There aren't many iron rules of investing, but one of them is "When Charlie Munger speaks, drop everything and listen."
Munger, the 91-year-old billionaire vice chairman of Berkshire Hathaway, has two amazing traits: He's brilliant, which gives him authority, and he's rich and old, which amplifies freedom of speech to a level most of us couldn't get away with. He says what's on his mind without fear of offending anyone. It makes him one of the most quotable investors of all time.
Munger gave a talk this week at the Daily Journal, where he's chairman. Investor Alex Rubalcava took notes. Here are some great things Munger said (my comments below).
"I did not succeed in life by intelligence. I succeeded because I have a long attention span."
Time is the individual investor's last remaining edge on professionals. If you can think about the next five years while most are focused on the next five months, you have an advantage over everyone who tries to outperform based on sheer intellect.
"The finance industry is 5% rational people and 95% shamans and faith healers."
There are few other industries in which people are paid so much to be so consistently wrong while clients come back for more without demanding any change.
"I think that someone my age has lived through the best and easiest period in the history of the world."
People ignore the really important news because it happens slowly, but obsess over trivial news because it happens all day long. News headlines will forever be dominated by pessimism, but by almost any metric we are living through the greatest period in world history.
"When things are damn near impossible, maybe you should stop trying."
Related: Everyone should know the difference between patience and stubbornness. Patience is the willingness to wait a long time while remaining open to changing your mind when the facts change. Stubbornness is the willingness to wait a long time while ignoring and dismissing evidence that you're wrong.
"Other people are trying to act smarter. I'm just trying to be non-idiotic."
Napoleon's definition of a military genius was "The man who can do the average thing when all those around him are going crazy." It's the same with investing: You don't have to be brilliant, you just have to consistently be not stupid.
"If the incentives are wrong, the behavior will be wrong. I guarantee it."
Anyone criticizing the behavior of "greedy Wall Street bankers" underestimates their tendency to do the same thing if offered an eight-figure salary.
"I don't spend too much time thinking about what is almost certain never to happen."
This likely includes: accurate economic forecasts, stable markets, consistent outperformance, reasonable politicians, and hyperinflation.
"I don't think anything that any average person can do easily is likely to be worthwhile."
Good investing hurts. It's not any fun. It requires the ability to endure things most people aren't, such as bear markets that last for years and times when you perform worse than average.
"The way to get rich is to keep $10 million in your checking account in case a good deal comes along."
You don't need $10 million, but cash in the bank will be the best friend you've ever had when stocks fall. If you're upset that your cash is earning a dismal interest rate right now, you're doing it wrong. Cash's value isn't its ability to earn interest. Providing flexibility and options is how it earns its keep.
"Nobody survives open heart surgery better than the guy who didn't need the procedure in the first place."
Avoid debt. Spend less than you earn. Advocate humility. Learn from your mistakes. If you can manage to not screw up too many times in investing you'll probably do just fine over time.