Common sense: common sense that ordinary people do not have

Berkshire Hathaway can be a great success, DailyJournal (Daily Journal) can achieve a little, there is no secret is the pursuit of basic morality and sound common sense.

Everyone knows that.The so-called common sense is common sense that ordinary people do not have. When we say that someone has common sense, we are actually saying that he has common sense that ordinary people do not have. People think that it is easy to have common sense, but it is actually very difficult.

Let me give you an example. A large number of people with high IQs have entered the field of investment and are trying to do better than ordinary people. Many highly intelligent people flocked to the investment field, creating a scene rarely seen elsewhere, so strange things happened. There used to be a very large investment consulting firm in California that came up with an idea to outperform its peers.

They think like this: we have so many talented young people, all of whom are graduates from Wharton, Harvard and other famous universities, and they all spare no effort to understand the company, market trends, and everything. as long as each of these young talents come up with what he thinks is the best investment opportunity, we will certainly be far ahead of the index if we put all the best opportunities together.

People in this investment company can think that such an idea works because they are too poorly educated. They acted with confidence and there was no doubt that they were defeated. They tried again and failed miserably. They tried for the third time and still failed.

Hundreds of years ago, alchemists fantasized about turning lead into gold. The alchemists thought beautifully that they would make a fortune by buying a lot of lead, doing magic and turning it into gold. The investment company I just mentioned is no better than the alchemists of hundreds of years ago. it is just a modern replica of delusional attempts to turn lead into gold. I could have told them this, but they didn't ask me either.

What is worth pondering is that the investment company brings together elites from all over the world, including many high-IQ elites from China, whose average IQ is slightly higher than that of people from other countries. In fact, the question is very simple. The idea seems to work, but why doesn't it work in practice?You might as well think for yourself why this happened.

You have all been educated in institutions of higher learning, and I dare say that few of you here can really explain this. I would like to use this to teach you a lesson. How could you not know? Investment is an important industry in the United States.In such an important industry, there has been such a terrible failure, we should be able to give an explanation!

The person who can answer this question must have listened attentively in the freshman class. Unfortunately, even if you take this question to the finance department of an institution of higher learning and let the professors there answer it, they will not answer it correctly. I leave this question to you to think about, because I want to confuse you.

I'll move on to the next topic. In fact, you should be able to answer this question. From this problem, we can seeEven if it's something very simple, it's not easy to stay sane. It is impossible for people to have too many wrong ideas. Why people's wrong ideas don't work, but you can't tell them.

If you have received a good education, you should be able to see through at a glance. My understanding of "getting a good education" is to know when a professor is wrong and what is right. Anyone can do what the professor says.The key is to distinguish between what the professor says, which is right and which is wrong, and this is the person who has received a good education.

Second, seize a few opportunities in your life, that's enough!

Back to the investment field, at least for quite a long time in the future, if you take the initiative to pick stocks, and delusional omniscience, you still can not beat the index.

In Berkshire Hathaway, in DailyJournalWe have been doing better than average. The question is, how do we do it? How do we do that? The answer is simple. We seek to do less.

We have never naively thought that by recruiting a group of talented young people, we can know everything, whether it is canned soup, aerospace, or public utilities.

We've never been so delusional. We never thought we could do it, and we could get really useful information in any field. We don't pretend to know everything.We always know very well that as long as we work very hard, we can accurately find a few opportunities. These few opportunities are enough. Just to find a few opportunities, our expectations are more reasonable.

If you're like the investment consulting firm I mentioned earlier, ask Warren Buffett the same question: "tell me your favorite investment opportunities this year." "then you can make a lot of money by buying the best investment opportunity that Warren found.Warren can't be delusional about omniscience. He'll only tell you one or two stocks. Investment consultants are ambitious, and Warren knows how to restrain himself.

My great grandfather, that is, my mother's grandfather, helped me a lot. My great grandfather is a pioneer. He came to Iowa penniless but young and in good health. He took part in the Black Hawk War with the Indians and became a captain in the war. Later, he settled down in Iowa, and every time there was a very cheap opportunity for land, he sold very wisely and bought a lot of money.

In the end, he became the richest man in town and owned a bank. He is respected, has a large family and lives a very happy life. When he first settled in Iowa, with less than a dollar an acre, he lived in Iowa and saw the rise of rich modern civilization in this fertile land. My great grandfather said that he had a good time and lived to be 90 all his life. God could give him a few big opportunities.

