The wisdom and wit of Charlie Munger. December 15, 2023

25:19What am I doing investing in that? I don't know anything about that particular field and it's almost always, I would say, never worked out well. I'm not sure this is the quote you're looking for, but it's similar and I like this one too. 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. Yes, yes. And it's just, you know, and we've talked before about fund managers. The fund managers who end up doing the best over long periods are those who simply don't blow up on the way through. Yes. And the statisticians will say, oh, that's survivorship bias.

25:55In this case, yes, that's precisely the point. The things you need to do to stay alive, to stay in the game, to not do stupid stuff, it is so difficult. Temperament's really important. We'll talk a little bit more about that in a minute. But the idea of just not being stupid. And what a stupid stupid is following the crowds, getting excited when everyone gets excited, getting pessimistic when they get pessimistic. It's getting outside your own circle of competence, as you've said, taking on unreasonable amounts of leverage or, you know, bets you don't have, you don't understand the odds of well enough, all that kind of stuff.

26:27I think that's a really, really, really important one. Go on. Yeah, I was just going to say I love that stat though with those really great long-term results with fund managers because they are out there. There's some incredible fund managers out there. They are the minority, a very small minority, but they are out there. Two things that stood out when you investigate them, or others have investigated them and I've read about it, is they're never at the top of the league tables. Yes, exactly. Never, almost, and if they are, it's just luck. So each year if you sort of say who is the best fund manager, of all the fund managers in a particular market who did best this year, they're never there.

27:08They're always sort of, you know, up top, certainly not at the bottom of the pack, but they're not at the top. And they also have these very, very long periods of underperformance, It's almost all of them, right? But it's that consistency. The person who's at the top one year is almost certainly at the bottom the next year, right? Like you go from hero to zero and vice versa very, very, very quickly in this game. But yes, so I really love that. And you kind of touched on there an idea, another one that probably maybe Charlie's most famous sort of idea is this idea of invert, always invert. Actually, he stole from a 12th century mathematician or something.

27:49But it is this idea. His quote is, all I want to know is where I'm going to die, so I'll never go there. I won't go there. And what it's really saying it is here is that if you want to find a really good business, understand what a really bad business looks like. Yes, that's a good way to do it too. You know, that is the way to do it. So, again, I'll let Charlie say it. Turn a situation or problem upside down. Look at it backwards. What happens if all our plans go wrong? Where don't we want to go and how do you get there? Instead of looking for success, make a list of how to fail through sloth, envy, resentment, self-pity, entitlement, and all the mental habits of self-defeat.

28:32Avoid these qualities and you will succeed. So this is why often we, especially on the mailbag episodes, we occasionally get questions on leverage and all of this kind of stuff. and it can be wonderful when it goes your way. But we've always sort of been a bit negative on it, not because it can't work or maybe even could work if you're really clever about it. But we also know that it's that, that's how a smart person undoes themselves very quickly is through leverage. And so it's that inverse, like, how do I die? I am die by taking on huge amounts of leverage. So I'm just not going to do it. Could I do better?

29:07Yeah, probably. What about this? If we did that? Yeah, maybe I could do some covered call writing strategies, get a bit of extra income. Yeah, I could. I could, but I also know that there's, you know, there are troubles with that kind of stuff. And back to the keeping it simple idea, I just love it. It's just a lot of worldly wisdom in all of that. Speaking of which, remind me of another quote that I actually put in this article I mentioned, quote, always take the high road. It's far less crowded. That's so good. And it's just what I mean about the old-fashioned stuff, mate. Like it's, I think, A, I think it's ethically morally right.

29:39I kind of want to. Well, I'm not going to suggest I'm as morally righteous as Charlie was or anything else, but that idea of just actually do the right things because they're the right things and you'll probably get the right results as opposed to what if I take this shortcut? What if I try and do this, try and do that? What if I'm a bit too clever by half? Couldn't I possibly use leverage? What about this flyer I heard from the cabbie? What if this company does really, really well? What if I might miss out on it? The slowest, it's honestly, I've written, I try not to because I've written a lot.

30:07The ASAP tortoise and the hare thing, I just keep coming back to that over and over and over and over again, right? And it's not even – the tortoise and the hare is about the winner and the loser. You don't even have to be. We just talked about the fund managers who don't do anything stupid and end up doing really, really, really well. And it's kind of like there's no guarantees and no promises. I need to be careful. But if you're young enough and you're saving enough, the only way you don't get rich is by getting in your own way. It's literally, literally that easy. And so, link to Charlie's point.

30:36Simple but not easy maybe is the way that they would put it. Thank you. And that's important, right, because the biggest risk is you get dragged off that very simple but not easy path into a what if I did this? Someone else is making money over here. The market fell. Maybe I should sell everything. It's a weird thing where it's almost like, yeah, speaking of the high road, you know, in my head there's this map, right, and the map has this long and windy road. it's narrow and it doesn't go straight and it's all but you're going to get to the destination the other road is really straight speed of 110 but there's potholes and landmines and bridges and construction work and if you drive it well you'll probably get there but you know the number of potential obstacles that the pitfalls the whatevers travel the road without them no no i shouldn't say without them again because it's investing i am not supposed to say it but it's obviously not true you can still there's still ways of losing money but that idea of like just start early enough, invest enough.

