Charlie Munger: Higher mathematics

“Some of the worst business decisions I’ve ever seen are those that are done with a lot of formal projections and discounts back…. The trouble is that you get to believe the figures. And it seems that the higher mathematics, with more false precision, should help you. But it doesn’t. The effects, averaged out, are negative when you try and formalize it to the degree you’re talking about.”

—Charlie Munger. 

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Charlie Munger: Future opportunity cost

“Everything we do comes back to opportunity cost. But it, to some extent — in fact, to some considerable extent — we are guessing at our future opportunity cost. Warren is basically saying that he’s guessing that he’ll have opportunities in due course to put out money at pretty attractive rates of return, and therefore, he’s not going to waste a lot of firepower now at lower returns. But that’s an opportunity cost calculation. And if interest rates were to more or less permanently settle at 1 percent or something like that, and Warren were to reappraise his notions of future opportunity cost, he would change the numbers. It’s like Keynes said, ‘What do you do when you change your view of the facts? Well, you change your conduct.’ But so far at least, we have hurdles in our mind which are basically — well, they involve, implicitly, future opportunity cost.”

—Charlie Munger. 

Warren Buffett: Persuading

“The history that Charlie and I have had of persuading decent, intelligent people, who we thought were doing unintelligent things, to change their course of action has been poor…. So I would say that if you really think you’re in with people that have got a good business, but they’re going to keep doing dumb things with your money, you’ll probably do better to get out and get in with people who’ve got a good business and you think they’re going to do sensible things with it. I mean, you’ve got that option. Now, you also have the option of trying to persuade them to change their mind. But it’s just very, very difficult.”

—Warren Buffett. 

Charlie Munger: Prepared mind

“The game in our kind of life is being able to recognize a good idea when…it rarely is presented to you. And I think that’s something you have to prepare for over a long period. What is the old saying? That opportunity comes to the prepared mind? And I don’t think you can teach people in two minutes how to have a prepared mind. But that’s the game.”

—Charlie Munger.