The quotes were originally posted on 25iq. This article covers Munger's quotes on topics that begin with R or S.
RATIONALITY:
“Rationality is not just something you do so that you can make more money, it is a binding principle. Rationality is a really good idea. You must avoid the nonsense that is conventional in one's own time. It requires developing systems of thought that improve your batting average over time.”
“We have a high moral responsibility to be rational.”
“The manipulation still works even though you know you're doing it. And I've seen that done by one person to another. I drew this beautiful woman as my dinner partner a few years ago, and I'd never seen her before. Well, she's married to prominent Angelino, and she sat down next to me and she turned her beautiful face up and she said, “Charlie,” she said, “What one word accounts for your remarkable success in life?” And I knew I was being manipulated and that she'd done this before, and I just loved it. I mean I never see this woman without a little lift in my spirits. And by the way I told her I was rational.”
READING:
“We read a lot. I don't know anyone who's wise who doesn't read a lot. But that's not enough: You have to have a temperament to grab ideas and do sensible things. Most people don't grab the right ideas or don't know what to do with them.”
“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.”
“…by regularly reading business newspaper and magazines I am exposed to an enormous amount of material at the micro level.. I find that what I see going on there pretty much informs me about what's happening at the macro level.”
REAL ESTATE:
“We don't have big advantages — no special competence — so we spend almost no time on it.”
“REITs are way more suitable for individual shareholders than for corporate shareholders. And Warren has enough residue from his old cigar-butt personality that when people became disenchanted with the REITs and the market price went down to maybe a 20% discount from what the companies could be liquidated for, he bought a few shares with his personal money. So it's nice that Warren has a few private assets with which to pick up cigar butts in memory of old times – if that's what keeps him amused.”
REGULATION:
“In our early days, we tended to overestimate the difficulties of regulation. We refrained by buying the stocks of television stations because we thought it was peculiar that someone could ask to have the government pull your license any year – and the government could do it.”
“How often does it happen that someone who was an intimate member of an industry is really the right person to clean it up?” “Will anybody be as tough as I'd like to see? The answer is no.”
REGRET:
“I don't spend much time regretting the past, once I've taken my lesson from it. I don't dwell on it.”
REINSURANCE:
“Reinsurance is not as much of a commodity business as it might appear. There's such a huge time lag between when the policy is written and when it is paid that the customer has to evaluate the insurer's future willingness and ability to pay. We have a reputational advantage, though it's not as big as it should be.”
“Our record in the past if you average it out has been quite respectable. Why shouldn¹t we use our capital strength?” “We'd be out of our minds if we wrote weather insurance on the opinion global warming would have no effect at all.”
RESPONSIBILITY:
“But if you rise high in a corporation or elsewhere in life, you have a duty to be an exemplar – you have a duty to take less than you deserve, to set an example. This goes all the way back to Athens. ”
RETURNS:
“If I'm wrong (about future stock market returns being in the mid-single digits), it could be for a bad reason. Stocks partly sell like bonds, based on expectations of future cash streams, and partly like Rembrandts, based on the fact that they've gone up in the past and are fashionable,” Munger said. “If they trade more like Rembrandts in the future, then stocks will rise (at double digits), but they will have no anchors. In this case, it's hard to predict how far, how high and how long it will last.”
“Well, the questioner came from Singapore which has perhaps the best economic record in the history of developing an economy and therefore he referred to 15% per annum as modest. It's not modest–it's arrogant. Only someone from Singapore would call it modest. ”
“Warren said [at the Berkshire annual meeting] that he hoped to do modestly better than the market. 15% would be a hell of a number, so the target is the 6-15% range. You're in the same boat we are.”
“The normal expectancy of the average investor — for example, the pension funds of AT&T or IBM — is 6% for a long time.”
“The average result has to be the average result. By definition, everybody can't beat the market. As I always say, the iron rule of life is that only 20% of the people can be in the top fifth. That's just the way it is.”
REVENGE:
“I don't think vengeance is much good.”
RISK:
“Using [a stock's] volatility as a measure of risk is nuts. Risk to us is 1) the risk of permanent loss of capital, or 2) the risk of inadequate return. Some great businesses have very volatile returns – for example, See's [a candy company owned by Berkshire] usually loses money in two quarters of each year – and some terrible businesses can have steady results” “I know a man named John Arriaga. After he graduated from Stanford, he started to develop properties around Stanford. There was no better time to do it then when he did. Rents have gone up and up. Normal developers would borrow and borrow. What John did was gradually pay off his debt, so when the crash came and 3 million of his 15 million square feet of buildings went vacant, he didn't bat an eyebrow. The man deliberately took risk out of his life, and he was glad not to have leverage. There is a lot to be said that when the world is going crazy, to put yourself in a position where you take risk off the table. We might all consider imitating John.”
“This is an amazingly sound place. We are more disaster-resistant than most other places. We haven't pushed it as hard as other people would have pushed it. I don't want to go back to Go. I've been to Go. A lot of our shareholders have a majority of their net worth in Berkshire, and they don't want to go back to Go either.”
