Sir Isaac Newton famously said in 1676,
“If I have seen further, it is by standing on the shoulders of giants.”
Scientific advancement and all forms of knowledge and innovation is cumulative and does not happen in a vacuum. The same is true for wisdom as evidenced by people like Charlie Munger who have made a concerted effort to learn from other great people that came before them. Munger has said,
“I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.”
He has also been able to monetize this knowledge tremendously and believes that history has helped him greatly in this regard.
“There is no better teacher than history in determining the future… There are answers worth billions of dollars in $30 history book.”
In my book The Philosophical Investor I leaned very heavily on the 19th-century philosopher Arthur Schopenhauer (1788-1860) to convey powerful insights of his that have helped me become a better investor and more fulfilled human being. Schopenhauer, in turn, was very much influenced by Johann Wolfgang von Goethe (1749-1832) who is considered one of the great intellectual giants of our time. He was a brilliant poet, novelist, dramatist (e.g. Faust), scientific researcher, philosopher, and student of human nature. For some literary critics, only Shakespeare was more brilliant than Goethe.
I recently read Goethe’s maxims. These are brilliant observations and pieces of advice applied to all aspects of life. While I don’t know if Charlie Munger has read much of Goethe over the course of his life, I was struck by some of the parallels in their ways of looking at the world and human nature. Upon further reflection, however, this shouldn’t be too surprising as human nature does not change and great wisdom is truly timeless.
For the next two blog posts, I am going to offer up maxims from Goethe and quotations from Munger with regard to key areas of focus that are pertinent to investors and try to convey how there is strikingly similar overlap.
Who’s Shoulders? Giants Like Munger and Goethe
Here is the first half for this week.
|Rationality||The world of reason is to be regarded as a great and immortal being, who ceaselessly works out what is necessary, and so makes himself lord also over what is accidental.
Common-sense is born pure in the healthy man, is self-developed, and is revealed by a resolute perception and recognition of what is necessary and useful. Practical men and women avail themselves of it with confidence. Where it is absent, both sexes find anything necessary when they desire it, and useful when it gives them pleasure.
An active scepticism is one which constantly aims at overcoming itself, and arriving by means of regulated experience at a kind of conditioned certainty.
The first and last thing that is required of genius is love of truth.
|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.|
|Activity||Unqualified activity, of whatever kind, leads at last to bankruptcy.||We’ve got great flexibility and a certain discipline in terms of not doing some foolish thing just to be active – discipline in avoiding just doing any damn thing just because you can’t stand inactivity.|
|Circle of Competence||It is only men of practical ability, knowing their powers and using them with moderation and prudence, who will be successful in worldly affairs.||Warren and I have skills that could easily be taught to other people. One skill is knowing the edge of your own competency. It’s not a competency if you don’t know the edge of it. And Warren and I are better at tuning out the standard stupidities. We’ve left a lot of more talented and diligent people in the dust, just by working hard at eliminating standard error.|
|Independent Thinking (catalyzed by rationality)||From time to time I meet with a youth in whom I can wish for no alteration or improvement, only I am sorry to see how often his nature makes him quite ready to swim with the stream of the time; and it is on this that I would always insist, that man in his fragile boat has the rudder placed in his hand, just that he may not be at the mercy of the waves, but follow the direction of his own insight.
Every man must think after his own fashion; for on his own path he finds a truth, or a kind of truth, which helps him through life. But he must not give himself the rein; he must control himself; mere naked instinct does not become him.
|We don’t give a damn about lumpy results. Everyone else is trying to please Wall Street. This is not a small advantage.
What is the central theme that the people in this room represent? I’d argue that it’s rationality rather than to make more money than other people. I’d argue that rationality is a high moral duty. It’s the idea the binds us all together. I think that is a really good idea. It requires that you avoid taking in a lot of the nonsense that’s conventional in your time. There’s always a lot of nonsense in anyone’s time. It requires gradually developing systems of thought that improve your batting average and thinking correctly.
|Know Yourself||As little as you can stifle a steam-engine, so little can you do this in the moral sphere either. The activity of commerce, the rush and rustle of paper-money, the swelling-up of debts to pay debts — all these are the monstrous elements to which in these days a young man is exposed. Well is it for him if he is gifted by nature with a sober, quiet temperament; neither to make claims on the world out of all proportion to his position, nor yet let the world determine it.
|Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable – and some losses are inevitable – you might be wise to utilize a very conservative patterns of investment and saving all your life. So you have to adapt your strategy to your own nature and your own talents. I don’t think there’s a one-size-fits-all investment strategy that I can give you.|
|Character and Values||Character calls for character.
It is failings that show human nature, and merits that distinguish the individual; faults and misfortunes we all have in common; virtues belong to each one separately.
|While no real money came down, my family gave me a good education and a marvelous example of how people should behave, and in the end that was more valuable than money. Being surrounded by the right values from the beginning is an immense treasure. Warren had that. It even has a financial advantage.
