Charlie Munger – Advice On Investing

Speaker 1: Charlie Munger is the vice chairman of the greatest investing company in the world, Berkshire Hathaway, the company’s investments have basically been made by two great minds, Warren Buffett and Charlie Munger. During the time that Munger has been on board, Berkshire has earned a two million per cent return. That’s 20000 to one. So if you put in 50 dollars back then, you would now be a millionaire. And this video, we’re going to show you six pieces of Munger’s investing advice that has helped attributes to this ridiculously high return. I’m going to let Munger do the talking, though.

Speaker 2: So many of you now who want to be rich by going into finance and of course, that multitude is not going to all get rich and and of course, ninety nine percent will be at the bottom 99 percent. That’s just the way it’s going to work. I look at the people in my generation. Were the nerds who were patient and rational? Thankfully, did well live within their there and on. And where it could be sensible and. And when I saw an opportunity, grabbed it pretty fiercely and so forth. And I think that will work for the new nerds of the world.

Speaker 3: Here’s my question for a 23 year old with high ambitions, some initial working capital and a genetic wiring, as you call it, for disciplines like investments, mathematics and technology, what do you foresee as the significant areas of opportunity over the next 50, even 100 years? And if you were in my shoes, what would be your approach and methodology for really learning, tackling and mastering these areas of opportunity for the purpose of massive value creation?

Speaker 4: Yeah, of course. The place to look when you’re young is in the inefficient markets. You shouldn’t be trying to guess whether, you know, one drug company has a better drug pipeline than another. You want to go when you’re young someplace that’s very inefficient.

Speaker 5: And you shouldn’t be trying to guess whether the stock market is going to go up or whether long term bonds are going to change in yield. I mean, you don’t have anything to going in that kind of a game, but you can have a lot going in games that very few people are are playing and maybe whether even got their heads screwed on wrong in terms of how they’re thinking about the subject. The RTC was a great example of a chance to to make a lot of money. I mean, here was a seller of hundreds of billions of dollars worth of real estate where the people that were selling it had no economic interest in were eager to wind up the thing, you know, and they were selling at a terrible time when the people who had been venturesome and lending were no longer lending the people to them venturesome and in the equity. And the real estate had gotten cleaned out. So you had a great background of environment and then you had you had an imbalance of intensity in terms of analyzing situations between the seller, which was the government with a bunch of people who had no economic interest in it and were probably eager to wind up the job. And buyers on the other side who were of the generally cautious type because the more venturesome type taken was a lot of action. So and there were huge amounts of property. So you get these opportunities and you’ll get more I mean, there won’t be any scarcity of opportunities and in your life, although there will be days when you feel that way.

Speaker 4: Also helps to look at the business strategy problems as though you’re an owner, and so my advice to you is you don’t want to be never get to be a career so much, you don’t see it from the owner’s point of view. That’s what General Motors did, had a bunch of careerists and an owner would have seen immediately that their situation was hopeless and they just romped through it with a lot of denial and stupidity and pomposity. And, of course, they went bankrupt. The mightiest company in the world went bankrupt. And none of those hotshot executives thought like an owner, they would have seen that it was hopeless. And the investment world people, the enormous amount of high skill people trying to be more skillful, normal and yet another activity that gets so much attention and weird, things have happened. And years ago, one of our local investment counseling shops, a very big one, they were looking for a way to get an advantage over other investment counseling jobs. And the reason this follows, we’ve got all these brilliant young people from Harvard and so forth, and they work so hard trying to understand business and market trends and everything else. And if we just ask each one of our most brilliant man for their single best idea, then created a formula. With this collection of best ideas, we would outperform averages by a big amount. And that seems plausible to them because they were ill educated. That’s what happens when you go to Harvard and Wharton and and and so they tried it out and of course, it failed utterly. So they tried it again and failed utterly. They tried the third time and also failed. And of course, what they were looking for is the equivalent to the alchemists of centuries ago who in turn led to the goal. They thought of it just by a little later magic wand over to a goal that would be a good way to make money of this counseling job was looking for the equivalent of turning into gold. And of course, it didn’t work. I could have told them, but they didn’t ask me. Now, the interesting thing about this situation is that this is a very intelligent group of people that come from all over the world. You’ve got a lot of bright people from China where people tend to average out a little smarter and and the. The issue is very simple, there’s no question why isn’t that plausible idea failed? Just think about it for a minute. You’ve all been the fancy educational institutions. I’ll bet you there’s hardly a woman in the audience who knows why that thing failed. That’s a pretty ridiculous demonstration I make. How could you not know that? But that’s one you should be able to answer. It shows how hard it is to be rational on something very simple, how hard it is, how many kinds of crazy ideas people have and where you don’t even know why they don’t work, even if it’s perfectly obvious that you’ve been properly educated at a place like Berkshire Hathaway or even the Daily Journal, we’ve done better than average. And now there’s a question, why has that happened? Why has that happened? And the answer is pretty simple. We tried to do less. We never had the illusion we could just hire a bunch of bright young people and they would know more than anybody about canned soup and aerospace and utilities and so on and so on and so on. We never had that dream. We never thought we could get really useful information on all subjects like Jim Cramer presents. It tends to have an. And we always realized that we worked very hard, we can find a few things where we are right and the few things were enough and that was a reasonable expectation. That is a very different way to approach the process. Yeah, I think it also helps to be willing to reverse course, even when it’s quite painful, as we said here, I think Berkshire is the only big corporation in America that is running off a derivative book. And we originally made the decision to allow the general rate derivative book to continue. And it’s a very unpleasant thing to do to reverse that decision. Yet we’re perfectly willing to do it. Nobody else is doing it. And yet it’s perfectly obvious, at least to me.

Speaker 2: But you can’t look everywhere at once, just any more than you could run a marathon in 12 states at once, and so you have to have some system of picking someplace to look, which is your hunting ground. But you’re looking for a value in every case and. And what is interesting to me is you talk about the U.S., I agree with you, I think the strongest companies are not in America. I think the Chinese companies are stronger. And the hours are growing faster. I have investments in them and you don’t have. And I’m right, you’re wrong. Are you can laugh, but I spoke to several girls. Maybe it was here I saw his face in the audience is the most successful investor in the whole damn room. Where does he invest China? Boy, was he smart to do that. And is he good at. It really helps if you know which hunting ground to look in. Rect. We all do better hunting and hunting where the hunting is easy. I have a friend who’s a fisherman. Says I have a simple rule, 6000 fishing. Fish where the fish are. That’s you, oarfish, where the bargains are. That’s Apple. Fishing is really lousy where you are. You probably look for another place to fish.

Speaker 1: And that’s one of the things I like about Monáe. He doesn’t mince words, he just tells you how it is straight. It doesn’t matter whether you like it or you don’t like it. And yes, the rules that he has made and found over the course of his life that have worked, his net worth is over one point six billion dollars, which smart investing has been the key to building this? There’s definitely a lot that we can learn from Charlie Munger.

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