He lived a long and happy life, mainly because he seized the opportunities given to him by God. Every summer, when his grandchildren surround his knee, my great grandfather always tells this story over and over again. My mother was not interested in money, but she remembered the story told by my great grandfather and told it to me. I'm not like my mother. I know my great grandfather did the right thing.

So, when I was very young, I knew that major opportunities, opportunities that belong to me, as long as a few, the key is to prepare yourself, when a few opportunities come, seize them.The people in the big investment advisory firms, they don't think so.They think that if they study a million things, they can understand a million things.

The key to playing the investment game lies in a few opportunities, you can really see that one opportunity is better than other opportunities, and you know very well that you know more than others. To do this, as I said, it is enough to seize a few opportunities.

Warren often said, "isn't it enough for a man who lives in a thriving town and has shares in three of the best companies in this town?" "as long as these three companies are top-notch, they are definitely scattered.The widely circulated Kelly formula can tell us how many chips you should bet on each trade when you have a chance of winning. The more likely you are to win and the higher your chances of success, the greater your bet should be.

Third, fish where there are fish! Remember!

The first rule of fishing is to fish where there are fish. The second rule of fishing is to remember the first rule.Many of us went to the place where the cod had been fished out and wanted to catch cod. In an extremely competitive environment, it is useless no matter how hard you try.在In the field of investment, even small opportunities are being followed.

Once, I attended an investment committee meeting at the University of Michigan, where one of the successful investors was from London. How did the investor invest in London? He has his eye on sub-Saharan Africa. There are very few listed companies in sub-Saharan Africa, and only a few bank stocks listed on the pink market can be found, so he bought these bank stocks and could buy very little.

Poor people in Africa are gradually changing their habit of keeping their money at home, more and more people begin to deposit their money in the bank, and this investor is making more and more money. In the end, he made a lot of money. No one else invests in small banks in Africa, only himself. Unfortunately, this little niche was quickly filled in.

As a fund manager, I have made money for my clients by investing in small banks in sub-Saharan Africa. Where can I find the next investment opportunity? Niche filling is quick. A fund manager in London can buy shares in small African banks. How much niche do you think is left to make money? It's too hard.

Fourth, take the right path, the road is getting wider and wider

In the modern world we live in, there are people who specialize in dragging others into the water and teaching others to trade stocks frequently. In my opinion, this is no different from abetting young people to take heroin. It's stupid. How can a person who has already made money make a living by abetting others to make a fortune in the stock market?

TV is also a magical place. We often see it on TV.Some people say, "this book in my hand can teach you to earn three times as much a year. You only need to pay the postage to get it." "How can a person still sell books online when he suddenly discovers the secret of earning three times as much a year? This is ridiculous. The scene I am talking about is a portrayal of modern business. People do this every day and think they are citizens who are beneficial to society.

Let me tell you another short story, which is also about modern life. I hope you can get some inspiration from it. The story took place in the past. There is a man who has a good horse. This is a fine horse, with light steps and shiny hair. This horse is good at everything except for one fault. Sometimes, he suddenly has a bad temper and a bad temper, and anyone who rides it at that time will have to break his arm and leg.

The man went to the veterinarian and asked the veterinarian, "how to treat this horse?" "the veterinarian said," it's simple. I have an idea. "tell me quickly," said the man. The veterinarian said:"when your horse is doing well, sell it. "

Generally speaking, Warren (Warren Buffett) and I, we have never tricked fools into taking goods from us in order to make money.We make money by making money when we buy it.If we sell dog shit, we won't talk about it as a cure for arthritis.

I think it's better not to lie, but to live like us. In reality, there are always liars. Let's talk about those charlatans, they have a lot of tricks. There are always swindlers who take advantage of human weaknesses.We must increase our wisdom in order to stay away from all kinds of fraud.

Peter Kaufman (author of the Book of Poor Charlie: Munger's Proverbs of Wisdom) has said to me many times:"if liars knew how much money they could earn to be honest, they would not be liars. Warren also said a classic saying: "follow the right path, the road is getting wider and wider." "this is true.

Slow down, we don't care

Some of the reasons are very simple, but really useful. What DailyJournal does is a difficult business, and the work of serving government departments such as the courts is not easy. Government departments such as courts need automation. Other people want to take advantage of government departments such as the courts, but we don't. We are just a small company, we work very hard, and we gradually occupy a lot of markets.

Although the speed is slow, the future is bright. The advantage of having money is that we don't care if we slow down. So how do we get the money? We remember what my great grandfather said.There are only a few opportunities, and when an opportunity comes, we rush to seize it. Think about it, is this your life?