31:39You want to use the word guaranteed, right? Right? That's what I'm trying to avoid. But like that's as close as it gets. It's literally, if you do just the sensible things, as you say, simple but not easy, start early, add regularly, diversify prudently. It's honestly not, and so Charlie's point about, you know, they try to avoid stupid things. They didn't have to do wonderful things really well. They should avoid stupid things. And again, it's a bit of false modesty from Charlie and Warren because they are certified geniuses. So, you know, we're not there net on us. But it's just not that hard.

32:11I think that's the point. So the high road being farthest crowded for me, it's just that idea of just A, do the right thing because it's the right thing. B, it's also probably going to get you to the way you want to go without the risk of actually having to go back to square one, which is disaster financially. Yeah, I love that. Let me hit you up with one, which I love this as well. There's a few different takes on this from various sages throughout the millennia. But Charlie says, the big money is not in the buying and selling, but in the waiting. The waiting. Isn't that brilliant? That's compounding 101, right?

32:45Oh, you've just reminded me. Of course. The best one of all is like the first rule, it just reminds me of Fight Club every time, which is why it comes so readily to mind. The first rule of compounding is don't interrupt it, right? Like get out of the damn way when it's there because, geez, it feels I've lamented several occasions about how smart I have felt locking in a 50%, 80 % double, you know, 2X gain. And then in five years later looking back going, huh, that would have bought a house for me if I wasn't so clever. You know, like it's a simple, not easy kind of thing. It's like why is it simple?

33:22Well, I can explain to a 12-year-old why it's a good idea because it's like my paper folding analogy, you know, 42 folds and you're at the moon. It compounds very, very rapidly. Simple idea. Easy? Nope. Not when the market's crashing 50%. That's right. Not when the bulls are running and all your friends are getting rich going in and out, in and out, in and out. You know, you're sitting there on your – it doesn't – it's not just that it's difficult. You're losing money. You want the pain to stop. Someone else is making money. You want to join them. Oh, my God. It feels – it also – it feels reckless.

33:52Yes, it does. It feels reckless. Didn't you read the latest annual report? Everyone knew the market was going to crash. Same sort of sales are down 0.3 % in this quarter here. And we've had this terrible GDP figure. How could you stay invested in this? You know, I've heard that the S &P 500 is going to drop 0.3 % in the next 12 months according to Barclays. Are you like, it just, and you go, no, I'm okay. I'm just going to sit on this. Like you feel stupid, reckless, negligent, all of these kinds of things. But it really is in the waiting. and I've said on many occasions again, I don't do many of them these days, thank God, because they're always painful, but there used to be a lot of like investor expos and that kind of thing.

34:32Yeah, yeah, yeah. And it was always, always, always a little old lady who'd come up and just, he was worth$10 million because her and her husband bought a basket of shares 30 years ago and forgot about them. And then he'd come and then there's the other dude again with the 12 screens and the Bloomberg term and all the subscriptions like barely getting. It's going to fall by Christmas. It's going to be down 2 % next week. And I'm sure if I gave them an IQ test, they would score very highly. Yes, yes, yes. You know, like they're not dumb people, but they didn't have the, what's the word for it, character, emotional fortitude, wisdom kind of thing, different things than just grunt intelligence, you know, and it's in the waiting.

35:15It's in the waiting. I would say this. I'll make a statement. Getting rich is easy. Getting rich slow, to your earlier point, is the easiest thing in the world. You start early enough, you spend less than you earn, and you do nothing other than just put it into a broad way. You are guaranteed. I can't use that word. Legally, I can't use that word. But mentally put that word in there. Whatever the other word is, it doesn't mean that. It means almost that. That's the word we mean. That's the word that we mean. It really is. It is getting rich quick. Well, now that's a much more difficult challenge.

35:48And if you do it, you're probably just very, very, very lucky. And getting rich slowly is impossible if you're trying to get rich quick on the way. Exactly, exactly. Can I let Charlie confirm what you just said to make you feel smart? Yep. Quote, a lot of people with high IQs are terrible investors because they've got terrible temperaments. And that is why we say having a certain kind of temperament is more important than brains. You need to keep raw, irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success.

36:27So good. That's it. That's literally. The Millionaire Next Door book talks about all the surgeons that make squillions of dollars in income and how few of them actually have fantastic portfolios. Yeah. And then there's the, as you say, the little old lady or the janitor or the whoever who's just regularly doing the thing and doing very nicely about it. It is a remarkable – again, not easy as you say. It's a superpower. It's a superpower. Right, exactly. And I'll tell you as someone who's not that far off hitting a half century, it goes by quickly, right? Like when you're 20, you can't fathom being 40, right, let alone 30, but it'll get there.

