Charlie Munger's Best Advice for New Investors | Caltech 2008 【C:C.M Ep.242】
[Transcript]
AUDIENCE MEMBER: Hi, my name is Helen Lee, I'm a Caltech undergrad here. And as Caltech undergraduate education goes, we learn things from math and physics to chemistry, biology, all the sciences that you can imagine, but we don't get a lot of insight into, you know, business and investing.
And as sort of a new investor, my question is, what in your opinion is the best piece of advice for a new investor or for current investors?
CHARLIE MUNGER: Well, I think it's very useful to get the capitalist perspective. Mainly how do you make this thing work for the people that own it because the reality will make more sense when you go at it with that perspective. So even if you don't intend to get rich, you want that perspective because you'll understand the reality you're dealing with better.
So I think you mentally want to make yourself an investor as part of the proper training of your mind. And since you have to do with any way to improve your mind, you might as well get rich while you're doing it.
So if you under spend your income while you're alive and keep learning, and collect all the boneheads experience — mistakes other people made and avoid them and so on. I would confidently predict that you'll do just fine.
But there's no one book or one idea or something that's going to do it. The one idea that people use is the one that Ben Graham borrowed from engineering, which is the concept of a margin of safety.
In other words, factoring in all the probabilities, you want a bonus probability, you want a margin of safety in what you're doing. And that's a very good concept when you're designing a bridge and it's a very good concept when you're making an investment. You want something that will handle some mischances from life and still do well.
And so if there were one concept, Ben Graham would have said that's the concept. But it's easier to state than it is to work it out case by case.
Tom, I interrupted you.
TOM TOMBRELLO: To throw out a Munger-like concept, the things you are learning should be connected to one another. And that's part of your job, you're learning a bunch of separate things at Caltech. Try to figure out how they're connected to one another.
And that may mean reading a lot of other stuff, but it's all of a piece, It's not a bunch of separate compartmentalize things. And I believe I've lifted that from Charlie.
CHARLIE MUNGER: Yeah, but all this stuff is really quite obvious. And yet, most people don't really know it in a way where they can use it. Which is a very interesting educational problem.
(Source: https://youtu.be/4ibabROYccs?si=AGQznfOPmt9tv3yg)
[YAPSS Takeaway]
Look at the world with capitalist perspective, you will have a clearer look in the reality.