Tell me another one about my personal experience. In the 1970s, I made a mistake, an investment that I didn't make. If we hadn't made this mistake, the Munger family would have been twice as rich as they are now. That mistake I made was stupid. I missed that opportunity, otherwise my assets would have doubled. That's the way life is. It's inevitable to miss a chance or two.

To find a partner, you have to find someone who is better than yourself.

There are always people around us who have found a better partner than themselves.They made a wise and lucky decision. No matter how much money can buy, you can find a partner who is better than yourself.Many people inadvertently find a better partner than themselves when they are young.

In fact, you don't have to try your luck, you can pursue it consciously. Many people carry eye-catching labels that read "danger, danger, do not approach", while others rush forward. (laughs on the spot) No. You laugh, this is definitely a mistake with serious consequences.

7. Why can you still be happy when you are so old?

We in the board of directors, we do maverick things together, share the ups and downs of life, is strange enough, after all, we are so old. Gary Wilcox (GaryWilcox) is a young man here. We are a very unique board of directors. This case is also worth thinking about.

Look at me, I am so old and so old, and I am still very happy. How do you do that? This is another topic.

If you would like to listen, I will tell you two more short stories. The following story is made up, but it is very inspiring.

A young man went to visit Mozart. He said, "Mozart, I want to write symphonies. Mozart said, "how old are you? "the young man said," I am 23. Mozart said, "you are too young to write symphonies. "the young man said," but, Mozart, you started writing symphonies when you were 10 years old. "

Mozart said:"Yes, but I didn't ask anyone how to write it at that time. "There is also a story about Mozart. Mozart can be said to be the greatest musical genius in the history of mankind. How is his life? Mozart was resentful, unhappy and died young.

How did Mozart live like this? He did two things, both of which were enough to be in pain. Mozart doesn't know how to live within his means.Be profligate in moneyThis is the first one. The second oneHis heart was filled with jealousy and complaints.Anyone who spends a lot of money and is full of jealousy and complaints will live a bitter and miserable life and die early.If you want to live hard and die early, please learn from Mozart.

The young man asked Mozart how to write symphonies, and you can learn a lesson from this young man's story. The truth is:Some things, some people can't learn. Some people are born better than you. No matter how hard you try, there will always be someone who is better than you. My mindset is: "so what? "Do any of us at the scene have to be on top of the world? No need.

I always find it ridiculous that emperors and generals have built so many large-scale mausoleums. Are they trying to make future generations envy themselves? Let future generations hope to live in their mausoleums when they walk past them? (laughter at the scene)

In short, we enjoyed the process along the way and did a good job in the end. You can study for yourself how many major decisions have been made at DailyJournal, in the history of Berkshire Hathaway.On average, there are only a few major decisions each year.

The way to play this game is to stay in the game all the time, keep an eye on it, and don't let it slip away when a rare opportunity arises, knowing that there are not many opportunities available to ordinary people.

8. How to climb out of mistakes at a low cost?

The secret of making money is to save money and live a simple life.Warren and I, when we were young and broke, we saved money and saved it to invest. Hold on for a lifetime, and end up very rich. Anyone can understand this.

Another problem that needs to be solved in life is:How can we climb out of our mistakes without paying too high a price? We climbed out of our mistakes and we did it.Berkshire Hathaway, what was its first business? The desperate department store, the desperate New England Textile Company, the desperate stamp company.

Berkshire Hathaway crawled out of these bad businesses. Fortunately, we bought it very cheaply, and although we played bad cards, we still played very well.In the end, Berkshire succeeded because we took a different path and bought a good business. We can succeed not because we are good at solving problems, but because we are good at staying away from problems. We're just looking for something simple to do.

DailyJournal Company, when we first bought it, its business was very good. The software business that DailyJournal does now is very difficult to do. The old colleagues of the company are still alive, and under all kinds of coincidences, the new software business is doing well. This business has potential, and we are willing to continue with it.Newspapers have gone into decline. How many newspapers, like DailyJournal, have hundreds of millions of dollars of stock on their books and promising new businesses? We are the last Mosigans.

IX. Question session

问：You have a golden sentence, which I like very much. You said that when you recruit, one person has an IQ of 130, but you think your IQ is 120 and the other person's IQ is 150, but you think your IQ is 170, you will choose the former, because the latter can kill you.

Munger:Isn't this about Elon Musk? Of course, I have to choose people who know how many pounds they are, not those who are beyond their limits. I will choose this myself, but I have also learned a very important lesson in life. I learned this from Howard Ahmanson. He once said something like this:"never underestimate people who overestimate themselves. "

Overestimating your arrogance can occasionally accomplish great things, which is a very uncomfortable part of modern life. I've learned to adapt. Megalomaniac can occasionally be a big winner, but I don't want a group of megalomaniacs dangling in front of me. I choose cautious people.

