As some of you know, I am a big fan of Warren Buffett. But what most of you don’t know is that, I am actually a bigger fan of his partner, Charlie Munger (pictured on the left). Unlike Buffett, who is very much genetically focused only on stockpicking and business, Munger has an ultra-wide range of interests: psychology, business, physics, law (he was founder of the famed Californian legal firm, Munger, Tolles & Olson), mathematics, biology, geology, anthropology, and so on. The guy is a mental encyclopaedia.Buffett described Munger as “the best 30-second mind in the world.” Buffett said, “If I call Charlie and describe a business situation I will get a better answer from him in 30 seconds than I could get from anybody in the world.”
I was reading the transcript of Wesco’s 2007 annual meeting where Charlie Munger held court. It was fascinating! Before fielding shareholders’ questions, he shared his thoughts on why Warren Buffett has been so unusually successful. And I’d like to share with you some of the things he said.
Munger said, “Why did one man, starting with nothing and having no credibility, end up over the years with five or six of the remaining triple-A credit ratings left on earth and this ridiculous collection of assets? … It’s a very extreme result.” Munger said that there were a lot of factors working in the same, positive direction - “Really extreme results,” he said, “almost always come from a confluence of factors acting in the same direction.”
First of all, Munger said that Warren Buffett is “a seriously smart human being.” But, Munger emphasised, being smart would not have been enough to reach Buffett’s success.
The second factor was that Buffett has always been “extremely intensely interested” in the subject at which he has achieved so much. This is related to the intense 10,000 hour rule that Gladwell talked about in his book “Outliers” (which I summarised in the previous note/blog). Sir William Osler once said, “It’s very hard to succeed in something unless you take the first step - which is to become very interested in it.” That’s why I always tell friends / staff / students, “You have to do what you LOVE!!” Maybe I should change that to: “You have to do what you REALLY LOVE!!”
The third factor was that Warren got a very early start. Warren has started dabbling in business since he was 6 and the stockmarket since he was 11. Start young in an area you would like to be successful in and put in your 10,000 hours practice!
The fourth factor - “and this is really crucial,” Munger said - is that Warren is one of the best learning machines on earth. He just keeps learning and learning. He goes to sleep each day wiser compared to when he woke up that morning. Munger explained, “When you stop learning in a competitive world, why, the world just goes right by you.”
The fifth factor was that the work at Berkshire Hathaway was always heavily concentrated in one mind, Warren Buffett’s. Munger explained that it’s hard to find a committee that’s been successful at investing or in business. The great basketball coach John Wooden improved his record fairly late in his life when he became less egalitarian: He just made sure that the BEST 6 or 7 players have court time all the time and the bottom 5 or so players don’t get to play at all in games. This concentrates experience, knowledge and learning on the top players. And of course, they will improve with experience. It was the same with Buffett: Berkshire Hathaway’s decisions have been made by its best decision-maker over a long period of time.
The sixth factor is that Buffett does not dwell in any form of self-pity. A lot of people in the world dwells in self-pity. “Oh, look at me… look at my situation… it’s my ex-husband’s fault… it’s my boss’ fault… I feel so bad because this happened.” Buffett would have none of that. Munger was more blatant than that, “Nothing is more STUPID than ever thinking the world has been unfair to you. If your child’s dying of cancer, it’s not unfair. It’s never unfair. It’s totally nonproductive to get those ideas. They’re the worst.” Every tough moment in life, Munger emphasised, should be taken as an opportunity - an opportunity to grow, an opportunity to learn, an opportunity to display courage and fortitude.
The seventh factor that led to Buffett’s success is that Buffett also does not have any inklings of envy, jealousy or revenge. Buffett does not hold grudges against people who have wronged him.
The eighth factor is that, Buffett does not hold any extreme ideologies or beliefs. Munger said that any loyalty to extreme ideologies or beliefs can destroy cognition. Examples of extreme ideologies include: "people of a certain race must be bad", "the labour party always makes businesses suffer", "there's no true religion except for my religion", "the best way to succeed in business is cut costs as much as possible - there's no other way." ... and so on - you get the picture, right? The best quote in my opinion that relates to this came from Star Wars Episode 3 - Revenge of the Sith: "Only a Sith deals in ABSOLUTES."
So to summarise: According to Munger, Warren Buffett’s success have been driven by a combination of factors working in the same direction for a very long time. Yes, Warren is smart. But he also intensely loves what he is doing and he started very young and practiced it a lot. All work at Berkshire Hathaway has been concentrated on him as he is the best decision-maker in the company. And he avoids any form of self-pity, envy, jealousy, revenge and extreme ideologies.
In short, Munger said, “you’ll find Warren is a very objective person. So the maximization of objectivity is very much part of making a record like Warren’s.”
Hope this has been helpful for you.
This is very very helpful. thanks for sharing :)
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