Charlie Munger Quotes

Mental Models    Investing    Economics    Psychology    Life

Top 10

“Acquire worldly wisdom and adjust your behavior accordingly.”

“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 the 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 try to get what you want is to try to deserve what you want. It’s such a simple idea. It’s the golden rule. You want to deliver to the world what you would buy if you were on the other end.”

“‘Invert, always invert,’ Jacobi said. He knew that it is in the nature of things that many hard problems are best solved when they are addressed backward.”

“You’ve got to have models in your head. And you’ve got to array your experience—both vicarious and direct—on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.”

“If you don’t get…elementary probability into your repertoire…you go through a long life like a one-legged man in an ass-kicking contest. You’re giving a huge advantage to everybody else.”

“If you skillfully follow the multidisciplinary path, you will never wish to come back. It would be like cutting off your hands.”

“I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition.”

“The idea of caring that someone is making money faster [than you are] is one of the deadly sins. Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?”

“Never, ever, think about something else when you should be thinking about the power of incentives.”

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Mental Models / Learning

“Acquire worldly wisdom and adjust your behavior accordingly.”

“You’ve got to have multiple models—because if you have just one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least you’ll think it does.”

“You must know the big ideas in the big disciplines and use them routinely—all of them, not just a few, Most people are trained in one model—economics, for example—and try to solve all problems in one way. You know the old saying: ‘To the man with a hammer, the world looks like a nail.’ This is a dumb way of handling problems.”

“You’ve got to have models in your head. And you’ve got to array your experience—both vicarious and direct—on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You’ve got to hang experience on a latticework of models in your head.”

“You can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.”

“The deep structure of the human mind requires that the way to full-scope competency of virtually any kind is to learn it all to fluency, like it or not.”

“If you don’t get…elementary probability into your repertoire…you go through a long life like a one-legged man in an ass-kicking contest. You’re giving a huge advantage to everybody else.”

“I had an early and extreme multidisciplinary cast of mind. I couldn’t stand reaching for a small idea in my own discipline when there was a big idea right over the fence in somebody else’s discipline. So I just grabbed in all directions for the big ideas that would really work. Nobody taught me to do that; I was just born with that yen. I also was born with a huge craving for synthesis. And when it didn’t come easily, which was often, I would rag the problem, and then when I failed, I would put it aside, and I’d come back to it and rag it again. It took me twenty years to figure out how and why cult conversion methods worked. But the psychology departments haven’t figured it out yet, so I’m ahead of them.”

“If you skillfully follow the multidisciplinary path, you will never wish to come back. It would be like cutting off your hands.”

“When I run into a paradox, I think either I’m a totally horse’s ass to have gotten to this point, or I’m fruitfully near the edge of my discipline. It adds excitement to life to wonder which it is.”

“Part of [having common sense] is being able to tune out folly, as opposed to recognizing wisdom. If you bat away many things, you don’t clutter yourself.”

“‘Invert, always invert,’ Jacobi said. He knew that it is in the nature of things that many hard problems are best solved when they are addressed backward.”

“You don’t have to be brilliant, only a little bit wiser than the other guys, on average, 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 the cast of mind, you’re destined for failure even if you have a high I.Q.”

“If you don’t keep learning, other people will pass you by. Temperament alone won’t do it—you need a lot of curiosity for a long, long time.”

“I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition.”

“People calculate too much and think too little.”

“It’s kind of fun to sit there and outthink people who are way smarter than you are because you’ve trained yourself to be more objective and more multidisciplinary. Furthermore, there is a lot of money in it, as I can testify from my own personal experience.”

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Investing

“Our experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime.”

“A few opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves 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.”

“To us, investing is the equivalent of going out and betting against the parimutuel system. We look for a horse with one chance in two of winning and which pays you three to one. You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.”

“The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash-flow than you are paying for. 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. We just keep our heads down and handle the headwinds and tailwinds as best we can, and take the result after a period of years.”

