So, what secret does Munger rely on to accumulate wealth for a long time? Do ordinary people have a chance to get their own happiness? Munger has given the answers in the article, and you will find that these are simple truths and cliches. I did it, and I will benefit from it for life.
Berkshire Hathaway can achieve great success, and DailyJournal can achieve little. No secret is to pursue basic morality and sound common sense.
As we all know, common sense is common sense that ordinary people do not have. When we say that someone has common sense, we actually mean that he has common sense that ordinary people don't have. People think it's easy to have common sense, but it's actually very difficult.
Let me give you an example. A large number of people with high IQ have entered the investment field and tried to do better than ordinary people. Many people with high IQ flocked to the investment field, forming a rare scene elsewhere, so strange things happened. There used to be a very large investment consulting company in California, and in order to surpass other peers, it came up with an idea.
They think so: We have so many talented young people, all of whom graduated from Wharton, Harvard and other famous universities in high flyers. They all work hard to understand the company, the market trend and everything. As long as each of these talented young people thinks of the best investment opportunity, we will pool all the best opportunities to form a portfolio, and we will definitely be far ahead of the index.
People in this investment company can think that this idea works because of their low education. They put it into action with confidence, and the result was a complete failure without any suspense. They tried again and failed miserably. They tried for the third time and still failed.
Hundreds of years ago, alchemists fantasized about turning lead into gold. The alchemist thought beautifully. They think they can make a fortune by buying a lot of lead, using magic and turning lead into gold. The investment company mentioned just now is not much better than the alchemist hundreds of years ago. It just wants to turn lead into a modern replica of gold, and it can't do it at all. I could have told them this truth, but they didn't ask me.
What is interesting is that this investment company has concentrated elites from all over the world, even including many highly intelligent elites from China. The average IQ of China people is slightly higher than that of people in other countries. In fact, this question is very simple. This idea seems to work, but why doesn't it work in practice?
You might as well think for yourself why this is so.
You are all educated in colleges and universities, and I dare say that few people here can really explain it clearly. I want to teach you a lesson. How could you not know? Investment is an important industry in the United States. In such an important industry, there has been such a heavy failure, we should be able to give an explanation!
Those who can answer this question must have listened carefully in the first-grade class. Unfortunately, even if you take this question to the finance department of an institution of higher learning and let the professors there answer it, they will not answer it correctly. I leave this question to you to think about, because I want to confuse you.
I turn to the next topic. Actually you should be able to answer this question. It can be seen from this question that it is particularly difficult to remain rational even for some very simple things.
People have too many wrong ideas and it is impossible to work. Why people's wrong ideas don't work, but you can't tell them.
If you have a good education, you should be able to see through it at a glance. When I say "get a good education", I mean knowing when the professor is wrong and when he is right. Anyone can do whatever the professor says.
The key is that you can tell what the professor said, which is right and which is wrong. This is a well-educated person.
Back to the investment field, at least for a long time to come, if you take the initiative to choose stocks and want to know everything, you still can't win the index.
At Berkshire Hathaway, in the Daily Daily, we did better than average.
Here comes the question. What shall we do? How did we do it?
The answer is simple. We seek to do less.
We have never been naive enough to think that we can understand everything by bringing in a group of talented young people. Whether it is canned soup, aerospace or public utilities, we can know more than others. We have never been so delusional.
No matter in what field, we never think that we can do it and get really useful information. We don't pretend to know everything.
We always know that it is enough to study hard and find a few opportunities accurately. We just want to find a few opportunities, and our expectations are reasonable.
If you are like the investment consulting agency I mentioned earlier, you ask Warren Buffett the same question: "Tell me your favorite investment opportunity this year." Then, if you buy the best investment opportunity found by Warren, you will definitely make a profit.
Warren can't imagine knowing everything. He will only tell you one or two stocks. The investment consulting agency is ambitious, and Warren knows how to restrain himself.
My great-grandfather, my mother's grandfather, helped me a lot. My great-grandfather was a pioneer. He came to Iowa penniless, but young and healthy. He took part in the Black Hawk War with the Indians and became a captain in the war. Later, he settled in Iowa. Every time, when the opportunity came, the land was very cheap, he bought a lot wisely.
