Charlie Munger Quotations | Page 5

The general culture of investment banking has deteriorated over the years. We did a $6 million deal years ago for Diversified Retailing and we were rigorously and intelligently screened. They bankers cared and wanted to protect their clients. The culture now is that anything that can be sold for a profit will be. 'Can you sell it?' is the moral test, and that's not an adequate test.

The hedge fund known as "Long Term Capital Management" collapsed last fall through overconfidence in its highly leveraged methods, despite I.Q.'s of its principals that must have averaged 160. Smart people aren't exempt from professional disasters from overconfidence. Often, they just run aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.

A foreign correspondent, after talking to me for a while, once said: "You don't seem smart enough to be so good at what you're doing. Do you have an explanation?"

When we were young, there weren't very many smart people in the investment world. You should have seen the people in the bank trust departments. Now, there are armies of smart people at private investment funds, etc . If there were a crisis now, there would be a lot more people with a lot of money ready to take advantage.

Invert, always invert.

So, economics should emulate physics' basic ethos, but its search for precision in physics-like formulas is almost always wrong in economics.

We don't like trading agony for money

Show me the incentive and I will show you the outcome

Finding a single investment that will return 20% per year for 40 years tends to happen only in dreamland. In the real world, you uncover an opportunity, and then you compare other opportunities with that. And you only invest in the most attractive opportunities. That's your opportunity cost. That's what you learn in freshman economics. The game hasn't changed at all. That's why Modern Portfolio Theory is so asinine.

Learn how to ignore the examples from others when they are wrong, because few skills are more worth having.

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. That's just the way it is.

It takes almost no capital to open a new See's candy store. We're drowning in capital of our own that has almost no cost. It would be crazy to franchise stores like some capital-starved pancake house. We like owning our own stores as a matter of quality control.

I think the idea that the hedge fund manager gets lower taxes than the taxi driver or the physics professor is insane. The legislators who leave that policy in place are derelict in their duties to be rational and fair. There are plenty of them in both political parties. It's totally outrageous.

It's stupid the way people extrapolate the past -- and not slightly stupid, but massively stupid.

Knowing what you don't know is more useful than being brilliant.

In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables - like the discount warehouses of Costco.

It's very useful to have a good grasp of all the big ideas in hard and soft science. A, it gives perspective. B, it gives a way for you to organize and file away experience in your head, so to speak.

They [Mc Donalds] take people and give them a first job, which enables them to get a second job. They do a very good job of educating troubled young people to be good citizens and they're probably more successful than charter schools.

Wells Fargo behaves better than the average big bank. But nobody's perfect.

It's dishonourable to stay stupider than you need to be

I don't invest in what I don't understand. And I don't want to understand Facebook.

Being rational is a moral Imperative. You should never be stupider than you need to be.

We like our current shareholders and don't want to entice anyone to become one. It would help current shareholders to hear our CEOs [of the Berkshireoperating subsidiaries], but we promised them they could spend 100% of their time on their business. We place no impediments on them running their businesses. Many have expressed to me how happy they are that they don't have to spend 25% of time on activities they didn't like.

there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that's still going to be lousy. The money still won't come to you. All of the advantages from great improvements are going to flow through to the customers.

I never allow myself to have an opinion on anything that I don't know the other side's argument better than they do.

I don't think vengeance is much good.

In the 1930s, there as a stretch here you could borrow more against the real estate than you could sell it for. I think that's hat's going on in today's private-equity world.

A lot of opportunities in life tend to last a short while, due to some temporary inefficiency... For each of us, really good investment opportunities aren't going to come along too often and won't last too long, so you've got to be ready to act and have a prepared mind.

Projections are put together by people who have an interest in a particular outcome, have a subconscious bias, and its apparent precision makes it fallacious. They remind me of Mark Twain's saying, 'A mine is a hole in the ground owned by a liar.' Projections in America are often a lie, although not an intentional one, but the worst kind because the forecaster often believes them himself.

Hard work, honesty, if you keep at it, will get you almost anything.

You've got to have models in your head and you've got to array you experience - both vicarious and direct - onto this latticework of mental models.

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.

Let me know what your problem is, and I will try to make it more difficult for you.

I mean people are really crazy about minor decrements down. And then, if you act on them, then you get into reciprocation tendency, because you don't just reciprocate affection, you reciprocate animosity, and the whole thing can escalate. And so huge insanities can come from just subconsciously over-weighing the importance of what you're losing or almost getting and not getting.

A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind, loving diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.

The idea of excessive diversification is madness. Wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.

Move only when you have an advantage. It's very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor.

Any time anybody offers you anything with a big commission and a 200-page prospectus, don't buy it. Occasionally, you'll be wrong if you adopt "Munger's Rule". However, over a lifetime, you'll be a long way ahead-and you will miss a lot of unhappy experiences.

...the cost of being a publicly traded stock has gone way, way up. It doesn't make sense for a little company to be public anymore. A lot of little companies are going private to be rid of these burdensome requirements....

It's not a competency if you don't know the edge of it.

...by regularly reading business newspaper and magazines I am exposed to an enormous amount of material at the micro level.. I find that what I see going on there pretty much informs me about what's happening at the macro level.

Part of that, I think, is being able to tune out folly, as distinguished from recognizing wisdom. You've got whole categories of things you just bat away so your brain isn't cluttered with them. That way, you're better able to pick up a few sensible things to do.

Of course I'm troubled by huge consumer debt levels - we've pushed consumer credit very hard in the US. Eventually, if it keeps growing, it will stop growing. As Herb Stein said, "If something cannot go on forever, it will stop." When it stops, it may be unpleasant. Other than Herb Stein's quote, I have no comment. But the things that trouble you are troubling me.

Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group then to hell with them.