37:07Well, you'll either die or you'll get there, right? That's right. Plan to get there. And it would be nice to be retired at 25, sure, you know, But it's unfortunate. And I did this too. This is a classic mistake I made. If I could go back and do anything differently, it would just be start earlier, Andrew. Yes. Start earlier. If there's one thing you did, just start earlier. You know, like a lot of – I really started to lean into this probably fully, fully seriously about 10 or 15 years ago. In other words, the starter gun went off and I sat there tying my shoelaces for the first half hour of the race, you know, and it's just – Oh, my gosh, it made a difference.

37:49And because when you mathematically understand compounding, that five years at the start of your life, like the difference that makes at the end of it. Like Buffett made most of his money after the age of 50. Yes, 55, I think. And not just like, oh, you know, a little bit more than he did. No, like 90 % of his money was made after it was 50. His rate of return went down. Yes, that's right. Again, that's sort of compounding. So, yeah, that is a big one. And I would say this too because I've made that point before and people go, oh, that's all good and well, but I'm 68. It's like, well, short of inventing a time machine, it's still a good lesson to have because, you know, you might be a Charlie and do a 99, right?

38:31You've still got 30-odd years or something to go. So the best time to plant an oak tree is, you know, 30 years ago. The second best time is today. And so it is a lesson no matter what age and what stage of life you're at. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

38:54Mate, this is a bit of a throwback to something you mentioned before about Tyler getting the invert idea from some 12th century genius. Charlie said, quote, There is no reason to look only for living models. The eminent dead are, in the nature of things, some of the best models around. I love that, yeah. And there's just that brilliance of that idea that we somehow tend to think that all of our problems are new and that the only way to solve them is to ask people who are around who have just done them. And it's a form of kind of availability bias, right? Particularly if you're not a reader, it goes back to your point you made before.

39:28But if you're not a reader, you look around and think, well, okay, there's Kim Kardashian and Britney Spears and Richard Branson and Mark Burris and Warren Buffett, right? And you go, okay, well, that's my group. You've already mentioned, you know, Munger's hero was Ben Franklin who died, I don't know how much earlier than Munger was born, but that idea of actually someone worth copying, worth learning from, there's another quote too, I'm not sure if I can find it quickly, but basically talks about the idea of it's much better to learn from other people's mistakes and try and learn everything yourself from first principles, right?

39:59There's value in understanding things from first principles, but learning from those who've kind of uncovered, discovered, and you mentioned the different mental models and the different fields of study and excellence, that idea of getting it from those people first, I think there's a whole lot of value there. Oh, so, I mean, here's, I mean, there, what's the saying? There's nothing new under the sun. Yeah. I mean, there are some genuinely new things on planet Earth, you know, AI, things like that. You know, they just, they weren't around before. And then there was a world before steam power. There was a world after steam.

40:33There was a world before, like, you know, dare I say, there was a world before Bitcoin. There was an, ah, it's right. So there are examples, right? And in a world where very rapidly changing technology, you feel as though that's the norm. But the big ideas, I mean, the Greeks figured out most of it, right? Yeah. And then over subsequent centuries, we sort of filled in the blanks. And it's sort of the amount of wisdom that is contained within all of that. So you'll find great. I mean, even Sun Tzu, you know, a general. Part of war. about writing about war, that's actually a very big business book, right?

41:08Because there are so many lessons in that. Yeah, that's right. I love all of that kind of stuff. And so I was very late to finding a passion in history. I can't get enough of it now. It's far more interesting than reading current business biography books of superstars who tell you why they're made. Any autobiography from a business lady, just throw it in the bin. because, you know, the TLDR, as the kids say, is just like I worked really hard and I'm really smart and I deserved it, you know. And the missing bit is I got really lucky. Yeah, I got completely lucky, you know. Brent's stumbled on a shubula bell.

41:45And this is our thing, by the way, they're not bad people because they're lucky. No. You've got to work hard. You've got to be smart. Yeah, exactly, exactly. The ball got thrown to you and you ran with it good on you. Like a lot of people may have stumbled, a lot of people would have fumbled and missed the ball. And you made some good decisions and you did genuinely very well. Credit where it's due, but let's not pretend. It was entirely all because of you. Yeah. So I do like that a lot. And just these days too, it's so easy with podcasts, right? You don't even have to read. Just go for a walk around the block and you'll just be hit with all this brilliant wisdom.

42:16Here's another little random shout out I started listening to recently too because it's free on Spotify and I'm very tight. It's Meditations by Marcus Aurelius. Oh, right. Oh, brilliant. Just so like you just find yourself going, yes, yes. Like it's so good. And this is a Roman emperor from 2 ,000 years ago, right? Charlie would approve, mate. I strongly agree with Charlie on that one. Can I share two fish quotes? I'll let you jump in with a quote in a minute. Yeah, yeah. Two fish quotes, which I found a Yahoo Finders article side by side, funnily enough. First quote, I have a friend who's a fisherman.