问：You said that although the good opportunity is good, if you have done it, you will have to suffer a lot. How not to miss it completely and not to overdo it? How can we avoid coming in too late? How to judge that a good opportunity has gone too far?

Munger: figure the problem out thoroughly, and the problem is half solved.As you have said, this is a contradiction: a good opportunity, full of potential when you first enter the arena, and a good opportunity that goes too far and is fraught with danger. You have this string in your head soberly. What opportunity, what type, divide it by yourself. You've solved half of the problem. You don't need me to help you. You already know what to do.We should see both the potential and the crisis.

问：In Berkshire's letter to shareholders, you also wrote about Berkshire's past and future, and you talked about several principles that made Berkshire successful. My question is, as a holding company, Berkshire has followed some principles, achieved great success and excellent track record, why don't other companies learn from Berkshire?

Munger:I think the main reason is that I can't learn. For example, for a big company like Procter & Gamble Co, its inherent culture and bureaucracy are already deeply ingrained. How do you think Procter & Gamble Co can be made to look like Berkshire Hathaway? This question can be directly classified into the category of "too difficult". It's too hard. It's hopeless.

People still don't realize how harmful bureaucracy is. One of the reasons Berkshire has achieved what it is today is that there are few people at its headquarters. Berkshire didn't.BureaucracyWhat's wrong with it. Berkshire has several internal auditors, and headquarters sometimes sends them out to inspect. Generally speaking, we have no problem with bureaucracy.

There is no bureaucracy and the top managers have a clear mind, which is our great advantage.

问：My question is about long-term interest rates and compound interest. Interest rates have been so low over the past few years that it is difficult to find a strategy for long-term compound interest. In addition to investing in Berkshire, value investment and index investment, where are the opportunities for long-term investment with high compound interest?

Munger:You asked me how to achieve the idealized high compound interest, and my advice isLower your expectations.I think it should be very difficult for a while. It's good for you to keep expectations in line with reality, and you won't freak out. We often hear people sayFrom the worst depression in hundreds of years to the present, the annual return on the stock index, excluding inflation, is 10%. After deducting inflation, it is about 7%.

In such a long time, 7% and 10% can open a huge gap. Let's say the real rate of return is 7% a year. The timing of this rate of return is perfect, which began after the Great Depression and experienced the most prosperous period in human history. From now on, the real rate of return is likely to be only 3% or 2%. In the future, people's annual return on investment will be 5%, and inflation will be 3%. This is entirely possible.

This is really the case, the correct state of mind is to tell myself: "even if this happens, I can still live a good life." "at that time when we old people lived, how could you have better living conditions in the future? what are you so depressed about?

Apart from the right mindset, what practical actions should you take if it becomes more difficult to invest in the future? The answer is simple, because it is more difficult, you should work harder. Maybe you work hard all your life, and in the end you get more than 5%, and you get 6%. You should be happy.

问：When analyzing a company, do you pay more attention to quantitative indicators such as return on investment, or qualitative factors such as brand advantage and management quality?

Munger:We focus on qualitative factors, and we also focus on other factors. Generally speaking, under specific circumstances, we will pay attention to what factors are important. What factors are important needs specific problems and specific analysis. We always follow common sense--Common sense that ordinary people don't have.As I just said, throwing a lot of things into the "too difficult" pile is one of the common sense that ordinary people don't have.

问：I'm still at a stage of life where I don't know where my abilities are. I would like to ask you, how did you find your own circle of abilities?

Munger: it's very important to know the boundaries of your circle of abilities.How can it be a circle of ability if you don't even know where the boundary is? I don't have the ability, but I think I do, and I'm sure I'm going to make a big mistake.I think you have to always compare what you can do with what others can do, you need to always be rational, especially don't lie to yourself.

From my life experience, the trait of knowing oneself rationally is mainly determined by genes. I think people like Warren and me are born.Acquired education is very important.But I think we are born with the character we need to invest successfully. I can't get you back into the womb.

问：Many of today's questions are about what is the secret of longevity and happiness.

Munger:This is easy to answer, because the reason is simple:Don't be jealous, don't complain, don't overspend.In the face of any difficulties, keep an optimistic attitude, make reliable people, and do your job. It's all simple truth, and it's all old truth. If you do it, you will benefit for the rest of your life.