Charlie Munger: Investment Practices of Leading Charitable Foundations

Talk 6 of the eleven in Chapter Four of Poor Charlie’s Almanack. See The Eleven Talks of Poor Charlie’s Almanack for the full collection.

Key Takeaways

There is an intense psychology in investing because you’re trying to avoid overconfidence.

Highlights & Notes

Kyle’s reading layer from Poor Charlie’s Almanack, preserved verbatim. Munger’s text and pulled-in source quotes appear as bullets; Kyle’s own annotations appear as Kyle: callouts.

• 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. #Investment Returns
• Human nature being what it is, most people assume away worries like those I raise. After all, centuries before Christ, Demosthenes noted, “What a man wishes, he will believe.” And in self-appraisals of prospects and talents, it is the norm, as Demosthenes predicted, for people to be ridiculously over-optimistic. For instance, a careful survey in Sweden showed that ninety percent of automobile drivers considered themselves above average. And people who are successfully selling something, as investment counselors do, make Swedish drivers sound like depressives. Virtually every investment expert’s public assessment is that he is above average, no matter what is the evidence to the contrary. #Investment Returns #Investment Returns
• Similarly, the hedge fund known as “Long-Term Capital Management” recently collapsed through overconfidence in its highly leveraged methods, despite I.Q.’s of its principals that must have averaged 160. Smart, hardworking people aren’t exempted from professional disasters from overconfidence. Often, they just go aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods. #Investment Returns
• The best defense is that of the best physicists, who systematically criticize themselves to an extreme degree, using a mindset described by Nobel laureate Richard Feynman as follows: “The first principle is that you must not fool yourself, and you’re the easiest person to fool.” #Circle of Competence
• Indexing can’t work well forever if almost everybody turns to it. But it will work all right for a long time.
• “There is no limit to what a man can do or where he can go if he doesn’t mind who gets the credit.” Robert W. Woodruff
  • “Investing is not a team sport–company building is a team sport, but investing is an individual sport.” -Chamath Palihapitiya #Investing #Investing 101 2.0 #Social Capital
  • “We’re not a basketball team. We’re a track and field team. We’re on the same team but we’re running different things and have different strengths. But we’re wearing the same team name. We all do better if the team wins.” (Dan Sundhein, Founder of D1) #Investing #Chamath Palihapitiya
• My controversial argument is an additional consideration weighing against the complex, high-cost investment modalities becoming ever more popular at foundations. Even if, contrary to my suspicions, such modalities should turn out to work pretty well, most of the money-making activity would contain profoundly antisocial effects. This would be so because the activity would exacerbate the current, harmful trend in which ever more of the nation’s ethical young brainpower is attracted into lucrative money management and its attendant modern frictions, as distinguished from work providing much more value to others. 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. And other similar career models are even worse.
  • “Too many smart people go into finance and law. That’s both a compliment and a criticism.” Elon Musk