“The current market situation is not as chaotic as Nifty Fifty or Tech Bubble since the late 1990s.”
Many people assume by assumption that once the market has grown for so many years, we are probably in a bubble. Charlie disagrees. He notes that high-value companies (such as technology companies) are highly profitable and are unlikely to disappear. In the late 1990s, very low-performing companies received high marks from their predecessors in the 1960s. That’s the difference.
In other markets, however, we have signs of a bubble. The credit market, for example, where valuations are high for most assets.
What is the lesson? The lesson is that each time period is unique. Instead of trying to anticipate it and fit it with a past model, we should try to apply different principles and ways of thinking.
“The old classic models are quickly disappearing. It’s a natural phenomenon for the modern economic system – the old one just stops working.”
The pace of change has accelerated in recent years. Technologies and new business models make it difficult for many companies to maintain their competitiveness and generate revenue to justify their investment.
It is no longer possible to invest blindly. The investor simply looks at what the past financial history has been like and assumes that the same will happen in the future. But other assessments already need to be made to more properly assess the risks and what could be the fundamental changes for the business itself.
“Don’t think about what you want, but think about what you want to avoid.”
Charlie Munger is a fan of the following problem solving philosophy: To try to succeed in something, think of all the possible ways you can fail. You then create a plan to avoid these types of mistakes.
Applying this to investing, how could you make the most money if possible? By investing in bad business. At a high price, in a company with bad reports and run by incompetent people. If you avoid these things, then your investment skills are likely to improve significantly.
“Recognize when you are mistaken is a virtue. I try not to give in to blind faith.”
Munger tries to fight the wrong beliefs. He consciously seeks out how he might go wrong or find out what his wrong beliefs and thoughts are. If he did not do this consciously and did not attach importance to him, then reckless behavior would adversely affect his ability to think rationally.
“It’s not good to pretend to be something you’re not. You end up becoming what you’re pretending to be.”
Be authentic. If you don’t like something for yourself, try to improve it instead of pretending. I see too many people in investment environments trying to impress others. Instead of doing this, they should work for themselves. Being clean is impressive enough.