CHARLIE MUNGER 00:08
It’s weird and what’s happened of course is that we’re standing a bit for some combination of basic morality and sturdy common sense. And it’s amazing how well Berkshire Hathaway, and the Daily Journal for that matter, have succeeded with nothing more than basic morality and sturdy common sense.
But of course when people talk about common sense they mean ‘uncommon sense’. Every time you hear that somebody has a lot of common sense it means he’s got uncommon sense. And it is much harder to have common sense than it is generally thought.
Let me give you an interesting example. In the investment world involves an enormous amount of high IQ people trying to be more skillful than normal. You can hardly imagine another activity that gets so much attention. And weird things have happened.
Years ago, one of our local investment counseling shops, a very big one, they were looking for a way to get an advantage over other investment counseling shops. And they reasoned as follows. We’ve got all these brilliant young people from Wharton and Harvard and so forth and they work so hard trying to understand business and market trends and everything else. And if we just ask each one of our most brilliant men for their single best idea then created a formula with this collection of best ideas, we would outperform averages by a big amount.
And that seem plausible to them because they were ill-educated. That’s what happens when you go to Harvard and Wharton. And so they tried it out, and of course it failed utterly. So they tried it again and it failed utterly. And they tried it a third time and it also failed.
And of course, what they were looking for is the equivalent of the alchemists of centuries ago who wanted to turn lead into gold. They thought if you could just buy a lot of lead and waive your magic wand over and it turned into gold, that would be a good way to make money. This counseling shop was looking for the equivalent of turning lead into gold and of course it didn’t work. I could’ve told them but they didn’t ask me. Nothing.
The interesting thing about this situation is that this is a very intelligent group of people that’s come from all over the world. You’ve got a lot of bright people from China where people tend to average out a little smarter. And the issue is very simple. It’s a simple question. Why did that plausible idea fail? Just think about it for a minute.
You’ve all been to fancy educational institutions. I’ll bet you there’s hardly one in the audience who knows why that thing failed. That’s a pretty ridiculous demonstration I’m making. How could you not know that? It’s one of the main activity of America with an obvious and important failure. Surely we can explain it!
You have to have stayed awake in your freshman college courses to answer that question. But if you ask that question at a Department of Finance at a leading place, the professors wouldn’t answer it right. Now I’m going to leave you that question because I want you perplexed. (Laughter) And I will go on to another issue. (Laughter)
But that’s one you should be able to answer. It shows how hard it is to be rational on something very simple. How hard it is – How many kind of crazy ideas people have and don’t work, and you don’t even know why they don’t work even though it’s perfectly obvious if you’ve been properly educated.
And by the way my definition of being properly educated is being right when the professor is wrong. Anybody can spit back what the professor tells you. The trick is to know when he’s right and when he’s wrong. That’s the properly educated person.
And of course, they’re frequently wrong particularly in the soft sciences. In fact, if you look at a modern elite institution, it’s fair to say that a lot of the faculty are a little crazy. It’s so left wing now in the humanities and it’s very peculiar. That’s another thing.
Why should 90 percent of the college professors in the humanities be very left wing? I leave that question for you too.