{"id":563,"date":"2017-04-18T19:33:07","date_gmt":"2017-04-18T19:33:07","guid":{"rendered":"http:\/\/charliemungersays.com\/?p=563"},"modified":"2017-10-24T23:03:31","modified_gmt":"2017-10-24T23:03:31","slug":"83-wesco-2007-lets-learn-some-more-part-1-points-1-6","status":"publish","type":"post","link":"https:\/\/charliemungersays.com\/index.php\/2017\/04\/18\/83-wesco-2007-lets-learn-some-more-part-1-points-1-6\/","title":{"rendered":"83. Wesco 2007: Let’s Learn Some more- Part 1- Points 1-6"},"content":{"rendered":"

\"\"<\/a>Excellent Book: Charlie Munger For All Seasons<\/a><\/a><\/strong><\/p>\n

Lesson 1. You shouldn\u2019t have to try it to learn not to pee on an electrified fence. (Ouch)<\/strong><\/p>\n

Bonus Lesson: Experience is what happens when you\u2019re looking for something else.<\/strong><\/p>\n

I note that this year we\u2019re in a tent. It\u2019s amazing that a tent can be made to work so well. It\u2019s a tribute to our civilization. If our ancestors had been in a tent, it would not be like this one, with air conditioning and so forth. It\u2019s amazing that all you people come. You know, I didn\u2019t set out in life to become the assistant leader of a cult. [Laughter] As they say, experience is what happens when you\u2019re looking for something else.<\/p>\n

It\u2019s amazing that many of you come to this meeting after the Berkshire meeting for so many years. It\u2019s like the person at the Catholic church who doesn\u2019t want the catechism changed.<\/p>\n

People are obviously here to some extent to leave a little wiser than when they came. It\u2019s very hard to do this by merely hearing someone else talk. That\u2019s why most teaching is vivid. For example, when they trained soldiers for World War II, they shot real bullets above them, which really taught them to hug the ground.<\/p>\n

That\u2019s why so many learn lessons the hard way, through terrible experience. Mark Twain once said that picking up a cat by its tail yielded better learning than was available in any other fashion. But that\u2019s a terrible way to learn things. Another comic thought man ought to learn vicariously: you shouldn\u2019t have to try it to learn not to pee on an electrified fence. [Laughter] It\u2019s really hard to get ideas from one mind into another. That\u2019s why learning institutions are so selective.<\/p>\n

Lesson 2. Reasons Who Warren Buffett Is So Successful:<\/strong><\/p>\n

(i) The first factor is the mental aptitude. Warren is seriously smart. On the other hand, he can\u2019t beat all comers in chess blindfolded. He\u2019s out-achieved his mental aptitude.<\/strong><\/b><\/p>\n

(ii) It\u2019s very hard to succeed until you take the first step in what you\u2019re strongly interested in. There\u2019s no substitute for strong interest and he got a very early start.<\/strong><\/b><\/p>\n

(iii) Warren is one of the best learning machines on this earth. The turtles who outrun the hares are learning machines.<\/strong><\/p>\n

 <\/p>\n

(iv) There\u2019s concentrated experience and playing time at Berkshire.<\/strong><\/p>\n

I want to do something I haven\u2019t done before. I feel obligated because so many of you came from such great distances, so I\u2019ll talk about a question I\u2019ve chosen, one that ought to interest you: Why were Warren Buffett and his creation, Berkshire Hathaway, so unusually successful? If that success in investment isn\u2019t the best in the history of the investment world, it\u2019s certainly in the top five. It\u2019s a lollapalooza.<\/p>\n

Why did one man, starting with nothing, no credit rating, end up with this ridiculous collection of assets: $120 billion of cash and marketable securities, all from $10 million when Warren took over, with about the same number of shares outstanding. It\u2019s a very extreme result. You\u2019ll get some hints if you read Poor Charlie\u2019s Almanack, which was created by my friend Peter Kaufman, almost against my will \u2013 I let him crawl around my office when I wasn\u2019t there. He said it would make a lot of money, so he put up $750,000 and promised that all profits above this would go to the Huntington Library [one of Munger\u2019s favorite charities]. Lo and behold, that\u2019s happened. He got his money back, and the donee\u2019s receiving a large profit. Some people are very peculiar, and we tend to collect them.<\/p>\n

A confluence of factors in the same direction caused Warren\u2019s success. It\u2019s very unlikely that a lollapalooza effect can come from anything else. So let\u2019s look at the factors that contributed to this result:<\/p>\n

