As befitting a 96-year old who has had fabulous success as an investor, most of the things that he says are wisdom that can be gathered over decades. As investors, many of us keep looking for things that will not change. We have identified mutual funds and stocks that have done well for us and developed a deep comfort with them, in the sense that we feel that their success is an unchanging fact that will be with us throughout our investing lives.
However, when you have been investing for 75+ years, you reach a deeper realisation. Eventually, everything decays. As Munger says in the interview, “Over the long term it’s more like biology than anything else, and in the biological world, all individuals die. So to all the species, it’s just a question of time.” Since change comes more likely from technology, it is more likely to be rapid and unforeseen, even by those who are in the field.
Munger has an amusing incident to narrate from the beginning of his career. One of the earliest stocks he bought was from William Miller Instruments, a company whose founder had invented a better way of recording sound, something that sounds like an improved wax cylinder. He thought that it was going to take over all recording technology and Munger agreed. However, someone else, around the same time, went and invented the magnetic tape. Tape was so much superior that the product that Munger had invested in sold all of three instruments in all. The money was wiped out.
Munger could have just said that I need to be better at knowing about technologies and predicting where they are heading but no, he did not do that. He decided that changing technologies were something to be avoided. If you have two things to invest in, one you understand and the other you cannot, what is the point of investing in the one you do not? Seventy five years have gone by but this idea of staying within one’s ‘circle of competence’ has served Munger and Warren Buffett well. As he says, “I try to avoid being stupid. I’m not trying to succeed in my too-hard pile. The single most important thing is to know where you are competent and where you aren’t. The human mind tries to make you believe you are smarter than you are. Rub your nose in your mistakes.”
Even so, the last thing that you can accuse him of is being comfortable with his circle of competence. “I’m a big fan of knowing the big ideas in all the disciplines and using them routinely in judgments. I don’t believe in constantly consulting with experts in investment decisions. Life is more fun if you do that. Academia isn’t very good at multi-disciplinary work.” That’s a lesson that has been brought home strongly during the pandemic. Knowledge that has been pre-digested and regurgitated by someone else just isn’t the same as knowledge that you have come to yourself.
This is a hard challenge for investors now, much harder than when Munger and Buffett were making their fortune. Lately, over the last decade or so, changes made by technology have become such a dominant force that primary expertise is hard to come by. Still, the challenge has to be met. That’s the price that investors have to pay—being interested and curious about the world and trying to know and understand as much as possible.
(The writer is CEO, Value Research)
