智者投资箴言英文.docx

智者投资箴言英文.docx

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智者投资箴言英文

1.ArtofStockPickingByCharlieMunger

I'mgoingtoplayaminortrickonyoutodaybecausethesubjectofmytalkistheartofstockpickingasasubdivisionoftheartofworldlywisdom.ThatenablesmetostarttalkingaboutworldlywisdomamuchbroadertopicthatinterestsmebecauseIthinkalltoolittleofitisdeliveredbymoderneducationalsystems,atleastinaneffectiveway.

Andtherefore,thetalkissortofalongthelinesthatsomebehavioristpsychologistscallGrandma'sruleafterthewisdomofGrandmawhenshesaidthatyouhavetoeatthecarrotsbeforeyougetthedessert.

Thecarrotpartofthistalkisaboutthegeneralsubjectofworldlywisdomwhichisaprettygoodwaytostart.Afterall,thetheoryofmoderneducationisthatyouneedageneraleducationbeforeyouspecialize.AndIthinktosomeextent,beforeyou'regoingtobeagreatstockpicker,youneedsomegeneraleducation.

So,emphasizingwhatIsometimeswaggishlycallremedialworldlywisdom,I'mgoingtostartbywaltzingyouthroughafewbasicnotions.

Whatiselementary,worldlywisdom?

Well,thefirstruleisthatyoucan'treallyknowanythingifyoujustrememberisolatedfactsandtryandbang'emback.Ifthefactsdon'thangtogetheronalatticeworkoftheory,youdon'thavetheminausableform.

You'vegottohavemodelsinyourhead.Andyou'vegottoarrayyourexperiencebothvicariousanddirectonthislatticeworkofmodels.Youmayhavenoticedstudentswhojusttrytorememberandpoundbackwhatisremembered.Well,theyfailinschoolandinlife.You'vegottohangexperienceonalatticeworkofmodelsinyourhead.

Whatarethemodels?

Well,thefirstruleisthatyou'vegottohavemultiplemodelsbecauseifyoujusthaveoneortwothatyou'reusing,thenatureofhumanpsychologyissuchthatyou'lltorturerealitysothatitfitsyourmodels,oratleastyou'llthinkitdoes.Youbecometheequivalentofachiropractorwho,ofcourse,isthegreatboobinmedicine.

It'sliketheoldsaying,"Tothemanwithonlyahammer,everyproblemlookslikeanail."Andofcourse,that'sthewaythechiropractorgoesaboutpracticingmedicine.Butthat'saperfectlydisastrouswaytothinkandaperfectlydisastrouswaytooperateintheworld.Soyou'vegottohavemultiplemodels.

Andthemodelshavetocomefrommultipledisciplinesbecauseallthewisdomoftheworldisnottobefoundinonelittleacademicdepartment.That'swhypoetryprofessors,byandlarge,aresounwiseinaworldlysense.Theydon'thaveenoughmodelsintheirheads.Soyou'vegottohavemodelsacrossafairarrayofdisciplines.

Youmaysay,"MyGod,thisisalreadygettingwaytootough."But,fortunately,itisn'tthattoughbecause80or90importantmodelswillcarryabout90%ofthefreightinmakingyouaworldlywiseperson.And,ofthose,onlyamerehandfulreallycarryveryheavyfreight.

Solet'sbrieflyreviewwhatkindofmodelsandtechniquesconstitutethisbasicknowledgethateverybodyhastohavebeforetheyproceedtobeingreallygoodatanarrowartlikestockpicking.

Firstthere'smathematics.Obviously,you'vegottobeabletohandlenumbersandquantitiesbasicarithmetic.Andthegreatusefulmodel,aftercompoundinterest,istheelementarymathofpermutationsandcombinations.Andthatwastaughtinmydayinthesophomoreyearinhighschool.Isupposebynowingreatprivateschools,it'sprobablydowntotheeighthgradeorso.

It'sverysimplealgebra.ItwasallworkedoutinthecourseofaboutoneyearbetweenPascalandFermat.Theyworkeditoutcasuallyinaseriesofletters.

It'snotthathardtolearn.Whatishardistogetsoyouuseitroutinelyalmosteverydayofyourlife.TheFermat/Pascalsystemisdramaticallyconsonantwiththewaythattheworldworks.Andit'sfundamentaltruth.Soyousimplyhavetohavethetechnique.

Manyeducationalinstitutions‑althoughnotnearlyenoughhaverealizedthis.AtHarvardBusinessSchool,thegreatquantitativethingthatbondsthefirstyearclasstogetheriswhattheycalldecisiontreetheory.Alltheydoistakehighschoolalgebraandapplyittoreallifeproblems.Andthestudentsloveit.They'reamazedtofindthathighschoolalgebraworksinlife....

Byandlarge,asitworksout,peoplecan'tnaturallyandautomaticallydothis.Ifyouunderstandelementarypsychology,thereasontheycan'tisreallyquitesimple:

Thebasicneuralnetworkofthebrainistherethroughbroadgeneticandculturalevolution.Andit'snotFermat/Pascal.Itusesaverycrude,shortcuttypeofapproximation.It'sgotelementsofFermat/Pascalinit.However,it'snotgood.

