He follows the Graham investment system, which has 4 rules:
- A share of stock = proportional ownership of the business
- Buy at a significant discount to intrinsic value for a margin of safety
- Make bipolar Mr Market your servant not your master
- Be rational, objective, dispassionate
https://www.berkshirehathaway.com/owners.html
The book describes heuristics by which Munger runs, almost like his OS code
- Reward & punishment superresponse tendency
- You get what you reward for. If you want ants to come, put sugar on the floor.
- Liking/loving tendency
- People tend to ignore the faults of people they love, and distort the facts to facilitate that love
- Disliking/hating tendency
- inverse of the above!
- Doubt-avoidance tendency
- rejecting doubt reduces brain processing load
- it’s counterproductive for prey that is threatened by a predator to take a long time in deciding what to do
- Inconsistency-avoidance tendency
- Man conserves programming space by being reluctant to change
- This can be helpful, but also harmful.
- Curiosity tendency
- Major opportunities come to those with a curious mind that love diagnosis involving multiple variables.
- Kantian fairness tendency
- Tolerate a little unfairness to some to get a greater unfairness for all.
- Envy/jealousy tendency
- Envy is an evil sin
- Influence from mere association tendency
- Humans are programmed to be pattern seekers
- Pain avoiding psychological denial
- failure to handle psychological denial is a common way for people to go broke
- Excessive self-regard tendency
- don’t overestimate your own capabilities
- Over-optimism tendency
- Loss aversion tendency
- Many investors, so traumatised after 2007 losses, missed the once in a century opportunity to buy bank stocks for pennies on the dollar
- Social proof tendency
- Contrast misreaction tendency
- estate agents show you an expensive crap house first before showing you the house they really want to sell you, so you compare the two
- Stress influence tendency
- Availability misweighing tendency
- an idea is not worth more because it is more easily available to you
- Use it or lose it tendency
- all skills attenuate with disuse
- Drug misinfluence tendency
- Senescence misinfluence tendency
- conscious thinking & learning, done with joy, can somewhat delay what is inevitable
- Authority misinfluence tendency
- when people are uncertain, they don’t look inside of themselves for answers, they look outside, and for authority.
- Twaddle tendency
- try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.
- Reason respecting tendency
Qualities of successful investors
- Patience
- we don’t feel compulsion to swing
- Discipline
- Warren and I do more reading & thinking and less doing than most in business
- Calm but courageous and decisive
- There’s something to be said for developing the disposition to own stocks without fretting
- Intelligent but not misled by high IQ’s
- Honest
- how you behave in one place will help in surprising ways later
- Confident and Nonideological
- Ideology stops you thinking about the hard issues. Take your best ideas, tear them apart, look for flaws as a way of improving yourself.
- Long term oriented
- almost all good businesses engage in “pain today, gain tomorrow”
- Studious
- I have known no wise people who didn’t read all the time - none, zero. You’d be amazed at how much Warren and I read.
- Collegial
- Even Einstein didn’t work in isolation
- Sound temperament
- You need to keep raw irrational emotion under control
- Frugal
- Risk averse