ROLE MODEL:
“Early Charlie Munger (Trades, Portfolio) is a horrible career model for the young because not enough was delivered to civilization in return for what was wrested from capitalism. And other similar career models are even worse.”
“I feel that by getting rich in the way I did, I think my own example has hurt my own country.”
“Ben Franklin and Samuel Johnson, he credits their wisdom for his success. “They were both utterly brilliant men. And powerful communicators. Both have helped me all the way through life. Their lessons are easy to assimilate.”
“Whoever makes you smarter a little earlier in life makes you better.”
SALES:
“…If you take sales presentations and brokers of commercial real estate and businesses… I'm 70 years old, I've never seen one I thought was even within hailing distance of objective truth…. ‘incentive-caused bias,' causes this terrible abuse. And many of the people who are doing it you would be glad to have married into your family compared to what you're otherwise going to get….”
SEC:
“The SEC does way more good than harm – the last thing I would do is get rid of the SEC…if accounting were thoroughly fixed, a lot of other sins would go away. We're paying a huge price for deterioration of accounting.”
SEE'S CANDY:
“See's candy company was the first high-quality business we ever bought,”
“If See's Candy had asked $100,000 more [in the purchase price; Buffett chimed in, “$10,000 more”], Warren and I would have walked — that's how dumb we were. Ira Marshall said you guys are crazy — there are some things you should pay up for, like quality businesses and people. You are underestimating quality. We listened to the criticism and changed our mind. This is a good lesson for anyone: the ability to take criticism constructively and learn from it. If you take the indirect lessons we learned from See's, you could say Berkshire was built on constructive criticism. Now we don't want any more today.”
“It takes almost no capital to open a new See's candy store. We're drowning in capital of our own that has almost no cost. It would be crazy to franchise stores like some capital-starved pancake house. We like owning our own stores as a matter of quality control.”
SCIENCE:
“It's very useful to have a good grasp of all the big ideas in hard and soft science. A, it gives perspective. B, it gives a way for you to organize and file away experience in your head, so to speak.”
SHAREHOLDERS:
“We like our current shareholders and don't want to entice anyone to become one. It would help current shareholders to hear our CEOs [of the Berkshire operating subsidiaries], but we promised them they could spend 100% of their time on their business. We place no impediments on them running their businesses. Many have expressed to me how happy they are that they don't have to spend 25% of time on activities they didn't like.”
SHORT SALE:
“It's dangerous to short stocks.”
“Being short and seeing a promoter take the stock up is very irritating. It's not worth it to have that much irritation in your life.”
“It would be one of the most irritating experiences in the world to do a lot of work to uncover a fraud and then at have it go from X to 3X and at h the crooks happily partying with your money while you're meeting margin calls. Why would you want to go within hailing distance of that? [Laughter]“
SIZE:
“Size will hurt returns. Look at Berkshire Hathaway – the last five things Warren has done have generated returns that are splendid by historical standards, but now give him $100 billion in assets and measure outcomes across all of it, it doesn't look so good. We can only buy big positions, and the only time we can get big positions is during a horrible period of decline or stasis. That really doesn't happen very often.”
“All large aggregations of capital eventually find it hell on earth to grow and thus find a lower rate of return.” ”
It took us months of buying all the Coke stock we could to accumulate $1 billion worth — equal to 7% of the company. It's very hard to accumulate major positions.”
SOCIAL MOBILITY:
“If the same family were always on the bottom, then you'd have big resentments. But if DuPonts go down and Pampered Chef up, [that's good]. That much churn makes people think the system is fairer. Buffett: We don't like churn now, but we liked it more 30-40 years ago.”
SOCIAL SECURITY:
“…Social Security is amazing how we've run it. It's inflation protected. It's easy to sneer at it, but it's one of the most successful government programs ever. It's low cost and encourages work. People say if you never change the revenue base, it'll run out of money. But if 10 years from now, the country is 30-40% richer, why not use a higher percentage of GDP to pay people? Young people benefit too – the money is paid to people who might be moving in with them. (Laughter) Everybody's going to get older, but also richer, so why wouldn't you spend a higher percentage of GDP on them? Why is that so unthinkable? I'll tell you what's unthinkable: that so many people are that stupid! (Laughter)…”
“Regarding the demographic trend called Baby Boomers, it's peanuts compared to the trend of economic growth. Over the last century, [our] GNP is up seven times. This was not caused by Baby Boomers, but by the general success of capitalism and the march of technology. Those trends were so favorable that little blips in the birth rate were not that significant. We can keep social peace as long as GNP rises 3% annually – this can pay for spending by politicians. If we ever got to stasis [no growth], then with all the promises, you'd get real tensions between the generations. The Baby Boomers would exacerbate it, but the real cause would be lack of growth.”