It takes character to sit there with all that cash and do nothing. I didn't get to where I am by going after mediocre opportunities.

The interesting thing is the field is so big - it's enormous. One thing a modern civilization needs is energy.

I think the notion that liquidity of tradable common stock is a great contributor to capitalism is mostly twaddle. The liquidity gives us these crazy booms, so it has as many problems as virtues.

The idea of excessive diversification is madness.

Berkshire's whole record has been achieved without paying one ounce of attention to the efficient market theory in its hard form. And not one ounce of attention to the descendants of that idea, which came out of academic economics and went into corporate finance and morphed into such obscenities as the capital asset pricing model, which we also paid no attention to. I think you'd have to believe in the tooth fairy to believe that you could easily outperform the market by seven-percentage points per annum just by investing in high volatility stocks.

I have what I call an iron prescription that helps me keep sane when I naturally drift toward preferring one ideology over another and that is: I say that I'm not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people who support it. I think only when I've reached that state am I qualified to speak. This business of not drifting into extreme ideology is a very, very important thing in life

What's fascinating . . .is that you could now have a business that might have been selling for $10 billion where the business itself could probably not have borrowed even $100 million. But the owners of that business, because its public, could borrow many billions of dollars on their little pieces of paper- because they had these market valuations. But as a private business, the company itself couldn't borrow even 1/20th of what the individuals could borrow.

Over the very long term, history shows that the chances of any business surviving in a manner agreeable to a company's owners are slim at best.

Your life must focus on the maximization of objectivity.

You must value the business in order to value the stock.

The whole concept of dividing it up into 'value' and 'growth' strikes me as twaddle. It's convenient for a bunch of pension fund consultants to get fees prattling about and a way for one advisor to distinguish himself from another. But, to me, all intelligent investing is value investing.

Those who keep learning, will keep rising in life

Deliver to the world what you would buy if you were on the other end.

Our job is to find a few intelligent things to do, not to keep up with every damn thing in the world.

Mimicking the herd invites regression to the mean.

A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.

All intelligent investing is value investing - acquiring more that you are paying for. You must value the business in order to value the stock.

We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side.

You have to know accounting. It's the language of practical business life. It was a very useful thing to deliver to civilization. I've heard it came to civilization through Venice which of course was once the great commercial power in the Mediterranean. However, double entry bookkeeping was a hell of an invention.

Forgetting your mistakes is a terrible error if you are trying to improve your cognition.

The game of life is the game of everlasting learning. At least it is if you want to win.

The world of derivatives is full of holes that very few people are really aware of. It's like hydrogen and oxygen sitting on the corner waiting for a little flame.

In the corporate world, if you have analysts, due diligence, and no horse sense, you've just described hell.

Understanding how to be a good investor makes you a better business manager and vice versa.

A lot of people think if you just had more process and more compliance -- checks and doublechecks and so forth -- you could create a better result in the world. Well, Berkshire has had practically no process. We had hardly any internal auditing until they forced it on us. We just try to operate in a seamless web of deserved trust and be careful whom we trust.

It's in the nature of stock markets to go way down from time to time. There's no system to avoid bad markets. You can't do it unless you try to time the market, which is a seriously dumb thing to do. Conservative investing with steady savings without expecting miracles is the way to go.

A lot of our respected financial institutions are just casinos in drag.

We have a high moral responsibility to be rational

Recognize reality even when you don't like it-especially when you don't like it.

It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.

You don't have to be brilliant, only a little bit wiser than the other guys, on average, for a long, long, time.

No wise pilot, no matter how great his talent and experience, fails to use his checklist.

I try to get rid of people who always confidently answer questions about which they don't have any real knowledge.

We get these questions 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?' 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, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts... Slug it out one inch at a time, day by day, at the end of the day -- if you live long enough -- most people get what they deserve.

The safest way to get what you want is to deserve what you want.

Those who will not face improvements because they are changes, will face changes that are not improvements.

Remember that reputation and integrity are your most valuable assets - and can be lost in a heartbeat.

You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. But there are also cases where you have to recognize that you have no wisdom to add - and that your best course is to trust some expert.

You're not going to get very far in life based on what you already know. You're going to advance in life by what you're going to learn after you leave here.

Berkshire has the lowest turnover of any major company in the U.S.The Walton family owns more of Wal-Mart than Buffett owns of Berkshire, so it isn't because of large holdings. It's because we have a really unusual shareholder body that thinks of itself as owners and not holders of little pieces of paper.

Common stock investors can make money by predicting the outcomes of practice evolution. You can't derive this by fundamental analysis - you must think biologically.

All the equity investors, in total, will surely bear a performance disadvantage per annum equal to the total croupiers' costs they have jointly elected to bear. This is an inescapable fact of life. And it is also inescapable that exactly half of the investors will get a result below the median result after the croupiers' take, which median result may well be somewhere between unexciting and lousy.

Rationality is not just something you do so that you can make more money, it is a binding principle. Rationality is a really good idea. You must avoid the nonsense that is conventional in one's own time. It requires developing systems of thought that improve your batting average over time.

Most people are too fretful, they worry to much. Success means being very patient, but aggressive when it's time.

Well, the questioner came from Singapore which has perhaps the best economic record in the history of developing an economy and therefore he referred to 15% per annum as modest. It's not modest-it's arrogant. Only someone from Singapore would call it modest.

Go to bed smarter than when you woke up.

We're the tortoise that has outrun the hare because it chose the easy predictions.

If (investing) weren't a little difficult, everybody would be rich.

Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.

All I want to know is where I’m going to die, so I’ll never go there

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.

Spend each day trying to be a little wiser than you were when you woke up.

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.

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 the cast of mind, you're destined for failure even if you have a high I.Q.

You have to have a temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them.

People calculate too much and think too little.