“There have been huge booms and huge bust” – Charlie Munger, Vice chairman of Berkshire Hathaway

I’m interested in the fact that the world has come so far and having these undeveloped countries get ahead so fast, like China. And, then I compare India, which has a way worse economic record, even though they got more free speech in India and a way worse economic achievement.
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"There have been huge booms and huge bust" - Charlie Munger, Vice chairman of Berkshire Hathaway

The most dramatic transformation you’ve seen over 75 years?

There have been huge booms and huge busts, and that has been very interesting. And of course, the government has tried to do things that will dampen down the fluctuations and make recoveries from the busts happen faster. And that’s caused a fair amount of inflation in a life that’s been as long as mine. What’s happening in the investment field is of course that so many people have gone into it and people have made so much money and it’s driven an almost frenzy of activity in the investment field. When I was young, there was practically nobody in it, and they weren’t very smart. That’s been a hugely important development. I don’t think we want the whole world trying to get rich by outsmarting the rest of the world in marketable securities, but that’s what’s happened.

Your view about technological change or change in preferences over the long-term? 

Well, over the long-term, the companies of America behave more like biology than they do anything else. And biology, all the individuals die and so do all the species, it’s just a question of time. And that’s pretty well what happens in the economy, too. All the things that were really great when I was young have receded enormously, and new things have come up and some of them started to die. And that is what the long-term investment climate is. And it does make it very interesting. Look at what’s died. The department stores, all the newspapers, US Steel, they have their little time, and then they get clobbered.

Then how does one learn to deal with change? 

All successful investment involves trying to get into something where it’s worth more than you’re paying. That’s what successful investing is. And there are a lot of different ways to find something that’s worth more than you’re paying. You can look for it rather right on the cutting edge of technology, the way Sequoia does. That venture capital firm, which absolutely fanatically stays right on the cutting edge of modern technology, they’ve made more money than anybody and they have the best investment record of anybody.

How one can guard against mental biases in one’s decision-making?

I spent a lifetime trying to avoid my own mental biases. A, I rub my own nose into my own mistakes. B, I try and keep it simple and fundamental as much as I can. And I like the engineering concept of a margin of safety. I’m a very blocking and tackling kind of thinker. I just try and avoid being stupid. I have a way of handling a lot of problems. I put them on what I call my too-hard pile and I just leave them there. I’m not trying to succeed in my too hard pile. What I would say is the single most important thing if you want to avoid a lot of stupid errors is knowing where you’re competent and where you aren’t, knowing the edge of your own competency. And that’s very hard to do because the human mind naturally tries to make you think you’re way smarter than you are.

How do you think the economy is going to emerge over the next 12 months? 

I think it’s quite likely that a year from now the worst of that will be very thoroughly behind us. It’s amazing. I watched polio get totally killed by the vaccinations, and I think they’ll spread these vaccines over the world so fast it’ll make your head swim. So I think this horrible COVID thing, it’s very likely to shrink to insignificance in the course of the next year. What Buffett and I did was we bought things that were promising and then sometimes we had a tailwind from the economy and sometimes we had a headwind. And either way, we just kept swimming. That’s our system.

Did you ever make a bad business decision?

I’ve made bad business decisions. You can’t live a successful life without taking some, doing some different things that go wrong. That’s just the nature of the game. And you wouldn’t be sufficiently courageous if you tried to avoid every single reverse

Do smart people predict the future better than others?

A lot of smart people think they’re way smarter than they are, and therefore they do worse than dumb people. I think Warren and I have been pretty modest. I know what my mental capacity is, and it’s pretty low compared to the best it could possibly be. Well, I’m a big fan of knowing the big ideas in pretty much all of the disciplines, the ones that are pretty easy to assimilate, and then using those routinely in your judgments. That’s just my system. I don’t trust the executive … I don’t believe in just constantly consulting with experts and doing things that way. I might do that if I were building a chemical plant or something. But in investment decisions, I think it’s very helpful to be able to be pretty comfortable with the big ideas in all the disciplines.

Is it NASDAQ in a bubble and will it blow up? 

Nobody knows when bubbles are going to blow up, but just because it’s NASDAQ doesn’t mean it’ll have another run like this one very quickly again. This has been unbelievable. Again, there’s never been anything quite like it. If you stop to think about it, think what Apple is worth compared to John D. Rockefeller’s oil empire. It’s been the most dramatic thing that’s almost ever happened in the entire world history of finance.

How would you rate investing in China and does politics matter?

Of course, I’ve had a very successful experience there. I think it’s likely to continue. The Chinese story is the damnedest thing that ever happened to a big country in terms of economics. No other big country ever got ahead this fast for that long. Yeah, it does. Who would have guessed that a bunch of communist Chinese run by one party would have the best economic record the world has ever seen? Of course, it’s extreme. I think it proves … We Americans would like to think that our free expression and allowing all kinds of opinions and all kinds of criticism of the government is totally essential part of the economy. What the Chinese have proved is you can have a screamingly successful economy with a fairly controlling government. All the government has to do is create a lot of Smithy in capitalism.

What are the traits of good investors?

Obviously, you have to know a lot. But partly it’s temperament, partly it’s deferred gratification. You got to be willing to wait. It’s weird … Good investing requires a weird combination of patience and aggression and not many people have it. It requires a big amount of self-awareness and how much, you know and how much you don’t know. You have to know the edge of your own competency. A lot of brilliant people are no good at knowing the edge of their own competency. They think they’re way smarter than they are. I think you find out whether you got the qualities to win at poker by playing poker. Obviously, it helps to know the basic math of Fairmath and Pascal, but everybody with any sense knows that stuff. But having a temperament where Fairmath and Pascal are as much part of you as your ear and nose, that’s a different kind of a person. I think it’s hard to teach that. Well, if you pursue any career with enough fanaticism, that’s very likely to work better than not having the fanaticism. If you want to succeed in investments, start early and try hard and keep doing it. All success comes that way, by and large.

What are you most curious about in the next 30 to 40 years?

Well, having been an investor for so long I’m of course interested in these weird present conditions and these weird economic conditions where they’re printing money like crazy and so forth. And of course, that’s very interesting. And I’m interested in the fact that the world has come so far and having these undeveloped countries get ahead so fast, like China, and then I compare India, which has a way worse economic record, even though they got more free speech in India and a way worse economic achievement. I think the economic development of the modern world is very interesting.

About the author: IE&M Team
IE&M Team
Indian Economy & Market is an Indian media and information platform producing data-backed news and analysis on all the vital elements at the intersection of the economy, stock markets, mutual fund, insurance, commodities, currency, technology, startups and business.

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