Finally, he became the richest man in the town and owned a bank. He is respected, has a big family and lives a very happy life. When he first settled in Iowa, an acre of land was less than a dollar. He has been living in Iowa and witnessed the rise of rich modern civilization in this fertile land. My great-grandfather said that he caught up with a good era and lived to be 90 years old all his life. God can give him several big opportunities.
He lived a long and happy life, mainly because he seized the opportunity given to him by God. Every summer, when his grandchildren are around his knees, my great-grandfather always tells this story over and over again. My mother is not interested in money, but she remembers the story told by my great-grandfather and tells it to me. I am different from my mother. I know my great-grandfather did the right thing.
Therefore, when I was very young, I knew that there were only a few great opportunities, which belonged to me. The key is that I should be prepared to catch them when the opportunity comes.
Those people in large investment consulting institutions, they don't think so. They think they can understand a million things through research.
The key to playing the game of investment well lies in several opportunities. You can really see that one opportunity is better than other opportunities, and you know that you know more than others. As I said, it is enough to seize a few opportunities.
Warren often said, "A person who lives in a prosperous town owns shares in the three best companies in this town. Isn't it enough to be so scattered? " As long as these three companies are top-notch, they are absolutely decentralized.
The widely circulated Kelly formula can tell us how many chips should be bet on each transaction if there is a chance of winning. The greater your chances of winning, the higher your chances of success, and the bigger your bet should be.
The first rule of fishing is to fish where there are fish. The second rule of fishing is to remember the first rule.
Many of us have been to the place where cod are fished out and want to catch cod. In an extremely competitive environment, no matter how hard you try, it is useless.
In the field of investment, even small opportunities follow.
Once, I attended a meeting of the Investment Committee of the University of Michigan. One of the successful investors at the meeting came from London. How did this investor invest in London? He took a fancy to sub-Saharan Africa. There are few companies listed in sub-Saharan Africa, and few bank stocks listed in the pink list market can be found, so he bought these bank stocks, and the amount he could buy was very small.
The poor in Africa have gradually changed their habit of keeping money at home. More and more people began to deposit money in banks, and investors made more and more money. In the end, he made a lot of money. No one else invests in small banks in Africa, only himself. Unfortunately, this small niche was quickly filled.
As a fund manager, I invest in small banks in sub-Saharan Africa to make money for my clients. Where can I find the next investment opportunity? Small students fill quickly. Any fund manager in London can buy shares in small African banks. How many profitable niches do you think are left? It's too difficult.
In the modern world where we live, some people specialize in pulling others into the water and teaching others to trade stocks in the day. In my opinion, this is tantamount to instigating teenagers to take heroin. That's stupid. How can a person who has already made money make a fortune by instigating others to speculate in stocks?
Television is also a magical place. We often see it on TV. Someone said, "This book in my hand can teach you to earn three times a year. You can get this book by paying the postage. "
How can a person sell books online when he suddenly discovers the secret of earning three times a year? This is ridiculous. The scene I'm talking about is a portrayal of modern business. People do such things every day and think they are citizens who are beneficial to society.
I'll tell you another short story, which is also about modern life. I hope you can get inspiration from it. This story happened in the past. There was a man who had a good horse. This is a good horse with light footsteps and bright hair. This horse has everything except one shortcoming. Sometimes, it will suddenly be grumpy and stubborn. At that time, anyone riding it will be broken.
The man went to the vet and asked him, "How to treat this horse?"
The vet said, "It's very simple. I have an idea. "
The man said, "Tell me quickly."
The vet said, "When your horse behaves well, you sell it."
Generally speaking, Warren and I, we have never cheated a fool into taking goods from us to make money.
Making money when we buy it is making money.
If we were selling shit, we wouldn't call it treating arthritis.
I think, don't lie, it is better to live like us. In reality, there are always liars. Just say those charlatans, they have many tricks to deceive people. There are always swindlers who take advantage of people's weaknesses to make profits.
We must increase our wisdom in order to stay away from all kinds of fraud.
Peter Kaufman (author of Poor Charlie's Collected Works: Munger's Wisdom Proverbs) has told me many times: "If liars know how much money they can earn by being honest, they will definitely not be liars."
Warren also said a very classic sentence, he said: "Take the right path, the road gets wider and wider." This statement is correct.
