You’ve also talked repeatedly about people’s mental biases, as you said, you don’t want to be the smartest person, but you want to avoid doing stupid things. So how does one guard against mental biases in one’s decision-making?
CHARLIE MUNGER 00:15
I spent a lifetime trying to avoid my own mental biases. A, I rub my own nose into my own mistakes. B, I try and keep it simple and fundamental as much as I can. And I like the engineering concept of a margin of safety. I’m a very blocking and tackling kind of a thinker. I just try and avoid being stupid.
CHARLIE MUNGER 00:48
I have a way of handling a lot of problems. I put them on what I call my too hard pile and I just leave them there. I’m not trying to succeed in my too hard pile.
And do they sometimes come back and require for you to?
CHARLIE MUNGER 01:06
Oh, I sometimes get things that are too hard and when that happens, I fail.
So one has to accept limitations, is that one of the really important pieces of avoiding these biases?
CHARLIE MUNGER 01:21
What I would say is the single most important thing if you want to avoid a lot of stupid errors is knowing where you’re competent and where you aren’t, knowing the edge of your own competency. And that’s very hard to do, because the human mind naturally tries to make you think you’re way smarter than you are.
Charlie Munger's Two Ways to Avoid Mental Biases:
A, I rub my own nose into my own mistakes.
B, I try and keep it simple and fundamental as much as I can (By using the too hard pile concept)