"I like people admitting that they were complete stupid horses’ asses. I know I would do better if I rubbed my nose with my mistakes. This is a great trick to learn."
The words have an unmistakable voice from Charlie Munger, the 97-year-old who is one half of the Buffett Munger duo who run the investment giant Berkshire Hathaway. As you can see, Munger doesn't speak like a respected statesman in the corporate world. As a result, the things he says are really interesting and useful, unlike the kind and nonsensical talk that famous businessmen generally produce.
This business of recognising and admitting mistakes is a recurring theme with Buffett and Munger. This error topic is not just a talk. While ordinary businessmen never admit mistakes, these two are almost jealous of such admissions, their decades-old technical problem being the biggest. Historically, they have done poorly by investing in IBM and buying Apple too late, although they have done well later. Worse still, as Buffett and Munger admitted, one of their biggest failures was not buying Google. In around 2004, your insurance company greatly benefited from Google's then-new advertising service. It was clear to them that this was something wonderful. They realized this, discussed it, and saw that Google was a company with great potential, but that they never invested in it. "We just sit around sucking our thumbs," Munger said of the investment failure in Google.
It goes without saying that professional investment managers or advisers don't - they can't. And to frankly admit that these two are wrong would amount to quitting work in most work settings. However, let's forget what your fund manager or investment advisor does or doesn't do. It is vital that we, as individuals, are proactive and eager to admit our mistakes. This is because admitting mistakes is not just a kind of self-cleaning masochistic ritual, it plays a direct role in increasing the returns we make from our investments and making us better investors. How do you do that?
Another thing Munger once said: "Forgetting your mistakes is a terrible error if you are trying to improve your cognition… Why not celebrate stupidities!" If he examines the history of Berkshire's investments in technology, he can see that this is happening. For a long time, Berkshire did not invest in technology because Buffett and Munger felt they did not understand it well. Through the irrational tech boom of the late 1990s and the resulting stagnation, this was really the right attitude to take. However, they eventually realized that at some point, technology became a dominant consumer segment and they should have paid attention starting with Google when it came to their attention in 2004.
Many investors, regardless of their size, justified what they had done and pretended it was the right thing to do. However, Buffett and Munger did not. Not only did they admit their mistake to themselves, they also fixed it by buying from Apple in a big way. Furthermore, they openly admitted the mistake to the world at their annual shareholders meeting and answered questions about it. The net result is that your company and its shareholders have made better and more profitable investments with them.
Of course, as is usual with Munger sayings, they are actually life lessons and not just lessons to invest in. We all make mistakes, and most of us find it difficult to admit that we were wrong. Look around you at what is happening in the world and you will see it every day. However, investment mistakes are something we can calmly admit and correct. Not only can we fix it, but we can also make sure we learn something from it, paving the way for better returns in the future. Look at the massive panic in the markets in March and April of last year. Was it a mistake? It certainly didn't look like that at the time. The best question is: Did we learn anything from him?
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