Charlie Munger - Berkshire's No. 2 man helps from the background

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Munger answers questions alongside Buffett for hours each May at the Berkshire shareholders meeting in Omaha, Neb., and again on his own at the annual meeting in California of Wesco Financial Corp., a Berkshire subsidiary that he leads.

Buffett sometimes relies on Munger to repeat questions because his hearing is better. After one shareholder asked a lengthy question this year about how Buffett got started investing and what mindset an investor should have, Buffett turned to Munger for help.

So Munger summed it up: "He wants you to instruct him how to become less like a lemming."

When Munger does weigh in, he often cuts through Buffett's longer answer to its heart. And sometimes he critiques Buffett's response.

"Well, that was real useful advice," Munger said this year after Buffett answered a question about choosing good managers by saying Berkshire buys businesses with strong management teams in place. Then he compared that to saying the best way to get through lean times is to keep a couple million dollars lying around.

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Direct Link - Berkshire's No. 2 man helps from the background.

Notes From A Conversation with Munger at Caltech in Pasadena

Charlie : I love Occum's Razor (Wikipedia). Einstein once said make everything as simple as possible, but not simpler. In the field of messy social sciences, use a variety of disciplines and look for a confluence of factors when dealing with "lollapaloozas". (significant and strange events, black swans)

For example, I was fascinated about what made people join Moonies, a cult-like group. It didn't make sense until I ran into Pavlov, who experimented on dogs by pushing them to nervous breakdowns (He did this by locking them in cages and then raising the water level up to mouth height, making them think they were about to drown) . Afterwards, they would act in the complete opposite fashion. This was very similar to one of the Moonies conversion methods: "causing the target to snap".

Direct Link - Notes From A Conversation with Munger.

Investing Checklist from Charlie Munger

Great digest from From Poor Charlie's Almanack:

• Measure risk - All investment evaluations should begin by measuring risk, especially reputational.
• Be independent - Only in fairy tales are emperors told they're naked.
• Prepare ahead - The only way to win is to work, work, work, and hope to have a few insights.
• Have intellectual humility - Acknowledging what you don't know is the dawning of wisdom.
• Analyze rigorously - Use effective checklists to minimize errors and omissions.
• Allocate assets wisely - Proper allocation of capital is an investor's No. 1 job.
• Have patience - Resist the natural human bias to act.
• Be decisive - When proper circumstances present themselves, act with decisiveness and conviction.
• Be ready for change - Accept unremovable complexity.
• Stay focused - Keep it simple and remember what you set out to do.

Links

• Charlie Munger's 10 Rules for Investment Success
• An Investing Principles Checklist from Poor Charlie

Investment Nuggets From Charlie Munger

Valuable investment insights from Charlie Munger :

• To avoid envy from other, you should deserve your success.
• 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.
  
• Never wrestle with a pig, for if you do, you will both get dirty, but the pig will enjoy it.
• The ethos of not fooling yourself is one of the best you could possibly have. It’s powerful because it’s so rare.
• 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’re 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.
• A single stock can make up 50 per cent of the value of the entire portfolio. Holding a concentrated number of stocks, that you know extremely well, will in the long term produce superior returns.
• The mental habit of thinking backward forces objectivity. One of the ways you think a thing through backward is you take your initial assumption and say, Let’s try and disprove it. For example, if you were hired by the World Bank to help India, it would be very helpful to determine the three best ways to increase man-years of misery in India — and, then, turn around and avoid those ways. So think it backward as well as forward. It’s a trick that works in algebra and it’s a trick that works in life. If you don’t, you’ll never be a really good thinker.
• 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.
• 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?
  

Direct Link - Investment Nuggets.