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:

• Charlie Munger and the Psychology of Human Misjudgment
• Charlie Munger and the Psychology of Human Misjudgment, Continued