“If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor.”

“If you take the best text in economics by Mankiw, he says intelligent people make decisions based on opportunity costs—in other words, it’s your alternatives that matter. That’s how we make all of our decisions.”

“Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology.”

“How do some people get wiser than other people? Partly it is inborn temperament. Some people do not have a good temperament for investing. They’re too fretful; they worry too much. But if you’ve got a good temperament, which basically means being very patient, yet combine that with aggression when you know enough to do something, then you just gradually learn the game, partly by doing, partly by studying. Obviously, the more hard lessons you can learn vicariously, instead of from your own terrible experiences, the better off you will be. I don’t know anyone who did it with great rapidity. Warren Buffett has become one hell of a lot better investor since the day I met him, and so have I. If we had been frozen at any given stage, with the knowledge hand we had, the record would have been much worse than it is. So the game is to keep learning, and I don’t think people are going to keep learning who don’t like the learning process.”

“The general system of money management [today] require people to pretend to do something they can’t do and like something they don’t. It’s a terrible way to spend your life, but it’s very well paid.”

“[It’s] a funny business because on a net basis, the whole investment management business together gives no value added to all buyers combined. That’s the way it has to work.”

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

“I don’t use formal projections. I don’t let people do them for me because I don’t like throwing up on the desk.”

“Indexing can’t work well forever if almost everybody turns to it. But it will work all right for a long time.”

“Black-Scholes works for short-term options, but if it’s a long-term option and you think you know something [about the underlying asset], it’s insane to use Black-Scholes.”

“Black-Scholes is a know-nothing system. If you know nothing about value—only price—then Black-Scholes is a pretty good guess at what a ninety-day option might be worth. But the minute you get into longer periods of time, it’s crazy to get into Black-Scholes.”

“People calculate too much and think too little.”

“Money management does not create the right examples. Early Charlie Munger is a horrible career model for the young because not enough was delivered to civilization in return for what was wrested from capitalism.”

“If all you succeed in doing in life is getting rich by buying little pieces of paper, it’s a failed life. Life is more than being shrewd in wealth accumulation.”

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Economics

“Mankind invented a system to cope with the fact that we are so intrinsically lousy at manipulating numbers. It’s called the graph.”

“People calculate too much and think too little.”

“You’ve got a complex system, and it spews out a lot of wonderful numbers that enable you to measure some factors. You know they’re important, but you don’t have the numbers. Well, practically everyone 1. overweights the stuff that can be numbered because it yields to the statistical techniques they’re taught in academia and 2. doesn’t mix in the hard-to-measure stuff that may be more important. That is a mistake I’ve tried all my life to avoid, and I have no regrets for having done that.”

“Capitalism works best when there is trust in the system.”

“He had a little store, and his employees were stealing him blind, so that he never made any money. Then people sold him a couple of cash registers, and his store went to profit immediately. He promptly closed the store and went into the cash register business, creating what became the mighty National Cash Register Company.”

“The cash register did more for human morality than the Congregational Church. It was a really powerful phenomenon to make an economic system work better, just as, in reverse, a system that can be easily defrauded ruins a civilization. A system that’s very hard to defraud, like a cash register-based system, helps the economic performance of a civilization by reducing vice, but very few people within economics talk about it in those terms.”

“Undisclosed embezzlement, per dollar, has a very powerful stimulating effect on spending. After all, the embezzler spends more because he has more income, and his employer spends as before because he doesn’t know any of his assets are gone.”

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Psychology

“And so just as a man working with a tool has to know its limitations, a man working with his cognitive apparatus has to know its limitations. And this knowledge, by the way, can be used to control and motivate other people.”

“Harvard’s great E.O. Wilson performed one of the best psychology experiments ever done when he painted dead-ant pheromone on a live ant. Quite naturally, the other ants dragged this useful live ant out of the hive even though it kicked and otherwise protested throughout the entire process. Such is the brain of the ant. It has a simple program of responses that generally work out all right, but which are imprudently used by rote in many cases. … It seems obvious, to me at least, that the human brain must often operate counterproductively just like the ant’s, from unavoidable oversimplicity in its mental process.”

