Morningstar has an article from 2006 about Wesco Financial’s annual meeting and a “few nuggets of wisdom” from Charlie Munger.
Opportunity cost
- When you are evaluating any investment, you must compare it to every other available investment, including ones you may already own.
- So when you hear about the new hot stock in the next can’t-miss sector, ask yourself two questions:
- Do I understand the investment as well or better than one I already own?
- Is the risk and reward profile of the investment superior to all other alternatives?
Rationality
- To succeed as an investor, one has to make good decisions that are anchored in reality and free from emotional and cognitive distractions.
Envy
- When a group of people make money, others are compelled by an irresistible force to get a piece of the action, even though prices have risen so far above fair value as to guarantee disappointing returns.
Learning
- After you compile all the reasons you should buy a stock, invert the question and state the reasons why you should not buy the stock.
Mistakes
- Forgetting your mistakes is a terrible error if you are trying to improve your cognition.
Risk
- There is a lot to be said that when the world is going crazy, to put yourself in a position where you take risk off the table (talking about the use of leverage).
- Taking on risk only makes sense when it is sufficiently outweighed by the potential reward, which is why we only buy stocks when there is a margin of safety.