The first factor is the mental aptitude. Warren is seriously smart. On the other hand, he can\u2019t beat all comers in chess blindfolded. He\u2019s out-achieved his mental aptitude. Then there\u2019s the good effect caused by his doing this since he was 10 years old. It\u2019s very hard to succeed until you take the first step in what you\u2019re strongly interested in. There\u2019s no substitute for strong interest and he got a very early start.<\/p>\n

This is really crucial: Warren is one of the best learning machines on this earth. The turtles who outrun the hares are learning machines. If you stop learning in this world, the world rushes right by you. Warren was lucky that he could still learn effectively and build his skills, even after he reached retirement age. Warren\u2019s investing skills have markedly increased since he turned 65. Having watched the whole process with Warren, I can report that if he had stopped with what he knew at earlier points, the record would be a pale shadow of what it is.<\/p>\n

The work has been heavily concentrated in one mind. Sure, others have had input, but Berkshire enormously reflects the contributions of one great single mind. It\u2019s hard to think of great success by committees in the investment world \u2013 or in physics. Many people miss this. Look at John Wooden, the greatest basketball coach ever: his record improved later in life when he got a great idea: be less egalitarian. Of 12 players on his team, the bottom five didn\u2019t play \u2013 they were just sparring partners. Instead, he concentrated experience in his top players. That happened at Berkshire \u2013 there was concentrated experience and playing time.<\/p>\n

This is not how we normally live: in a democracy, everyone takes turns. But if you really want a lot of wisdom, it\u2019s better to concentrate decisions and process in one person.<\/p>\n

It\u2019s no accident that Singapore has a much better record, given where it started, than the United States. There, power was concentrated in one enormously talented person, Lee Kuan Yew, who was the Warren Buffett of Singapore.<\/p>\n

Lesson 3. No Need To Increase Your Personal Defects<\/strong><\/p>\n

Lots of people are very, very smart in terms of passing tests and making rapid calculations, but they just make one asinine decision after another because they have terrible streaks of nuttiness. Like Nietzsche once said: \u201cThe man had a lame leg and he\u2019s proud of it.\u201d If you have a defect you try to increase, you\u2019re on your way to the shallows.<\/p>\n

Envy, huge self-pity, extreme ideology, intense loyalty to a particular identity \u2013 you\u2019ve just taken your brain and started to pound on it with a hammer. You\u2019ll find that Warren is very objective.<\/p>\n

All human beings work better when they get what psychologists call reinforcement. If you get constant rewards, even if you\u2019re Warren Buffett, you\u2019ll respond \u2013 and few things give more rewards than being a great investor. The money comes in, people look up to you and maybe some even envy you. And if you buy a whole lot of operating businesses and they win a lot of admiration, there\u2019s a lot of reinforcement. Learn from this and find out how to prosper by reinforcing the people who are close to you. If you want to be happy in marriage, try to improve yourself as a spouse, not change your spouse. Warren has known this from an early age and it\u2019s helped him a lot.<\/p>\n

Alfred North Whitehead pointed out that civilization itself progressed rapidly in terms of GDP per capita when mankind invented the method of invention. This is very insightful. When mankind got good at learning, it progressed in the same way individuals do. The main thing at institutions of learning is to teach students the method of learning, but they don\u2019t do a good job. Instead, they spoon feed students and teach them to do well on tests.<\/p>\n

In contrast, those who are genuine learners can go into a new field and outperform incumbents, at least on some occasions. I don\u2019t recommend this, however. The ordinary result is failure. Yet, at least three times in my life, I\u2019ve gone into some new field and succeeded.<\/p>\n

Lesson 4. Avoid Envy, Jealousy and Self-Pity. Even if your child is dying of cancer, it\u2019s not OK to feel self pity. Revenge is Insane. It\u2019s like Alzheimer but you have forgotten everything but grudges.<\/strong><\/p>\n

Mozart is a good example of a life ruined by nuttiness. His achievement wasn\u2019t diminished \u2013 he may well have had the best innate musical talent ever \u2013 but from that start, he was pretty miserable. He overspent his income his entire life \u2013 that will make you miserable. (This room is filled with the opposite [i.e., frugal people].) He was consumed with envy and jealousy of other people who were treated better than he felt they deserved, and he was filled with self-pity. Nothing could be stupider. Even if your child is dying of cancer, it\u2019s not OK to feel self pity. In general, it\u2019s totally nonproductive to get the idea that the world is unfair. [Roman emperor] Marcus Aurelius had the notion that every tough stretch was an opportunity \u2013 to learn, to display manhood, you name it. To him, it was as natural as breathing to have tough stretches. Warren doesn\u2019t spend any time on self-pity, envy, etc.<\/p>\n

As for revenge, it\u2019s totally insane. It\u2019s OK to clobber someone to prevent them from hurting you or to set an example, but otherwise \u2013 well, look at the Middle East. It reminds me of the joke about Irish Alzheimer\u2019s: when you\u2019ve forgotten everything but the grudges.<\/p>\n