42:48He says, I have a simple rule for success in fishing. Fish where the fish are. You want to fish where the bargains are. That simple. If the fishing is really lousy where you are, You should probably look for another place to fish. Yes, yes. And that's always been, again, I'm not going to claim that I am anywhere like Charlie, but for shared advisor service I've run now for more than, jeez, how many years? Was it 12 years, 12 and a half years? 11 and a half years. I've always, you know, I hate the labels, value or growth or mid-cap and small-cap. They're all arbitrary allocation. And people do it.

43:27Why? Because humans like to categorize because it just makes it easier. We like heuristics, not unreasonable, just what we do. Again, I've said before, one of the quotes I'm kind of most convicted about of my own, not that I'm a quote machine, but the ideas, more breathing quotes, is successful investing is the art of overcoming our evolutionary selves. Yes. It's being able to sublimate the parts of ourselves that aren't made for long-term investing and that would drag us away. And so at ShareAdvisor, I have the entire time I've run it, said we're not going to be guided by a style box. We are going to fish where the fish are.

44:05Again, it's not a new phrase. It's not just because Charlie said it or I said it. But that idea of why would I say I don't want to buy that company that I think is going to beat the market because it doesn't suit the label I put on the front door. So you mean you're actually going to knock back money. Now, I'm not saying go outside your circle of competence either, by the way. So I'm not saying just because someone says something, I don't think high-tech growth, buy a farm or something, it's worth buying, don't do that. But it's like if you see something out there, it's like, oh, I think that's actually a really compelling investment idea.

44:32I think I can make money doing that. But I don't want to buy those sort of companies. Firstly, make sure it's in your circle of competence. Don't, you know, if you're unwittingly doing that. But not because it has a label on it. I mean, I rattle about this all the time when people say, oh, small caps are risky. What, is it every company less than$300 million or whatever arbitrary limit is a bad investment? Yeah, exactly. What? He's buying that to me. Maybe a majority are, yeah, but no, I mean, it's the dumbest thing ever. So I think that is – actually, it's a – I've often said it's an advantage because rules, quote, unquote, like that keep a lot of people away.

45:11It's much less competition. So when you are fishing, not only go where all the fish are, go where there aren't a thousand other fishing people around there, you know, dipping a line into the water. I want lots of blue ocean around me, whereas lots of fish – You're torturing the metaphor beautifully. But no other fishermen. Can I throw my second one, which is actually my favourite? I've heard this before and it's just brilliant. Charlie's talking about fund management, investment management. We've talked before about the fees and stuff that go with that. No surprise. By the way, you want a confirmation bias.

45:41If you agree with Charlie Munger, he agrees with you. I would normally say to people, just be careful of confirmation bias. This time I'm going to say, lap it up. If Warren and Charlie are on the same page as you are, there's a very, very, very, very good chance you're getting something right. So he says, quote, I think the reason why, it says we, he doesn't mean we, he means as a country or an industry. So let me just do that quickly. I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, my God, they're purple and green.

46:14Do fish really take these lures? And he said, mister, I don't sell to fish. Which is just so brilliant. It is just brilliant, is it not? Yeah, it just nails it in so many different ways. It so does. It so does. Yep, yep. And you actually see a lot of this come through with some of the research they do with pricing strategies and models and the rest of it. We use all those kinds of things all the time. Just if your bottle of wine isn't selling, triple the price. All of a sudden, now you're selling premium wine, but it's the same wine. No, it's not. It's premium wine. Look at the price tag. You know, we are so suckers for all of that kind of stuff.

46:56Yep. It's absolutely the case. What do you got? We could do like a 10-hour episode on this. There's so many. In preparation for this, because as all our listeners know, we do deep, deep research. Oh, ours. So I Googled manga quotes and so I'm just scrolling through the results and it's like, oh, yeah, that one. Oh, yeah, that one. All you have to do. I do like this one though. opportunity comes to the prepared mind, which I think I won't, I won't give Charlie too much credit for that. Cause there's a variety of versions of that, that again, stretch way back through the eons, but it is really good.

47:31I think one of the things that is very difficult, well, for me, and I'm going to assume for most investors is that you walk up to the plate, you're ready to swing, you know, I'm ready to go. The reality is in markets is that, well, there are different, there are different amounts of opportunities at different times. A lot of the time and what can feel like the longest of times, there's not really many great opportunities, in which case don't do a damn thing in terms of buying or selling, but you, but you can at least prepare yourself, you know? So when the last thing you want to do is, is make a rush decision in the moment because you feel your need to the price down 30%.

48:15Oh, is this an opportunity? I don't know. I need to research this. So there's plenty of companies that I have spent time looking at and I've just thought, no, it's not right for me. But my mind is prepared. I know what I do like and don't like about those companies. I know what price I think I would pay. You know what it fits in the slot? Yeah. It reminds me of that kids game where you've got the blocks and you put the barrel and the lid's got the different shapes, the star shape and the square shape and the circle shape. Oh, yes, yes, yes, yes. It's like, I don't know if I listen to know what I'm talking about.