To get what you want, you have to deserve what you want. The world is not yet a crazy enough place to reward a whole bunch ofundeserving people
|Learning from Mistakes||The greatest piece of good fortune is that which corrects our deficiencies and redeems our mistakes.
It is much easier to recognise error than to find truth; for error lies on the surface and may be overcome; but truth lies in the depths, and to search for it is not given to every one.
A man must pay dear for his errors if he wishes to get rid of them, and even then he is lucky.
|Why not celebrate stupidities?” I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.
A trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke.
Warren and I aren’t prodigies. We can’t play chess blindfolded or be concert pianists. But the results are prodigious because we have a temperamental advantage that more than compensates for a lack of IQ points.
|Avoid Self-Deception and Learning from Mistakes||A man is not deceived by others, he deceives himself.||Forgetting your mistakes is a terrible error if you are trying to improve your cognition. Reality doesn’t remind you. Why not celebrate stupidities in both categories?|
|Risk of Being Too Cautious||There are people who make no mistakes because they never wish to do anything worth doing.
|Most people are too fretful, they worry too much. Success means being very patient, but aggressive when it’s time|
|Risk of Complexity||When a man asks too much and delights in complication, he is exposed to perplexity.
An honourable man with limited ideas often sees through the rascality of the most cunning jobber.
|Where you have complexity, by nature you can have fraud and mistakes.|
|Risky Thought Processes||Thinking by means of analogies is not to be condemned. Analogy has this advantage, that it comes to no conclusion, and does not, in truth, aim at finality at all. Induction, on the contrary, is fatal, for it sets up an object and keeps it in view, and, working on towards it, drags false and true with it in its train.||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. So I understand its seductiveness to people with large mathematical gifts. It just had a difficulty in that the fundamental assumption did not tie properly to reality.|
|Dangers of Boredom and Gambling||Humanity is conditioned by needs. If they are not satisfied, men become impatient; and if they are, it seems not to affect them. The normal man moves between these two states, and he applies his understanding — his so-called common-sense — to the satisfaction of his needs. When his needs are satisfied, his task is to fill up the waste spaces of indifference. Here, too, he is successful, if his needs are confined to what is nearest and most necessary. But if they rise and pass beyond the sphere of ordinary wants, common-sense is no longer sufficient; it is a genius no more, and humanity enters on the region of error.||I knew a guy who had $5 million and owned his house free and clear. But he wanted to make a bit more money to support his spending, so at the peak of the internet bubble he was selling puts on internet stocks. He lost all of his money and his house and now works in a restaurant. It’s not a smart thing for the country to legalize gambling [in the stock market] and make it very accessible.|
|Avoid what you Don’t Understand||What a man does not understand, he does not possess.
A man has only to declare himself free to feel at the same moment that he is limited. Should he venture to declare himself limited, he feels himself free.
|If you can’t understand it, don’t do it.|
|Avoid Envy and other Negative Emotions||Hatred is active displeasure, envy passive. We need not wonder that envy turns so soon to hatred.||Envy is the only sin you can’t have fun at. Resentment is crazy. Revenge is crazy. If you get those things out of your life early, life works a lot better.|
|Ignore Criticism||Against criticism a man can neither protest nor defend himself; he must act in spite of it, and then criticism will gradually yield to him.||Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group…then to hell with them.|
|Learning from Fanatics||I went on troubling myself about general ideas until I learnt to understand the particular achievements of the best men.
To live in a great idea means to treat the impossible as though it were possible. It is just the same with a strong character; and when an idea and a character meet, things arise which fill the world with wonder for thousands of years.
|How do you compete against a true fanatic? You can only try to build the best possible moat and continuously attempt to widen it|
|Need for an Open Mind||Thoughts come back; beliefs persist; facts pass by never to return.||We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side|
|Invert||The greatest difficulties lie where we do not look for them.
Some men think about the defects of their friends, and there is nothing to be gained by it. I have always paid attention to the merits of my enemies, and found it an advantage.
|Invert, always invert: Turn a situation or problem upside down. Look at it backward. What happens if all our plans go wrong? Where don’t we want to go, and how do you get there? Instead of looking for success, make a list of how to fail instead–through sloth, envy, resentment, self-pity, entitlement, all the mental habits of self-defeat. Avoid these qualities and you will succeed. Tell me where I’m going to die so I don’t go there.|
|No Short Cuts||If you miss the first button-hole, you will not succeed in buttoning up your coat.
But what is the duty? The claims of the day.
|Spend each day trying to be a little wiser than you were when you woke up. Day by day, and at the end of the day if you live long enough-like most people, you will get out of life what you deserve|
Hopefully, these will help improve the decisions you make and well-being ever so slightly this week. Please return next week for part two.
Over to You:
Which point was your favorite?