Making Choices Easier: Thoughts on Munger’s Philosophy

“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”— Charlie Munger

You may or may not know Charlie Munger. For those who don’t: He was Warren Buffett’s business partner. Together, they ran a holding company called Berkshire Hathaway. In the 40+ years they worked together on these investments, they built the company up to a current market cap of 1.1 trillion dollars (https://www.investing.com/analysis/berkshire-hathaways-trilliondollar-valuation-masks-a-cheaper-operating-engine-200674231). Needless to say, they knew what they were doing. 

Buffett and Munger are so-called value investors, meaning they apply an investment strategy based on fundamental analysis with the goal of buying companies below their intrinsic worth. Without going into further technicalities, value investing is not a very glamorous strategy: It is very long-term and probably the furthest strategy from a get-rich-quick scheme. However – as their net-worths prove – it can be very profitable when done right, over a very, very, long span of time. 

I think these two figures can teach us a lot about how to make choices, not only within the scope of investing. The quote mentioned in the beginning encapsulates two main personal take-aways I’d like to share. 

1. Thinking Long-term Allows for a Compounding Effect

You have most likely heard the phrase: ‘If it doesn’t matter in 5 years, it doesn’t matter now’. Regardless if you fully agree you can probably agree that most valuable things in life – whether these are accomplishments, relationships, skills, etc.  – are achieved through continuous and consistent effort. 

This does not mean you should forget the value of the present (although that is a fine line to cross, and one that I still struggle with myself). Instead, this way of working (/living) allows for a compounding effect to occur. Meaning: the input will add up to an output that is more than the sum of its parts (the effort in this case). 

The connections you can form between subjects or fields after studying them are a good example: You can master the content of a topic, and in the process learn a way of thinking that is applicable in many other fields. Or, think of the value a strong, long-term friendship brings in terms of network, skills and opportunities on top of the love and support a good friend can provide. 

Furthermore, I believe thinking long-term can help put difficulties into perspective. Current setbacks often lead to positive outcomes unimaginable in the present. Whether you believe in God, the universe, or something else entirely, the trust that everything happens for a reason (and will thus eventually work out) can help tremendously in getting through difficult times.

2. Often, It is better to avoid Making Mistakes, than Trying to be Exceptional 

If you have $10, and lose 50% you would have $5 left. If you wanted to get back to the original $10, you’d have to make a profit of 100%. The math of loss is brutal, and it interrupts the compounding effect. 

In the process of making difficult or impactful choices, it can be helpful to flip the script: What will I regret not doing the most in the future? What is the least dumb thing to do? This can help relieve some of the pressure of feeling like you always need to make the best choice possible. 

It is incredible how far you can come by doing the things most people ignore. (Unfortunately) The basic stuff like drinking enough water, having a regular sleep schedule, eating healthy (you name it) really does make the difference for your quality of life, and accordingly, the quality of your effort. 

Trying to make exceptional choices can be tremendously debilitating. When often, there is no ‘right’ answer, there is only a choice.

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P.S. I’ve discovered this quote through the Podcast ‘Jong Beleggen, De Podcast’. I would highly recommend it if you’re interested in learning more about investing (whether you’re a beginner or not!).