To The Moon

This article is an excerpt from Charlie Munger's speech on Daily Journal Annual Meeting.

5 Key Takeaways:

• Common Sense is Rare and Precious
• A Few of Opportunities are Enough
• Fishing Has Always been Fish Where the Fish are
• Get Wise and Avoid Chicanery in Stock Market
• How to Scramble Out of your Mistakes with Low Costs

1. Common Sense is Rare and Precious

It’s amazing how well Berkshire Hathaway, and the Daily Journal for that matter, have succeeded with nothing more than basic morality and sturdy common sense.

But of course when people talk about common sense they mean ‘uncommon sense’. Every time you hear that somebody has a lot of common sense it means he’s got uncommon sense. And it is much harder to have common sense than it is generally thought.

It is to be rational on something very simple. How hard it is…How many kind of crazy ideas people have and don’t work, and you don’t even know why they don’t work even though it’s perfectly obvious if you’ve been properly educated.

And by the way my definition of being properly educated is being right when the professor is wrong. Anybody can spit back what the professor tells you. The trick is to know when he’s right and when he’s wrong. That’s the properly educated person.

2. A Few Opportunities are Enough

Now at a place like Berkshire Hathaway or even the Daily Journal, we’ve done better than average.

And now there’s a question, why has that happened?

The answer is pretty simple. We tried to do less.

We always realized that if we worked very hard we can find a few things where we were right. And that a few things were enough.And that that was a reasonable expectation.

I had a grandfather who was very useful to me. He came out to Iowa with no money but youth and health.He stayed there and he bought cheap land and he was aggressive and intelligent and so forth and eventually he was the richest man in the town and owned the bank.

His attitude was that in a favored life like his, when you were located in the right place, you just got a few opportunities if you lived to be about 90.

It’s a game of being there all the time and recognizing the rare opportunity when it comes and recognizing that the normal human allotment is to not have very many.

3. Fishing Has Always have been Fish Where the Fish are

The first rule in fishing has always been fish where the fish are. And the second rule of fishing has always been ‘Don’t forget rule number one’.

Weare like cod fishermen who are trying to catch cod where the fish have been fished out. It doesn’t matter how much you work, when there’s that much competition.Every little idea I see in the world some are going after.

I sat once on an investment committee at the University of Michigan and in came one of their successful investors located in London. And what had this investor done in London?

He decided to invest in sub-Saharan Africa. And the only marginal securities were a few banks that traded in the Pink Sheets, so he would buy very tiny quantities of these banks.

And every time some poor person got tired of having their money in the mattress and put it in a bank he did a little better. And of course, he made a lot of money. Nobody else was investing in little tiny banks in Africa.

But the niche was soon filled. The niche gets filled quickly. How many wonderful niches are there going to be when some guy in London is buying all these tiny little bank stocks in Africa? It’s hard.

4. Get Wise and Avoid Chicanery

In the modern world, people are trying to teach you how to come in and trade actively in stocks. Well I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin. It is really stupid.

And when you’re already rich to make your money by encouraging people to get rich by trading? And then there are people on the TV, another wonderful place, and they say, “I have this book that will teach you how to make 300 percent a year. All you have to do is pay for shipping and I will mail it to you!”

How likely is it that a person who suddenly found a way to make 300 percent a year would be trying to sell books on the internet to you!It’s ridiculous.

By and large Warren and I, we never tried to make money out of…stupidity of our dumb buyers. We tried to make money by buying, and if we were selling horseshit we didn’t want to pretend it was a cure for arthritis.

I think there’s always been chicanery. People just seek out the weaknesses of their fellow man and take advantage. And you have to get wise enough so you avoid them all. And you can’t avoid them if they’re in your family. I have no solution to that one. But where you have a fair choice, there are just so many people that should be avoided.

5. Scramble Out of your Mistakes with Low Costs

How do you scramble out of your mistakes without them costing too much? And we’ve done some of that too.

This business of controlling the costs and living simply, that was the secret.

Warren and I had tiny little bits of money. We always underspent our incomes and invested. And if you live long enough you end up rich. It’s not very complicated.

If you look at Berkshire Hathaway, think of its founding businesses. A doomed department store, doomed New England textile company, and a doomed trading stamp company. Out of that came Berkshire Hathaway.

Nowwe handled those losing hands pretty well when we bought into them very cheaply. But of course the success came fromchanging our ways and getting into the better businesses.It isn’t that we were so good at doing things that were difficult.We were good at avoid things that were difficult. Finding things that are easy.

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