Question Time with Charlie Munger: Be Rational (Part 3)

February 25, 2016
Written by PenderFund

We attended the Daily Journal (NYSE:DJCO) 2016 Annual General Meeting in Los Angeles where Daily Journal Chairman, Charlie Munger took questions on a broad range of topics. We took away four key thoughts. This is the third.

Be Rational

In the past, Munger has said that he considers being rational his most important quality. When asked how others can learn to become more rational, he said, “I worked at being rational young and kept doing it. Do it until you’re as old as me, it is a good idea and it is a lot of fun if you’re good at it. I can hardly think of anything more fun. And I have a lot of cousins [like-minded attendees] in the room. You don’t have to be emperor of Japan. You can be a very constructive citizen by being rational. Just avoid … resentment, anger, jealousy and envy. They’re a one-way ticket to hell, and many people wallow in them and it’s a disaster for them and everyone around them. Self-pity won’t improve anything if you’re dying of cancer. Keep your chin up and forget about it.”

No one is rational at all times and research has shown that the part of your brain responsible for emotions is needed for good decision making. Still, improving rationality is an admirable goal. This is truly a no-brainer, but irrationality prevents many people from breaking their vicious psychological cycles. When it comes to investing, being rational is easier said than done. Studies show that investors seem to be hard wired to do the wrong thing at the wrong time. They buy more when prices are inflated and sell when they fall – the opposite approach they take to everything else. Try not to let your emotions affect your judgement. Fear and greed are probably the worst emotions to have in connection with the purchase and sale of stocks.

Part 1 – Block Off Some Uninterrupted Time to Read and Think

Part 2 – Specialization vs. a Multi-disciplinary Approach

Part 4 – The Future is Unknowable – Stay the Course with Good Businesses

Felix Narhi, 24 February 2016


Stay Connected