So this is a lesson for you to draw on \u2013 and I think almost anybody can draw those lessons from Warren\u2019s achievement at Berkshire. The interesting thing is you could go to the top business schools and none are studying and teaching what Warren has done.<\/p>\n

There\u2019s nothing nutty in the hard sciences, but if you get into the soft sciences and the liberal arts, there\u2019s a lot of nuttiness, even in things like economics. Nutty people pick<\/p>\n

people like themselves to be fellow professors. It gets back to what Alfred North Whitehead talked about: the fatal unconnectedness of academic disciplines. When people are trying to recruit people to be PhDs in their subjects \u2013 the results are often poor.<\/p>\n

Lesson 5. Have a latticework of mental models. However, remember that \u201cthe world will not ordinarily reward you for correcting other people in their area of expertise.\u201d<\/strong><\/p>\n

On the other hand, if you have enough sense to become a mental adult yourself, you can run rings around people smarter than you. Just pick up key ideas from all the disciplines, not just a few, and you\u2019re immensely wiser than they are. This is not a great social advantage, however, as I can tell you from experience of the early Charlie Munger. To meet a great expert in a field and regard him as a malformed child is not a winning social grace. I got a lot of hard knocks when I was young. You could say I was forced into investing. The world will not ordinarily reward you for correcting other people in their area of expertise.<\/p>\n

Accounting is a noble profession. It came out of Northern Italy, Venice, spread, and became part of standard accounting textbooks. The people who carry the torch in accounting are in a noble profession, yet these people also gave us Enron. You could have walked into an insane asylum, which was better than Enron, and yet accountants blessed it. So there are defects. I talked to a leading person in the accounting field and said it didn\u2019t make sense to let companies mark weird stuff to their own models \u2013 that it would lead to disaster. She looked at me like I was out of my mind and asked, \u201cAren\u2019t you for the most current data in accounting? My system is more current and therefore should be better.\u201d This mind would score highly on an IQ test, but is scarcely able to throw out the garbage.<\/p>\n

There are two factors in interplay a) you need currency and b) you need to set up a system in which it\u2019s not easy for human beings to cheat or delude themselves, despite the presence of incentives to do so. If you can\u2019t perfectly weigh the relative importance of these two things in contrast, you\u2019re a horse\u2019s patoot and not qualified to set accounting standards.<\/p>\n

If you go into liberal arts, you\u2019ll find that education isn\u2019t as good as it should be. I wish I had two or three more lives to live, one of which I could devote to fixing colleges. There is much that is good, but much that is utterly awful and only slightly improved in the 65 years since I left it.<\/p>\n

You could say that the dysfunction of others has been an advantage to me. That\u2019s the way it is. That\u2019s really why you\u2019re all here. You all want to get more than you deserve out of life by being rational \u2013 who doesn\u2019t?<\/p>\n

Also, an enormous pleasure in life is to be rightly trusted. One of my kids was a computer nerd and his school gave him access to the entire school computer system. \u00a0He was exultant by the extreme trust. If your friends are asking you to raise their children if they die, you\u2019re doing something right. It\u2019s wonderful to be trusted. Some think if we just had more compliance checks and process, virtue would be maximized.<\/p>\n

Lesson 6. At Berkshire, we try to operate in a web of seamless trust, deserved trust, and try to be careful whom we let in. They act like this at the Mayo Clinic. Imagine if they didn\u2019t. Most patients would die.<\/strong><\/p>\n

At Berkshire, we have subnormal process. We try to operate in a web of seamless trust, deserved trust, and try to be careful whom we let in. They act like this at the Mayo Clinic. Imagine if they didn\u2019t. Most patients would die.<\/p>\n

http:\/\/www.valuewalk.com\/wp-content\/uploads\/2014\/05\/Charlie-Munger-2005-2013-minus-Harvard-Westlake.pdf<\/p>\n

Notes from 2007 Wesco Financial Annual Meeting – By Whitney Tilson <\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Excellent Book: Charlie Munger For All Seasons Lesson 1. You shouldn\u2019t have to try it to learn not to pee<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"footnotes":""},"categories":[3,4],"tags":[],"class_list":["post-563","post","type-post","status-publish","format-standard","hentry","category-investment","category-wisdom"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/563","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/comments?post=563"}],"version-history":[{"count":2,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/563\/revisions"}],"predecessor-version":[{"id":852,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/posts\/563\/revisions\/852"}],"wp:attachment":[{"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/media?parent=563"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/categories?post=563"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/charliemungersays.com\/index.php\/wp-json\/wp\/v2\/tags?post=563"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}