Charlie Munger on “Circle of Competence” (Learn Continuously)

Learn Continuously:  Read, Read, Read

“You don’t have to pee on an electric fence to learn not to do it” said Munger on one occasion.  At the most recent Berkshire meeting he quipped: “Learning from other people’s mistakes is much more pleasant.  The best way to do this is simple:  When in doubt, read so you can learn vicariously.  Charlie loves to talk about the importance of reading:

Circle of Competence

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero. You’d be amazed at how much Warren reads – at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”  http://www.quoteswise.com/charlie-munger-quotes-2.html

We read a lot.  I don’t know anyone who’s wise who doesn’t read a lot.”  http://www.tilsonfunds.com/brkmtg04notes.doc

“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.”  http://www.valuewalk.com/charlie-munger-page/

“I understand that net-net stocks are not too common anymore, but today’s investors should not complain too much because there were only a handful of industries in which to look for stocks in the old days. Now there are so many different types of businesses in so many different countries that investors can easily find something. Besides, the Internet has made more information available. If you complain that you cannot find opportunities, then that means you either haven’t looked hard enough or you haven’t read broadly enough.”

“You say you feel a recovery? Your feelings don’t count. The economy, the market: They don’t care about your feelings. Leave your feelings out of it. Buy the out-of-favor, the unpopular. Nobody can predict the market. Take that premise to heart and look to invest in dollar bills selling for 50¢. If you’re going to do your own research and investing, think value. Think downside risk. Think total return, with dividends tiding you over. We’re in a period of extraordinarily low rates—be careful with fixed income. Stay away from options. Look for securities to hold for three to five years with downside protection. You hope you’re in a recovery, but you don’t know for certain. The recovery could stall. Protect yourself.”

                                                                               Irving Kahn

Finally, Pabrai is asked about mistakes, specifically, how does he try to avoid making mistakes? What is his process to prevent this sometimes unavoidable part of investing?:

“At all times, you have to be asking yourself the question ‘What is the business worth?’ and ‘What is the intrinsic value of the business?’ A couple of things can happen. First, you could have made a mistake on what you thought the business was worth and you could later have realized that it isn’t worth what you thought it was. In this case, you should look at the current stock price. Its my new blog www.jokenshayari.com .http://www.jokenshayari.com.The algorithm I use is to ask whether the current worth of the business is less than the current stock price. If the answer is yes, there is no question that the stock ought to be sold. On the other hand, even if I made a mistake, but the current value of the business is still above the current stock price, then I will typically wait for two or three years from the time I bought before I would think about selling. I’ll give the market some time to try to close that gap.”

There are no extraordinary men, goes the adage, just extraordinary circumstances that ordinary men are forced to deal with.


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