Why Charlie Munger Thinks Hate Creates Opportunity

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If you know Berkshire Hathaway (NYSE: BRK-B  ) , then you probably know its vice chairman, Charlie Munger -- Buffett's right-hand man. Munger's book, Poor Charlie's Almanack, collects his speeches and musings, including his intriguing thoughts on the 25 tendencies that lead us humans to make really bad decisions. For your benefit and mine, this series will review each of those ill-fated impulses, the errors they create, and the antidotes that can help make us better investors.

Today, we're moving on to tendency No. 3: Disliking/Hating Tendency. 

For all the haters in the house
Just as with the Liking/Loving Tendency I recently wrote about, the Disliking/Hating Tendency is with us from a very early point in life. In fact, Munger says we are born with these primitive emotions. The growing popularity of smear campaigns and negative advertisements in American politics, for example, shows that some people just have a natural talent for it -- as if they've been working at it since birth. So how does this tendency manifest itself? There are three primary ways:

  • We ignore the positive virtues in the things or people we dislike.
  • We dislike people and things that are even associated with the object of our dislike.
  • We distort the truth, bending reality to conform to our dislikes and hatred.

    These past few years have created an environment where it has been really easy to hate. From polarizing politics to the financial crisis and the recession that followed, people have really taken to hating and disliking someone or something. We need to assign blame, so we look for the quickest avenue and let 'er rip.

Some examples
But just because some banks screwed up, are all banks bad? Bank of America (NYSE: BAC  ) may be the poster child for big banks gone bad, but are all banks awful investments? I don't think so. Granted, it may be a bit more difficult to find the good ones, but they're out there. In fact, I think the smaller community banks present some pretty compelling opportunities these days. That's one of the things that led me to buy Ameris Bancorp (Nasdaq: ABCB  ) for my Rising Star portfolio.

And how about the Gulf spill? Just last year we were crucifying BP (NYSE: BP  ) and a slew of other oil-related companies for letting such a thing happen. It was an awful and tragic event, no doubt, and even more troubling is that for years leading up to the spill, BP had been ignoring its own safety policies, putting production ahead of safety. And while BP says it has adopted safer standards in efforts to start drilling in the Gulf of Mexico once more, I can't imagine that many folks in the region are eager to see the company there anytime soon. 

But are all oil companies bad? Are they all bad investments? Are you a bad person for investing in oil companies? My answer to all three (predictably, I'm sure) is no. What's more, for investors, it was a wonderful time to take advantage of the blanketed disapproval and find the winners among them. Heck, I even recommended Tidewater (NYSE: TDW  ) as my 11 O'Clock Stock as a result of the hubbub, and to date, it's beating the market by a wide margin. And I still love the stock today, as CEO Dean Taylor acknowledged that the company's future is in the international segment, significantly broadening its market opportunity.

Is this opportunistic? Yes. Do I hate what the responsible parties caused? You bet I do. And that's the point. We as humans will hate. We can't help it. But as investors, we can train ourselves to control these negative emotions and take advantage when the opportunities do arise. And I kind of like that.

Read the other installments so far in this series:

Motley Fool Stock Advisor analyst Jason Moser owns shares of Ameris Bancorp and Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway, Ameris Bancorp, and Bank of America. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 10, 2011, at 10:52 PM, Superball wrote:

    Strong disagree. In taking the Tiebot hyposthesis even further, I not only "vote with my feet;" I vote with my money. There may be a good reason that we "dislike" certain things, and it would be very hypocritical to invest in them, furthering their existance. Yes, I could probably make more money if I invested in the dividend machine, Phillip Morris, and I know I would have made money on the recently recommended Westport Innovations, but I don't want my money supporting a company that knowingly kills people, or one that is associated with "big oil." I'm okay with not being as rich as possible if I am truer to my convictions in not encouraging and subsidizing what I consider to be bad behavior. Jason, I believe you to be a hypocrite.

  • Report this Comment On September 11, 2011, at 5:40 PM, TMFJMo wrote:

    Interesting choice of words. I would call myself more a realist. Nobody's perfect that's for sure and I'd be willing to wager that everyone is inconsistent to an extent. Even you.

    My point in this article was geared more toward the blanket disaproval of any sector due to a bad apple/outlier event here and there.The Gulf oil spill created some very rare investing opportunities as most every oil-related stock went down, even when they didn't have anything to do with it. Same thing with banking. Heck we put together a fantastic special report in Hidden Gems after the spill naming 8 companies that we felt were unfairly punished due to the spill. And that portfolio of 8 companies as a whole has produced some pretty nice returns. Plenty of people took advantage and many didn't, all for their own reasons and I think that's perfectly fine.

    I don't own shares in BP or Bank of America, but it's not because I think they're evil. I think they're crappy investments. But I don't begrudge investors who own them. To each his/her own. I don't own shares of Phillip Morris, but it's not because I have a problem with what they do. I think that as time goes on people are getting smarter about smoking and I believe that Phillip Morris, et al. will face much higher hurdles and continue to become less compelling investments.

    You said "but I don't want my money supporting a company that knowingly kills people," I appreciate that you don't want your money helping these companies survive. But your statement implies (at least to some degree) that the people themselves have no responsibility in the matter. I strongly disagree with that.

    You may have already checked this out, but I would also make sure that you don't hold shares in any funds that actually hold stocks like these or others of which you disaprove.

    Foolish best,

    Jason

  • Report this Comment On September 11, 2011, at 8:16 PM, ironyworks wrote:

    By not owning stocks of companies, and selling when they behave poorly, we influence the price of the stock, and make it clear to management

    that it's going to be expensive when they screw folks over .

    Wielding one's influence as a shareholder is a moral obligation that all too often conflicts with the bottom line. Moral convictions aren't free, all to often.

    We are facile rationalizers to compensate..grin.

  • Report this Comment On September 12, 2011, at 9:08 AM, Manlobbi wrote:

    @Superball Avoiding investing in Phillip Moris, even if the whole world avoided investing in them, does not affect their operations and what they do (other than taking advantage of it by buying their shares back very cheaply to increase the dividends of the few remaining holders). Not buying their products is what will damage them. Avoiding to invest in them (with the shares outstanding staying the same) won't make the world better in any way I'm afraid.

    - Manlobbi

  • Report this Comment On September 12, 2011, at 3:40 PM, hbofbyu wrote:

    I am not a smoker but I defend tobacco companies because I'm a big advocate of personal responsibility. Smoking is not good for you; neither is alcohol, fast food, automobile exhaust, bacon, ice-cream, base-jumping, Diet Coke, coffee, oxy-codone... and the list goes on. Why so cynical about tobacco?

    I shall never more buy GM or Ford stock until they improve the safety features of their vehicles to the end of eliminating the 40,000+ deaths every year from auto accidents on US highways.

    Sounds pretty ridiculous.

  • Report this Comment On September 13, 2011, at 10:47 AM, morgatil wrote:

    After a certain accident, I picked up shares of atw, rig and nov.

    I have been sleeping just fine ever since.

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