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Collection: Charlie Munger - #132 'Speculative Trading'


Video Link: https://youtu.be/vNwYa-iPhbE


In this episode, Charlie Munger was asked what could investors do to cope better with periodical frenziness?


In this episode, you’ll learn:

  • Why Charlie Munger thinks speculative trading is dangerous?

To check out all Collection: Charlie Munger <click here>

 

[Transcript]

(Source: https://youtu.be/Pp4CvjNw-9Y)

JULIA LA ROCHE 00:00

Our first question comes from Michael Wong. Michael Wong asked in this year’s annual letter, you mentioned the share price increase was driven by speculative frenzy and forced index buying. I would imagine that applies to the broad market too. What are the psychological implications of this type of market behavior? What could investors do to cope better with periodical frenziness?


CHARLIE MUNGER 00:31

Well, these things do happen in a market economy. You get crazy booms. Remember the Dot Com boom when every little building in Silicon Valley ran into a huge price and a few months later about a third of them were vacant. There are these periods in capitalism. And I’ve been around for a long time and my policy has always been to just write them out. And I think that’s what shareholders do.


In fact, what a lot of shareholders actually do is a lot of them crowd in buying stocks on frenzy — frequently on credit — because they see that they’re going up. And, of course, that’s a very dangerous way to invest. I think that shareholders should be more sensible and not crowd into stocks and buy them just because they’re going up and they like to gamble.


Kipling once wrote a poem called The Women (The Ladies) and the concluding line was to the effect that you should learn about women from him instead of doing it yourself, because, he says, "I know you won’t follow my advice."

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