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 second.
Specialization vs. a Multi-disciplinary Approach
On whether he is in favour of specialization or taking a synthesis/multi-disciplinary approach: “Saying one is in favor of synthesis is like saying one is in favor of reality. It is easy to say we want to be good at it, but the rewards system pays for extreme specialization. You are usually way better off being a deep expert [in one thing] than someone an inch deep in a lot of disciplines. It [synthesis] is helpful to some but not the best career advice for most people. The trouble is you make terrible mistakes everywhere else without it, so synthesis should be a second attack on the world after specialization. It is defensive, and it helps one to not be blindsided by the rest of world.”
In a world that is increasingly complex and competitive, the way to get ahead is to become extremely specialized in a niche where relatively few can compete. In other words, be “an inch-wide, but a mile-deep”. Unfortunately, specialization comes at a high price when operating outside a narrow specialized field because it is human nature to distort reality to fit your own world view, or at least to think it does. Munger calls this the “man with a hammer syndrome” – if all you have is a hammer, everything looks like a nail. Use a hammer when that is the best tool for the job, but learn how to use other tools if they are more appropriate for the job. Unlike many other fields, investing is a multi-disciplined endeavor which, amongst others, includes the synthesis of mathematics, accounting, statistics, psychology, neuroscience, economics and industry specific fluency. As Munger might say, when it comes to investing, without synthesis, an investor is like a one-legged man in an ass-kicking contest.
Part 1 – Block Off Some Uninterrupted Time to Read and Think
Part 3 – Be Rational
Part 4 – The Future is Unknowable – Stay the Course with Good Businesses
Felix Narhi, 24 February 2016