Soyouhavetolearninaveryusablewaythisveryelementarymathanduseitroutinelyinlife‑justthewayifyouwanttobecomeagolfer,youcan'tusethenaturalswingthatbroadevolutiongaveyou.Youhavetolearntohaveacertaingripandswinginadifferentwaytorealizeyourfullpotentialasagolfer.

Ifyoudon'tgetthiselementary,butmildlyunnatural,mathematicsofelementaryprobabilityintoyourrepertoire,thenyougothroughalonglifelikeaone‑leggedmaninanass‑kickingcontest.You'regivingahugeadvantagetoeverybodyelse.

OneoftheadvantagesofafellowlikeBuffett,whomI'veworkedwithalltheseyears,isthatheautomaticallythinksintermsofdecisiontreesandtheelementarymathofpermutationsandcombinations....

Obviously,youhavetoknowaccounting.It'sthelanguageofpracticalbusinesslife.Itwasaveryusefulthingtodelivertocivilization.I'vehearditcametocivilizationthroughVenicewhichofcoursewasoncethegreatcommercialpowerintheMediterranean.However,double-entrybookkeepingwasahellofaninvention.

Andit'snotthathardtounderstand.

Butyouhavetoknowenoughaboutittounderstanditslimitations‑becausealthoughaccountingisthestartingplace,it'sonlyacrudeapproximation.Andit'snotveryhardtounderstanditslimitations.Forexample,everyonecanseethatyouhavetomoreorlessjustguessattheusefullifeofajetairplaneoranythinglikethat.Justbecauseyouexpressthedepreciationrateinneatnumbersdoesn'tmakeitanythingyoureallyknow.

Intermsofthelimitationsofaccounting,oneofmyfavoritestoriesinvolvesaverygreatbusinessmannamedCarlBraunwhocreatedtheCFBraunEngineeringCompany.Itdesignedandbuiltoilrefineries‑whichisveryhardtodo.AndBraunwouldgetthemtocomeinontimeandnotblowupandhaveefficienciesandsoforth.Thisisamajorart.

AndBraun,beingthethoroughTeutonictypethathewas,hadanumberofquirks.Andoneofthemwasthathetookalookatstandardaccountingandthewayitwasappliedtobuildingoilrefineriesandhesaid,"Thisisasinine."

Sohethrewallofhisaccountantsoutandhetookhisengineersandsaid,"Now,we'lldeviseourownsystemofaccountingtohandlethisprocess."Andinduetime,accountingadoptedalotofCarlBraun'snotions.Sohewasaformidablywillfulandtalentedmanwhodemonstratedboththeimportanceofaccountingandtheimportanceofknowingitslimitations.

Hehadanotherrule,frompsychology,which,ifyou'reinterestedinwisdom,oughttobepartofyourrepertoire‑liketheelementarymathematicsofpermutationsandcombinations.

HisruleforalltheBraunCompany'scommunicationswascalledthefiveW's‑youhadtotellwhowasgoingtodowhat,where,whenandwhy.AndifyouwrotealetterordirectiveintheBraunCompanytellingsomebodytodosomething,andyoudidn'ttellhimwhy,youcouldgetfired.Infact,youwouldgetfiredifyoudidittwice.

Youmightaskwhythatissoimportant?

Well,againthat'saruleofpsychology.Justasyouthinkbetterifyouarrayknowledgeonabunchofmodelsthatarebasicallyanswerstothequestion,why,why,why,ifyoualwaystellpeoplewhy,they'llunderstanditbetter,they'llconsideritmoreimportant,andthey'llbemorelikelytocomply.Eveniftheydon'tunderstandyourreason,they'llbemorelikelytocomply.

Sothere'sanironrulethatjustasyouwanttostartgettingworldlywisdombyaskingwhy,why,why,incommunicatingwithotherpeopleabouteverything,youwanttoincludewhy,why,why.Evenifit'sobvious,it'swisetostickinthewhy.

Whichmodelsarethemostreliable?

Well,obviously,themodelsthatcomefromhardscienceandengineeringarethemostreliablemodelsonthisEarth.Andengineeringqualitycontrol‑atleastthegutsofitthatmatterstoyouandmeandpeoplewhoarenotprofessionalengineers‑isverymuchbasedontheelementarymathematicsofFermatandPascal:

Itcostssomuchandyougetsomuchlesslikelihoodofitbreakingifyouspendthismuch.It'sallelementaryhighschoolmathematics.AndanelaborationofthatiswhatDemingbroughttoJapanforallofthatqualitycontrolstuff.

Idon'tthinkit'snecessaryformostpeopletobeterriblyfacileinstatistics.Forexample,I'mnotsurethatIcanevenpronouncethePoissondistribution.ButIknowwhataGaussianornormaldistributionlookslikeandIknowthateventsandhugeaspectsofrealityendupdistributedthatway.SoIcandoaroughcalculation.

ButifyouaskmetoworkoutsomethinginvolvingaGaussiandistributiontotendecimalpoints,Ican'tsitdownanddothemath.I'mlikeapokerplayerwho'slearnedtoplayprettywellwithoutmasteringPascal.

Andbytheway,thatworkswellenough.Butyouhavetounderstandthatbell‑shapedcurveatleastroughlyaswellasIdo.

And,ofcourse,theengineeringideaofabackupsystemisaverypowerfulidea.Theengineeringideaofbreakpointsthat'saverypowerfulmodel,too.Thenotionofacriticalmassthatcomesoutofphysicsisaverypowerfulmodel.

Allof