A Few Big Ideas From Charlie Munger At The DJCO Meeting

by: Novel Investor

Charlie Munger is one of those rare people who figured out that being less stupid is more important than being brilliant. The Daily Journal Annual Meeting is one of two places to see Charlie Munger hold court each year. As always, he doesn't hold back when dispensing his wit and wisdom, especially on avoiding stupidity.

I won't cover every minor detail. It's better to listen to it or read it - I transcribed the entire Q&A session, and you can grab a copy in the Library - when you get the chance. But Charlie did return to a few big ideas, which I want to highlight below.

Deferred Gratification

I lived all my life with people who are into deferred gratification. In fact, most of them will never have any fun. They'll just defer gratification all the way to the end. That's what we do. And it does cause you to get rich. So we're gonna have a lot of rich dead people. We can excite a lot of envy. A lot of you, when the people walk by your grave - and there'll be this nice grave with this nice monument - and they'll say, "God what a great grave. I wish I were under it." But at any rate, deferred gratification really does work if what you're interested in doing is running a business that gets better and better or getting wealthy yourself so that your grave can look nice to outsiders.

A lot of the Q&A revolves around the advantages people have that prefer deferred gratification over those that want immediate gratification. Anything that requires the former acts as a barrier to entry, because it's usually more difficult. Difficult things require time, patience, etc. So they are often passed over for the less difficult things, the shortcuts, or the immediate payoff.

The problem with immediate gratification is that it eventually wears off. Or worse, it becomes a short-term setback and people get thrown off their game. In both cases, they look for another immediate gratification to fill that void.

In investing, an example of that leads to buying high and selling low. Both feel good in the moment, but become disastrous over the long term. And it's the same way with anything else that takes time, like growing a business, saving money, or learning. People who defer are more willing to accept moments of discomfort for a bigger payoff later on.

The Value of "I Don't Know"

Well, I'm going to give you an answer that will be very helpful to you because you're somewhat confused about what the exact future of American Express will be. And I want to tell you, I'm confused too. I think that if you understand exactly what's going to happen to payment systems ten years out, you're probably under some state of delusion. It's very hard to know. So if you're confused, all I can say is welcome to the club…And you're talking about payment system ten years out. I'm agnostic on that too. I think if you keep trying to do the right thing and you play the game hard, your chances are better. But I don't think those thing are knowable. Think of how fast they changed.


But no, I don't know. The oil and gas business is very peculiar. The people who succeed in most other businesses are doing way more physical volume than they did in the past. But a place like Exxon, you know, the physical volume goes by two thirds, it's just that the price of oil goes up faster than the physical volume goes down. That is a very peculiar way to make money. And it may well continue, but it's confusing, we're not used to it.

Charlie's answers are littered with similar examples. His responses revolve around something being too hard, too confusing, too complicated, or just unknowable... then it's best to avoid it. Find something else. When the smartest guy in the room says "I don't know" about so many things, it might be something worth picking up.

Change Your Mind is the Goal

Imagine, we're in the press, CNBC, for all of a sudden airline stocks! What have we said about the airline business? We thought it was a joke it was such a terrible business. And now if you put all of those stocks together we own one minor airline. By the way, it's the total catechism. We did the same thing in railroads. You know we said, "Railroads are no damn good, you know. Too many of them. Truck competition." And we were right. It was a terrible business for about 80 years. But finally they got down to four big railroads and it was a better business. And something similar is happening in the airline business…Think of the hooting we've done over the years about high tech, "We just don't understand it. It's not in our central competency. The worst business in the world is airlines." And what do we appear in the press with? Apple and a bunch of airlines.


I know so many people whose main problem of life is that the old ideas displace the entry of new ideas that are better. That is the absolute standard outcome in life. There's an old German folk saying that describes it. It says, "We're too soon old and we're too late smart." That's everybody's problem. And the reason we're too late smart is that the stupid ideas we already have, we can't get rid of. Now it's a good thing that we have that problem, in marriage that may be good for the stability of marriage that we stick with our old ideas. But in most fields you want to get rid of your old ideas. And it's a good habit. And it gives you a big advantage in the competitive game of life since other people are so very bad at it.

What happens is, as you spout ideas out, what you're doing is you're pounding them in. So you get these ideas and then you start agitating and saying them and so forth. And of course, the person you're really convincing is you, who already have the ideas. You're just pounding them in harder and harder. One of the reasons I don't spend much time telling the world what I think about how the federal reserve system should behave and so forth is I know that I'm just pounding the ideas into my own head when I think I'm telling the other people how to run things.

The base response to this reverts to name-calling like flip-flopper or hypocrite. In most cases, the people who default to that response refuse to admit that things change all the time. The real world is not like math, where two plus two always equals four. It's a complex, interconnected thing in a constant state of change.

Investing is no different. The basic principles are the same, but the tools have drastically changed just in the past decade. Part of it is because of the current environment. Part is due to the financial crisis. A lot of it is due to innovation and research. And I don't think anyone knows where things will be in the next ten years.

Being open-minded is the best way to avoid being quick to judge. When you combine that with Charlie's first two big ideas - deferred gratification and "I don't know" - it should be easier to do. When information changes, it's not only okay to change your mind, it's in your best interest.

Of course, anyone who continues to learn will eventually bump up against ideas that conflict with their current thinking. The learning not only expands their understanding of things, it destroys prior beliefs. It leads to fewer mistakes. And really, that's the essence of being less stupid.

Source: Charlie Munger: Transcript of DJCO Annual Meeting 2017