48:44It's like that. It's like, do I have something that fits into the shape? Yep. The prepared mind is the shape. I want something that looks and feels and, you know, smells, tastes like this. Yes. And when it fits in the slot, then that's the one for me. If another piece doesn't fit in the slot, it's not necessarily the wrong piece, it's just the wrong piece for me. It doesn't make sense for me to invest in. I'll give you an example we talked about recently on a recent pod with bank stocks. I'm week in, week out bagging the bank stocks, you know, I think for good reason, but time will tell. But I have said that whenever, and I'm not saying when next year because I know when it's going to happen.

49:17I have no clue when it's going to happen other than to say at some point there'll be a bad recession. And when that happens, banks probably won't do too well. When that happens, they'll probably recapitalise. And when that happens, we'll see earnings fall, we'll see some dilution, everyone will hate them. I'm going to be backing up the truck because I'm mentally prepared, not very specifically when it happens, but I know it will happen. and they tend to be really great opportunities, not because I'm going to pick the bottom or anything nonsense like that. But I've read enough. I've looked through history.

49:54I'm drawing upon all these ideas. I know that they tend to – if I'm pretty confident that even if the worst comes to the worst, they're probably going to get bailed out. And right at that point of recapitalization where now they're strengthening up the balance sheet, like I'm all in. I am all in, right? And that is a great example of it. So you'll often look at a business, this is hard too, where it's like, I love it. I love it. I love everything about it. Huge return on equity, massive earnings growth, alliance management. You name the box and it's ticked. The one box it might not tick though is price.

50:27So again, I don't know when the opportunity will come, but at some point it's probably not unreasonable to think that they will get a price. And then my mind is prepared. I've done the work. There is not a single minute of wasted time when you're researching a company, even if the ultimate decision is I will never invest in that dog. That's a great example. You know, it is not wasted at all. And in fact, in the principle of inversion, it's like I spent all this time figuring out that I don't want this company and never will want this company, even at an attractive price. I've now at least know what to avoid, you know, in other similar scenarios.

51:00So, yeah, I love that quote. Opportunity favors the prepared mind. It does indeed, mate. Here's one that actually doesn't get enough. I'm pretty sure I've mentioned this before. I've certainly written about it before. It doesn't get anywhere near enough coverage. I think you and I have talked about six out of 10 and the occasional losses and all that kind of stuff. Charlie lays this out in probabilistic fashions. And what I also love about this is he uses a betting, a gambling analogy. And why I like that, frankly, is I don't mind kicking a hornet's nest every now and again. There are those out there who would make their name by pretending that investing is somehow this noble art where success is assured and that people who are gamblers are at the other end of this thing.

51:44It's all speculative and it's all terrible and it's somehow immoral or whatever else. And I think I'm not a speculator at all, but I also don't believe in the false guarantees, the false position of all you do is follow this model and you'll always make money. It doesn't exist. And so Charlie uses a metaphor which I think bridges the gap nicely. He says, quote, To us, investing is the equivalent of going out. Sorry, I won't say. I'll say here. We look for the horse with one chance in two of winning, which pays you three to one. Yes. You are looking for a mispriced gamble. That is what investing is.

52:23And you have to know enough to know whether the gamble is mispriced. That is value investing. Yep. And I just think that is really, really important. Charlie's not saying we look for the horse that's guaranteed to win and is paying us two to one. Yep. Because it doesn't exist. I mean, he would take it. Buffett's mentor, Ben Graham, was shooting fish in a barrel, buying businesses for less than their assets. I mean, that is literally fish in a barrel stuff. And he just worked out the market was stupidly inefficient 1930s and you can make a squillion dollars doing it. Now, that went away, right?

52:52That was a guaranteed return as you get. Yeah, yeah. But this time it's like you're – so I'm going to read again just because it's really important. We look for a horse with one chance in two of winning, in other words, 50 % of the time it's going to win, which pays you three to one. Now, if you play that out often enough, you and I have talked about the loaded coin before. This is exactly what it is, right? You want to have one chance in two of winning. In other words, half the time it's going to lose. Charlie's literally saying half the time, and again, he's not saying his investments. He's using the metaphor to say half the time in this example, you'd lose.

53:21But when you win, you win three to one, which covers your losses and leaves you profit over the top. And that's – I've always loved this quote, mate, because frankly, it punctures the egos and the self-importance and the whatever of those people who would say, oh, no, investing is – it's this thing over here. It's just about doing what you have to do and making money and it's all easy and it's perfect. Just follow the model, follow the formula, and we're good. Now, I'm the first to say don't gamble on the horses for money. Do it for fun if you want to, but you're not going to make money at doing it.

53:53but this idea of that bit in between of he says that's what investing is, a mispriced gamble. And I think it's a really useful way. It's basically probabilities, right? He just puts it in very common language. That is exactly how investors should be thinking about investing, think about buying stocks, holding them, selling them, the returns you get, managing a portfolio. It's all there in that, you know, what, 12, 15 words. I was holding court on this very thing at a recent weekend. Holding court, I see. Holding court, I was. Your poor friends and family, I'm assuming. We did have some very close friends from school.

