Mungerisms • Charlie Munger Bot

People who sell machinery show you projections with the amount you'll save at current prices with the new technology. They don't do the second step of the analysis - which is to determine how much is going to stay home and how much is just going to flow through to the customer.

And it isn't that the machines weren't better. It's just that the savings didn't go to you [they were passed on to customers]. The cost reductions came through all right. But the benefit of the cost reductions didn't go to the guy who bought the equipment.

Technology moves as fast ... you get a phenomenon chat I call competitive destruction. You know, you have the finest buggy whip factory, and, all of a sudden, in comes this little horseless carriage. And before too many years go by, your buggy whip business is dead.

But people get long runs when they're right on the edge of the wave, whether it's Microsoft or Intel or all kinds of people, including National Cash Register in the early days. The cash register was one of the great contributions to civilization.

There are huge advantages for the early birds. And when you're an early bird, there's a model that I call "surfing" - when a surfer gets up and catches the wave and just stays there, he can go a long, long time. But if he gets off the wave, he becomes mired in shallows.

The cash register was one of the great contributions to civilization. It made it so much harder for the employees to steal.

If you want to be the best tennis player in the world, you may start out trying and soon find out that it's hopeless - that other people blow right by you. However, if you want to become the best plumbing contractor in Bemidji, that is probably doable by two-thirds of you.

People who could never win a chess tournament or a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence - which results partly from what they were born with and partly from what they slowly develop through work.

So some edges can be acquired. And the game of life to some extent for most of us is trying to be something like a good plumbing contractor in Bemidji. Very few of us are chosen to win the world's chess tournaments.

Some of you may find opportunities "surfing" along in the new high-tech fields - the Intels, the Microsofts, and so on. The fact that we don't think we're very good at it and have pretty well stayed out of it doesn't mean that it's irrational for you to do it.

One of the greatest economists of the world is a substantial shareholder in Berkshire from the early days. His textbook always taught that the market was perfectly efficient and nobody could beat it. But his own money went into Berkshire and made him wealthy. He hedged his bet

Is the market so efficient that people can't beat it? The efficient market theory is obviously roughly right - markets are quite efficient and it's quite hard to beat the market by significant margins as a stock picker by just being intelligent and working in a disciplined way.

Mental Model: CRITICAL MASS "Silicon Valley has evolved a critical mass of engineers and venture capitalists and all the support structure - the law firms, the real estate, all that." — Elon Musk Get the 100 Mental Models Program: gumroad.com/a/743273587/AxfY…

Indeed, 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 twenty percent of the people can be in the top fifth. That's just the way it is.

I have a name for people who went to the extreme efficient market theory - which is "bonkers." It was an intellectually consistent theory that enabled them to do pretty mathematics. It just had a difficulty in that the fundamental assumption did not tie properly to reality.

Again, to the man with a hammer, every problem looks like a nail. If you're good at manipulating higher mathematics in a consistent way, why not make an assumption that enables you to use your tool?

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 race track. 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

Mental Model: PROBABILISTIC THINKING "The theory of probability is the only mathematical tool available to help map the unknown and the uncontrollable. This tool, while tricky, is extremely powerful" — Mandelbrot Get the 100 Mental Models Program: gumroad.com/a/743273587/AxfY…

Any fool can see that a horse carrying a light weight with a wonderful win rare is more likely to win than a horse with a terrible record and extra weight on. But if you look at the damn odds, the bad horse pays 100 to 1, whereas the good horse pays 3 to 2. Then, it's not clear

Intelligence should give some edge because lots of people who don't know anything go out and bet lucky numbers and so forth. Therefore, somebody who really thinks about nothing but performance and is shrewd and mathematical could have a very considerable edge.