I think the Republicans are out of their cotton-pickin' minds to be taking on this issue at this time. The thought that more of our GDP will be going to the elderly over time is not anathema to me. Social Security is very successful. Apart from disability – a small part – there's almost no fraud; it's hard to fake being dead. (Laughter) It rewards work, it's low cost. It's one of the most successful government programs ever. For the current administration, which needs to face down North Korea and Iran, deal with Iraq, etc., to waste political capital on this twaddle…
“Of course if we don't change anything, Social Security will run low on funds. But if we grow, then it's child's play to [deal with this problem]. And it's crazy to think we'd freeze the amount we'd pay to the elderly. Social Security is a low -overhead, efficient program.”
STATISTICS:
[What was] … worked out in the course of about one year between Pascal and Fermat… is not that hard to learn. What is hard is to get so you use it routinely almost everyday of your life. The Fermat/Pascal system is dramatically consonant with the way that the world works. And it's fundamental truth. So you simply have to have the technique….At Harvard Business School, the great quantitative thing that bonds the first year class together is what they call decision tree theory. All they do is take high school algebra and apply it to real life problems. And the students love it. They're amazed to find that high school algebra works in life….By and large, as it works out, people can't naturally and automatically do this. If you understand elementary psychology, the reason they can't is really quite simple: The basic neural network of the brain is there through broad genetic and cultural evolution. And it's not Fermat/Pascal. It uses a very crude, shortcut type of approximation. It's got elements of Fermat/Pascal in it. However, it's not good. So you have to learn in a very usable way this very elementary math and use it routinely in life just the way if you want to become a golfer, you can't use the natural swing that broad evolution gave you. You have to learn to have a certain grip and swing in a different way to realize your full potential as a golfer. If you don't get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a o¬ne legged man in an ass kicking contest. You're giving a huge advantage to everybody else.”
“I'm not sure that I can even pronounce the Poisson distribution. But I know what a Gaussian or normal distribution looks like and I know that events and huge aspects of reality end up distributed that way. So I can do a rough calculation. But if you ask me to work out something involving a Gaussian distribution to ten decimal points, I can't sit down and do the math. I'm like a poker player who's learned to play pretty well without mastering Pascal. And by the way, that works well enough. But you have to understand that bell shaped curve at least roughly as well as I do.”
“Practically everybody (1) overweighs the stuff that can be numbered, because it yields to the statistical techniques they're taught in academia, and (2) doesn't mix in the hard-to-measure stuff that may be more important. That is a mistake I've tried all my life to avoid, and I have no regrets for having done that.”
STOCKS:
“You must value the business in order to value the stock.”
“[In picking stocks] You really have to know a lot about business. You have to know a lot about competitive advantage. You have to know a lot about the maintainability of competitive advantage. You have to have a mind that quantifies things in terms of value. And you have to be able to compare those values with other values available in the stock market.”
“The number one idea, is to view a stock as an ownership of the business [and] to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash flow than you're paying for. Move only when you have an advantage. It's very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor.”
“It would be nice if this [finding really cheap stocks] happened all the time. Unfortunately, it doesn't.”
“To some extent, stocks are like Rembrandts. They sell based on what they've sold in the past. Bonds are much more rational. No-one thinks a bond's value will soar to the moon.” “Imagine if every pension fund in America bought Rembrandts. Their value would go up and they would create their own constituency.”
STOCK EXCHANGES:
“I think we have lost our way when people like the [board of] governors and the CEO of the NYSE fail to realize they have a duty to the rest of us to act as exemplars. You do not want your first-grade school teacher to be fornicating on the floor or drinking alcohol in the closet and, similarly, you do not want your stock exchange to be setting the wrong moral example.”
STOCK MARKETS:
“The model I like—to sort of simplify the notion of what goes on in a market for common stocks—is the pari-mutuel system at the racetrack. If you stop to think about it, a pari-mutuel system is a market. Everybody goes there and bets and the odds change based on what's bet. That's what happens in the stock market. “
STOCK PICKING:
“It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it—who look and sift the world for a mispriced be—that they can occasionally find one. And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple.”
“Stock-picking is like gambling: those who win well, seldom bet, but when they do, they bet heavily.”
STOCK OPTIONS:
“Quoting Demosthenes, ‘For what each man wishes that he also believes to be true.' I would rather make money playing a piano in a whorehouse than arguing that no cost is incurred when employees are paid in stock options instead of cash. I am not kidding.”
SUNK COSTS:
“Failure to handle psychological denial is a common way for people to go broke. You've made an enormous commitment to something. You've poured effort and money in. And the more you put in, the more that the whole consistency principle makes you think,” Now it has to work. If I put in just a little more, then it 'all work…. People go broke that way —because they can 't stop, rethink,and say,” I can afford to write this one off and live to fight again. I don't have to pursue this thing as an obsession —in a way that will break me.”
SYNERGIES:
“The reason we avoid the word ‘synergy' is because people generally claim more synergistic benefits than will come. Yes, it exists, but there are so many false promises. Berkshire is full of synergies — we don't avoid synergies, just claims of synergies.”
