For those of us who can’t only rely on that form of growth, Zach Rifkin, who’s a bachelor of science 2014 in math asks, “How do you encourage young mentees to take big bets on big edges? How should this be taught at CalTech?”
CHARLIE MUNGER 00:22
Well, if you ask how can CalTech teach people how to win chess tournaments or poker tournaments, you would find that some people at CalTech are very good at that and others aren’t. And if you want to win at those things, you better bet on the people that are really very good at it. And not everybody is.
I don’t think CalTech can make great investors out of most people. I think great investors to some extent are like great chess players. They’re almost born to be investors.
And that’s because of the tolerance for risk? Is it the patience? What are the traits of good investors?
CHARLIE MUNGER 01:07
Obviously, you have to know a lot. But partly it’s temperament, partly it’s deferred gratification. You got to be willing to wait. It’s a weird, good investing requires a weird combination of patience and aggression, and not many people have it.
Also, has to requires a big amount of self-awareness and how much, you know and how much you don’t know. You have to know the edge of your own competency. A lot of brilliant people are no good knowing the edge of their own competency. They think they’re way smarter than they are. Of course, that that’s dangerous and causes trouble.
So I think CalTech would have a hard time teaching everybody to be a great investor.
But could it help people discover that they have that temperament? Or is this something that you mostly should try on your own?
CHARLIE MUNGER 02:05
I think you find out whether you got the qualities to win at poker by playing poker.
That’s a very empirical approach, Charlie.
CHARLIE MUNGER 02:19
Yes, but I think it’s right.
CHARLIE MUNGER 02:24
Obviously it helps to know the basic math of Fermat and Pascal, but everybody with any sense knows that stuff. But having a temperament where Fermat and Pascal are as much part of you as your ear and nose, that’s a different kind of a person. And I think it’s hard to teach that.
I have found – Warren and I had talked about this. In the early days when we talked about our way of doing things, which is working so well, we found some people got it, and they instantly converted to our way and did very well. And some people, no matter how carefully we explained it, and no matter how successful they were, they could never adapt to it. They either got it fast or they didn’t get it at all. So that’s my experience.
Good investors have;
the combination of patience and aggression,
a strong self-awareness on things that they know and things that they don't know,
a good knowing on the edge of their own competency and
lastly, they have a great sense in probability.