there. It [accounting for derivatives] is just disgusting. It is a sewer, and if I'm right, there will be hell to pay in due course. All of you will have to prepare to deal with a blow-up of derivative books. Charlie Munger blessed blow book There's a lot wrong [with American universities]. I'd remove 3/4 of the faculty - everything but the hard sciences. But nobody's going to do that, so we'll have to live with the defects. It's amazing how wrongheaded [the teaching is]. There is fatal disconnectedness. You have these squirrelly people in each department who don't see the big picture. Charlie Munger american-universities teaching people I don't have the slightest interest in gold. I like understanding what works and what doesn't in human systems. To me that's not optional; that's a moral obligation. If you're capable of understanding the world, you have a moral obligation to become rational. And I don't see how you become rational hoarding gold. Even if it works, you're a jerk. Charlie Munger hoarding understanding gold The possibility that stock value in aggregate can become irrationally high is contrary to the hard-form "efficient market" theory that many of you once learned as gospel from your mistaken professors of yore. Your mistaken professors were too much influenced by "rational man" models of human behavior from economics and too little by "foolish man" models from psychology and real-world experience. Charlie Munger foolish-man real men I regard the amount of brainpower going into money management as a national scandal. When some idiot would get rich, they'd say, 'Well, old Charlie was out in the field playing the big brass tuba on the day it rained gold.' A lot of people have become rich lately who were playing the tuba on the day it rained gold. Charlie Munger tubas gold people Berkshireis in the business of making easy predictions If a deal looks too hard, the partners simply shelve it. Charlie Munger predictions easy looks You'll find many markets where bottlers of Pepsi and Coke both make a lot of money and many others where they destroy most of the profitability of the two franchises. That must get down to the peculiarities of individual adjustment to market capitalism. I think you 'd have to know the people involved to fully understand what was happening. Charlie Munger two people thinking Here's one truth that perhaps your typical investment counselor would disagree with: if you're comfortably rich and someone else is getting richer faster than you by, for example, investing in risky stocks, so what?! Someone will always be getting richer faster than you. This is not a tragedy. Charlie Munger typical tragedy example