54:24We'd catch up every now and then. We had a bit of a boys weekend. We were playing some poker. We don't mind a bit of poker. Okay. Charlie was big on poker in his early years too. Yeah, yeah, yeah. But I lost this big hand, right? A lot of money was on the – well, a lot of money for$20 or something. You know, but there was a big pile of chips on the table and I lost. And one of my mates was like, ooh, you played that wrong. And I said, well, I think I played it right. And I would do it the same again. what are you talking about you lost like well yeah in hindsight but I feel as though that this by the way I'm fully aware this may be just psychological protection mechanisms to make me feel as though I did the right thing when I didn't but I feel as though if ever I got that hand and those cards are on the table I should have played it that way because again you you can get punished for doing the right thing in this game and you can do the wrong thing and get rewarded So it is that probabilistic mindset which is right.

55:23Don't measure the quality of the decision based on the specific outcome. To your point with a loaded coin, it might be designed so that 90 % of the time it comes up heads. So what are you going to do? You're going to bet heads. But one in 10 times it's still coming up tails. You go, oh, I should have bet on tails. No, you should always bet on heads. Always bet on heads. It's the same with the poker hands. I can't remember what it was, but it was like, you know, actually I had a full house and the other person had a better full house. And anyway, so it was one of like, well, why wouldn't I play it that way?

55:58And this is the same thing. When you see an investment that ticks all of the boxes and looks as though it's got every chance of working, but it doesn't work out, that is going to happen a lot, in fact. And sometimes your buyer is just the dumbest business in the world and it's up 50 % the next day. So it's learning the right lessons. Yeah, 100%. And that probabilistic thinking is really good. Another thing you reminded me of there just in speaking of value on that, which was another chart that he said, and this is probably the biggest contribution, maybe this is stretching at it, but I don't think so, that Charlie made to Berkshire.

56:36Before, pre-Charlie, Warren was a very different type of investor. Yes. Very different type of investor. And really what Munger is, I guess, famous, I suppose, for bringing to the table here was the idea that it's better to have a great business at a fair price than a fair business at a great price. And he said, you must value the business in order to value the stock. And I've always loved that as well. And I say that knowing that I've got some companies that I really don't value the business too much, but I think they're damn cheap. So I'm breaking some rules here as I say it out loud. But the so what here is that start with the business.

57:17Is this a business that I would want to be an owner in? You know, if the answer is no, then don't bother doing the valuation work. You know, it might be cheap, you know, but if it's a really great business, like, wow, what an economic machine this thing is. It's going to stay around for many years, just gush free cash flow. Now I'm interested. Now I'll do the valuation work. And that pretty much had to be the pivot that Berkshire made because you can't be the kind of investor Warren was with billions and billions of billions in assets under management. They had to go for quality and they had to stop worrying about getting like these incredible bargains, but more just like, hey, it's a great business and that is actually a reasonable price for the business.

57:57We're just going to hold that for the next 30 years. Yeah, I'm going to read a bit from the San Francisco Chronicle, mate, to support that. Just Google it and found the article. So I'm just going to read a paragraph or two. Quote, Berkshire bought C's candies from the C family in 1972 for$25 million. Buffett has credited Munger with persuading him to make the investment. Quote, C's candy company was the first high-quality business we ever bought. End quote. Munger reportedly said during a 96 visit to San Francisco. Buffett then goes on to quote, Ownership of C's has taught us much about the evaluation of franchises.

58:30We've made significant money in certain common stocks because of the lessons we learned at C's. End quote. You're right. It was absolutely that transition. And speaking about being a learning machine, right, Buffett made a squillion dollars before C's. So it wasn't that his model stopped working or had broken, right? It was going to stop working, as you say, because of the C amount of money. But it was partly a combination, as you say, of needing to move. It was also, I think, honestly, just Munger saying, actually, there's value here. There's more than just the books, the value of the brand, the value of whatever.

59:02That sort of stuff is a really, really important component. Can I share this one with you? You'll love this, mate. Quote, I try to get rid of people who confidently answer questions about which they don't have any real knowledge. Oh, my goodness. So that basically means get rid of like virtually every finance pundit you see on TV or here on the radio. Correct. Our present company excluded, of course. Exactly, exactly. No, that's right. That idea of, you know, well, it's a confidently bit, right? It's not even a case of, you know, do they answer the questions? is when you say, I don't know, or maybe, or I was doing radio this morning and I was talking about whatever the topic was, like, well, this is this, but it's also that.

59:42So to be fair, and economists get bagged for, you know, on one hand, on the other hand, you know, the economists with two hands. But it is kind of that. That's the honest, real answer, right? Is there a simple, you've said many times, you know, there's two answers. What's the simple and wrong? Or what's your quote about that one? Oh, gosh, now I'm drawing a blank. Simple and wrong or complicated and right or something? Yeah, yeah. You want to be generally right as opposed to specifically wrong. Yeah. So there's that kind of it. So I just love that quote from Charlie. When you have someone confidently answering a question, unless they absolutely have a reason for that confidence and demonstrate a reason for that confidence, not just, they seem like experts, but, you know, do they justifiably have that confidence or are they just full of themselves?