Some of the reasons are simple, but they are really useful. DailyJournal is a difficult business, and it is not easy to serve government departments such as courts. Government departments such as courts need automation. Others want to use government departments such as courts, but we don't. We are just a small company. We have worked hard and gradually occupied many markets.
Although the speed is slow, the prospect is bright. The advantage of being rich is that you don't care about slowing down. Then how do we get rich? We remembered my great-grandfather's words and had little chance. When the opportunity comes, let's seize it.
Think about it, is your life like this?
Tell me another personal experience. At 1970, I made a mistake, and I didn't make proper investment. If we hadn't made this mistake, the Munger family would be twice as rich as they are now. The mistake I made was stupid. I missed that opportunity, otherwise my assets would be twice as large as now. Life is like this, and it is inevitable to miss one or two opportunities.
There are always people around us who find a better partner than themselves.
They made a wise decision, which is also a lucky decision. I can't buy a better partner than myself.
Many people inadvertently find a better partner than themselves when they are young.
In fact, you don't have to take a chance, you can consciously pursue it. Many people have eye-catching labels that say "Danger, Danger, Stay Away", and others are rushing forward. (Laughter) Probably not. You laugh at each other, which is definitely a serious mistake.
People on our board of directors, we all do maverick things together, and it is wonderful enough to have a rough life. After all, we are all so old. Gary Wilcock is a young man here. We are a very unique board of directors. This case is also worth thinking about.
Look at me, I'm so old and I'm still living happily. How did you do that? This is another topic.
If you want to listen, I'll tell two more short stories. The following story is made up, but it is very enlightening.
A young man went to visit Mozart.
He: "Mozart, I want to write a symphony."
Mozart: How old are you?
Young man: "I am 23."
Mozart: "You are too young to write a symphony."
Young man: "But, Mozart, you didn't start writing symphonies until you were 10."
Mozart: "Yes, but I didn't go around asking others how to write."
There is also a story about Mozart. Mozart can be said to be the greatest musical genius in human history. How is his life? Mozart was full of resentment, unhappy and died young.
How did Mozart live like this? He did two things, and whoever did these two things was enough to get into pain. Mozart doesn't know how to live within his means. He spends a lot of money. This is the first thing. Second, his heart is full of jealousy and complaints.
Anyone who is profligate and full of jealousy and complaints will definitely lead a miserable life and leave this world early.
If you want to live hard and die early, please learn from Mozart. The young man asked Mozart how to write a symphony. You can also learn a truth from this young man's story.
Some things others can't learn. Some people are born better than you. No matter how hard you try, there are always people who are better than you.
My state of mind is: "So what?" Do any of these people on our scene have to stand on the top of the world? That's not necessary.
I always thought it was ridiculous that the emperor would build so many large tombs. Do they want future generations to envy themselves? Let future generations walk through their graves and hope to live in their graves? (Laughter).
In short, we enjoyed the journey and did well in the end. You can study for yourself how many important decisions have been made in the history of DailyJournal and Berkshire Hathaway. Major decisions are rarely made every year on average.
The way to play this game is to stay in this game all the time, keep an eye on it, and don't let it slip away when a rare opportunity appears, knowing that there are not many opportunities that every ordinary person can get.
The secret of making money is to save money and live a simple life.
Warren and I, when we were young and had no money, both saved our money and invested it. Stick to it for a lifetime and finally get rich. Everyone understands this truth.
Another problem that needs to be solved in life is: how can we climb out of mistakes without paying too much? Climbing out of mistakes, we did it. What is the first business of Berkshire Hathaway? A department store with no outlet, a New England textile company with no outlet, and a stamp company with no outlet.
Berkshire Hathaway crawled out of these bad businesses. Fortunately, we bought it very cheaply. Although our hands are not good, we played very well. In the end, Berkshire succeeded, because we took a different path and changed to acquire good business.
We can succeed not because we are good at solving difficult problems, but because we are good at staying away from them. We just want to find something simple to do.
DailyJournal Company, when we first bought it, its business was very good. It is difficult to do software business in daily newspapers now. The old colleagues in the company are still alive, and under various coincidences, the new software business is doing well. This business has potential and we are willing to continue.
Newspapers have declined. How many newspapers, like DailyJournal, have hundreds of millions of dollars of stocks on their books and run promising new businesses? We are the last Mohicans.