“Never, ever, think about something else when you should be thinking about the power of incentives.”

“Bad behavior is intensely habit-forming when it is rewarded.”

“It’s very important to create human systems that are hard to cheat. Otherwise, you’re ruining your civilization because these big incentives will create incentive-caused bias and people will rationalize that bad behavior is OK.”

“Dread, and avoid as much as you can, rewarding people for what can be easily faked.”

Buffett: “It’s not greed that drives the world, but envy.”

“The idea of caring that someone is making money faster [than you are] is one of the deadly sins. Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?”

“An idea or a fact is not worth more merely because it is easily available to you.”

“When will Social-Proof Tendency be most easily triggered? Here the answer is clear from many experiments: Triggering most readily occurs in the presence of puzzlement or stress, and particularly when both exist.”

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

“If people tell you what you really don’t want to hear—what’s unpleasant—there’s an almost automatic reaction of antipathy. You have to train yourself out of it.”

“This is a very complicated system. And life is one damn relatedness after another. It’s all right to think that, on balance, you suspect that civilization is better if it lowers the minimum wage or raises it. Either position is OK. But being totally sure on issues like that with a strong, violent ideology, in my opinion, turns you into a lousy thinker. So beware of ideology-based mental misfunctions.”

“What I’m against is being very confident and feeling that you know, for sure, that your particular intervention will do more good than harm, given that you’re dealing with highly complex systems wherein everything is interacting with everything else.”

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Life

“If you see the world accurately, it’s bound to be humorous because it’s ridiculous.”

“I describe something realistically that looks so awful that my description is disregarded as extreme satire instead of reality. Next, new reality tops the horror of my disbelieved description by some large amount. No wonder Munger notions of reality are not widely welcome.”

“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 the 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 try to get what you want is to try to deserve what you want. It’s such a simple idea. It’s the golden rule. You want to deliver to the world what you would buy if you were on the other end.”

“I think it’s a huge mistake not to absorb elementary worldly wisdom if you’re capable of doing it because it makes you better able to serve others, it makes you better able to serve yourself, and it makes life more fun.”

“There’s no way that you can live an adequate life without [making] many mistakes.”

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

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

“What’s the best way to get a good spouse? The best single way is to deserve a good spouse because a good spouse is by definition not nuts.”

“In Poor Richard’s Almanack, Franklin counseled: ‘Keep your eyes wide open before marriage and half shut thereafter.’ Perhaps this ‘eyes-half-shut’ solution is about right, but I favor a tougher prescription: ‘See it like it is and love anyway.'”

“I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition.”

“If all you succeed in doing in life is getting rich by buying little pieces of paper, it’s a failed life. Life is more than being shrewd in wealth accumulation.”

“When I run into a paradox, I think either I’m a totally horse’s ass to have gotten to this point, or I’m fruitfully near the edge of my discipline. It adds excitement to life to wonder which it is.”

“It is not always recognized that, to function best, morality should sometimes appear unfair, like most worldly outcomes. The craving for perfect fairness causes a lot of terrible problems in a system function. Some systems should be deliberately unfair to individuals because they’ll be fairer on average for all of us.”

“One of the great defenses if you’re worried about inflation is not to have a lot of silly needs in your life—you don’t need a lot of material goods.”

Houseman: “The thoughts of other were light and fleeting, of lovers’ meeting or luck or fame. Mine were of trouble, and mine were steady, and I was ready when trouble came.”

“Life and its various passages can be hard, brutally hard. The three things I have found helpful in coping with its challenges are:

  1. Have low expectations.
  2. Have a sense of humor.
  3. Surround yourself with the love of friends and family.”

“Above all, live with change and adapt to it.”

“The best Armour of Old Age is a well spent life preceding it.”

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