1:00:22Well, I don't want to bring it back to you, but his comments on a certain digital asset, it might be like you've got zero knowledge about it, but he was very confident in his opinion. So, you know, none of us are perfect, I guess, is the take. Well, present company, you accept it again. Of course. Mate, we're almost getting to an end. Can I throw you five? Yes, rapid fire. When I wrote the article about Charlie, it's called Vale Charlie. I wonder if you want to read it. I did read it. Very good. Very good article. Thank you. Yes. Again, you know. Better than the one I wrote. We are guilty, and I'll say guilty in air quotes, because I actually don't mind being guilty of this, but we are guilty of spending time, you mentioned this either in a past or upcoming podcast, depending on what order we're recording and distributing these things in, talking about the fact that there is, that's the upcoming mailbox actually, talking about the idea of we're a finance podcast and a money podcast, but they sit more comfortably in life.

1:01:21And I don't, again, I'm really lucky to work for The Fool. You're lucky to work for yourself, mate. Some of our peers and colleagues in other companies don't have the flexibility, maybe the interest, but don't have the flexibility of straying outside the pure, oh, this kind of cash flows is X or I just comment on these five stocks or whatever. We get to kind of cover the waterfront. And I think like Charlie and Warren, again, I'm not trying to cover us with glory or reflected glory, but hey, I'll take it. That idea of actually, yes, there are finance, there are investment issues and implications, but it exists in a framework of actually the rest of life.

1:01:54So I'm just going to share you some mongerisms, mate, about that, which is kind of covers the waterfront. The first one is, quote, those of us who have been fortunate have a duty to pay back. Very old-fashioned virtue, but I think one that we should be spending a bit of time on. Speaking of politics, quote, no man is fit to hold office who isn't perfectly willing to leave it at any time. Now, I think there's as we'd say person, but we're probably blokes normally anyway. Do you like that? You know what that reminds me of? Hitchhiker's Guide to the Galaxy fans will know Zafoid Brebelbrox who I think was the rule there was anyone who is capable of getting themselves elected should be disqualified on that basis alone.

1:02:38Yeah, that's right. Which I've always loved, right? It's like to be successful as a politician, the skill set you need is not the skill set you want. Yes, yes. No one who wants power should be given that kind of idea. Exactly, exactly. Love that. A bit of very, very Midwest life advice, but a nice kind of approach. Quote, when you borrow a man's car, always return it with a tank of gas. Oh, yes. Pretty simple, right? Yep. And a bit twee, but kind of, you know, pretty much bang on. Just do more than you need to do the right thing. They're going to lend you the car again. Of course they are. They're not if you're just like, wow, they're really just like the tyres are bare and the tank is empty and there's rubbish all over the back seat.

1:03:20He's like, you don't get to borrow that again. That's the same as sort of deserving the success, right? That's exactly what I was going to say. Yes, you've nailed it. We're thinking way too alike, mate. Quote, Wall Street has too much wealth and political power. Oh, yeah. Oh, gosh, yeah. And again, I was saying before, he's the Republican, right? And again, you made the point he's not a far right-wing Republican, nor is Buffett a far left Democrat, but just that idea of actually it's fine to say I think business is important, I think capitalism works, but by the way, there are excesses that shouldn't be brought to bear.

1:03:54And the last one, mate, I'm going to finish with my ones with just what I had already said, so I'm going to repeat myself once in this hour-long episode, which is this quote, always take the high road. It's far less crowded. And I just, you know, I think if we only take Munger's investment and finance quotes, I think we're missing the opportunity to learn from him, the life wisdom, just some really basic, you know, as you say, it's the deserve thing, right? Just be a good, decent person, do the right things because of the right things to do. and do that often enough, you're far more likely to get the things that you deserve because you make sure of deserving of them.

1:04:32I don't mean deserving of a, you know, I'm a special for that so I deserve things. Deserving that active sense of if I do the work, I deserve the pay. Yes. That's the deserve that he means. And we don't use the word that way anymore and we probably should, right? Because, you know, politicians will tell us we deserve all these things. It's like, well, no, they just want us to feel special, right? Doesn't mean we shouldn't have them or can't have them, but it's very different to actually do I deserve this thing is a question of have I done those things that earned me the right to get the result.

1:05:02That's kind of very, very Charlie Munger I think. I'll give you a non-finance one from Charlie as well which he actually said I think it was the very last Berkshire Hathaway meeting which was I think the best road ahead to human happiness is to expect less which I always thought is pretty good too, right? That's another nice one. I wanted to say too, just in regard to what Charlie and Warren have done so well, staying inside of that circle of competence, just riffing a little bit on what some of the comments you threw out there before with punditry that is in the financial space. I find that none of these people are ill-meaning or dumb, you know, but they're an inch deep and they're a mile wide.

1:05:47You ask them anything on any company, they'll give you a few lines. but that is a very shallow knowledge. And I think what they did, which was so good, is they just stood away from a whole bunch of stuff. But on the things that they did know, there was a deep, deep, deep, deep, deep, deep knowledge. And that is give me the choice between would you rather know 20 stocks on the ASX intimately or would you like to know a little bit about every single stock on the ASX? I'll take the form any day of the week. In fact, you can pick the 20 stocks, right? You can put the 20 stocks and then put like a matrix thing in the back of my head and just upload all of the knowledge on that.

1:06:25I think I could do extraordinarily well out of that, which is really good. What I want to sort of throw off here as we wind it up is you mentioned before Paul Charlie's Almanac. That has been revised. The other thing that has been revised and is now free, you can download that for free. I think they made it available. Paul Charlie? Yeah, I believe so. Wow. So I'm actually, I quite like the Farnham Street blog, Shane Parrish. He's a very good writer. He's got a podcast himself. I'm a big fan. I like a lot of what he does. And he's a huge Charlie Munger fan. So, you know, great minds think alike or fools, seldom differ, whatever you prefer.

1:07:07But they, with Charlie's permission, Charlie, he did this famous talk called the Psychology of Human Misjudgment. Isn't that great? So YouTube it, right? It's there. it's available. Yeah, yeah. But if you Google or if you just go fs.blog forward slash great slash talks or just Google Farnham Street blog, you'll find it. They've redone that speech, just updating it a little bit. Again, the lessons are timeless, but it's just been updated a little bit. So definitely it's free. Read, read, read. Remember exactly what Charlie said. Read it. Read it. It is so good. So I'll let you do that. The other thing, while you're on YouTube watching this psychology of human misjudgment.

1:07:50This is a 1995 speech he gave. There was another brilliant one from 2007, the USC commencement address at the university there. It was brilliant. Just great. So Google USC commencement address. Right. And then he did this other – he did the Ross School of Business interview in 2011. I believe that was with Becky Quick actually as well. Another fascinating, fascinating interview. So read the book. Check out the blog I mentioned. Check out those YouTube videos. And another thing that doesn't get as much, I was late to read this one, but I found it pretty good, which was damn right, behind the scenes with Berkshire Hathaway.

1:08:29Yeah, right. Yeah. Janet Lowe wrote that book and it's a really good one as well if you really want to get into the wisdom of Charlie. Can I throw one more speech at you, mate, just because I'm speaking of that. It's a horribly titled, and I found it on our website here, a horribly titled speech from 1996 called Practical Thought About Practical Thought, which is a stupid title. I'm not going to say Charlie Munger is stupid. It's a very obtuse title. I'm just going to read. This is from Junto Investments' website because I just found it, but they do a nice summary. They say, quote, In the speech, Charlie Munger neatly explains the success of Coca-Cola by viewing the business through the lens of the simplest academic models from the fields of psychology, biology, physics, and business.

1:09:17To many, that sounds odd. To many, the success of Coca-Cola, it seems like a coincidence, kind of like a first-member advantage coupled with top secret recipe. But as we will soon learn, that's first-level thinking, and it goes on from there. Is this the one where he compares, like, you can only eat so much chocolate, but you can drink Coke all day long? Yes, yes. There's a biology angle, and there's actually some really good science, so you never get sick of drinking Coke. But you might love chocolate, but I put a kilo in front of me, I'm going to be sick halfway through. I'll never want to touch it again.

1:09:46yeah love that great great well well worth searching for that yeah have a have a look mate um i hope we've done charlie uh some justice we certainly spent some time on it unusually i will pull back the curtain slightly and say that uh before we recorded this you said to me oh look it's only 45 minutes that's more than fine that's that's a great podcast to do but we'll probably go longer than that and of course as we round out about a minute an hour and 10 minutes or so on some of charlie's wit and wisdom i'm not surprised nor am i uh gonna apologize for it because frankly, if you listen to all of our other podcasts for this long, this is the one you should absolutely listen to for this long because it's not us.

1:10:20It's one of the great minds of our time. Obviously, sad to have lost Charlie. It was inevitable despite my preference that both Charlie and Warren were immortal. I'm still holding on to that one for Warren. I'm hoping that one out of two ain't bad, but on the off chance, I'm wrong. Charlie had to leave us at some point and he left behind it. Just a spectacularly great cannon of investment and worldly wisdom. Grab those speeches Ram mentioned. and grab Damn Right, grab Poor Charlie's Almanac, just really great reads, well and truly worth your time, effort and attention. If you're not a better investor and a better person after it, I don't know what you've been doing, but you obviously won't read the book.

1:10:54So give them a red hot go. Mate, I reckon that's about it. I would again, like I did last week, ask you if you're going to come here on Sunday, but good law willing and the podcast machine doesn't rise, we've already done that episode. So if it's in the podcast feed, then you're welcome. If it's not, then I've probably screwed something up somewhere. So until Sunday and until we're back with you with a brand new episode in more real time next week. Fool on. Yeah, cheers. Thanks for listening. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only.

1:11:28Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services Licence 400691.