智者投资箴言英文.docx

1、智者投资箴言英文1. Art of Stock Picking By Charlie MungerIm going to play a minor trick on you today because the subject of my talk is the art of stock picking as a subdivision of the art of worldly wisdom. That enables me to start talking about worldly wisdom a much broader topic that interests me because

2、I think all too little of it is delivered by modern educational systems, at least in an effective way.And therefore, the talk is sort of along the lines that some behaviorist psychologists call Grandmas rule after the wisdom of Grandma when she said that you have to eat the carrots before you get th

3、e dessert.The carrot part of this talk is about the general subject of worldly wisdom which is a pretty good way to start. After all, the theory of modern education is that you need a general education before you specialize. And I think to some extent, before youre going to be a great stock picker,

4、you need some general education.So, emphasizing what I sometimes waggishly call remedial worldly wisdom, Im going to start by waltzing you through a few basic notions.What is elementary, worldly wisdom? Well, the first rule is that you cant really know anything if you just remember isolated facts an

5、d try and bang em back. If the facts dont hang together on a latticework of theory, you dont have them in a usable form.Youve got to have models in your head. And youve got to array your experience both vicarious and direct on this latticework of models. You may have noticed students who just try to

6、 remember and pound back what is remembered. Well, they fail in school and in life. Youve got to hang experience o n a latticework of models in your head.What are the models? Well, the first rule is that youve got to have multiple models because if you just have one or two that youre using, the natu

7、re of human psychology is such that youll torture reality so that it fits your models, or at least youll think it does. You become the equivalent of a chiropractor who, of course, is the great boob in medicine.Its like the old saying, To the man with only a hammer, every problem looks like a nail. A

8、nd of course, thats the way the chiropractor goes about practicing medicine. But thats a perfectly disastrous way to think and a perfectly disastrous way to operate in the world. So youve got to have multiple models.And the models have to come from multiple disciplines because all the wisdom of the

9、world is not to be found in one little academic department. Thats why poetry professors, by and large, are so unwise in a worldly sense. They dont have enough models in their heads. So youve got to have models across a fair array of disciplines. You may say, My God, this is already getting way too t

10、ough. But, fortunately, it isnt that tough because 80 or 90 important models will carry about 90% of the freight in making you a worldly wise person. And, of those, only a mere handful really carry very heavy freight.So lets briefly review what kind of models and techniques constitute this basic kno

11、wledge that everybody has to have before they proceed to being really good at a narrow art like stock picking.First theres mathematics. Obviously, youve got to be able to handle numbers and quantities basic arithmetic. And the great useful model, after compound interest, is the elementary math of pe

12、rmutations and combinations. And that was taught in my day in the sophomore year in high school. I suppose by now in great private schools, its probably down to the eighth grade or so.Its very simple algebra. It was all worked out in the course of about one year between Pascal and Fermat. They worke

13、d it out casually in a series of letters.Its not that hard to learn. What is hard is to get so you use it routinely almost every day of your life. The Fermat/Pascal system is dramatically consonant with the way that the world works. And its fundamental truth. So you simply have to have the technique

14、.Many educational institutions although not nearly enough have realized this. At Harvard Business School, the great quantitative thing that bonds the first year class together is what they call decision tree theory. All they do is take high school algebra and apply it to real life problems. And the

15、students love it. Theyre amazed to find that high school algebra works in life.By and large, as it works out, people cant naturally and automatically do this. If you understand elementary psychology, the reason they cant is really quite simple: The basic neural network of the brain is there through

16、broad genetic and cultural evolution. And its not Fermat/Pascal. It uses a very crude, shortcut type of approximation. Its got elements of Fermat/Pascal in it. However, its not good.So you have to learn in a very usable way this very elementary math and use it routinely in life just the way if you w

17、ant to become a golfer, you cant use the natural swing that broad evolution gave you. You have to learn to have a certain grip and swing in a different way to realize your full potential as a golfer.If you dont get this elementary, but mildly unnatural, mathematics of elementary probability into you

18、r repertoire, then you go through a long life like a o nelegged man in an asskicking contest. Youre giving a huge advantage to everybody else.One of the advantages of a fellow like Buffett, whom Ive worked with all these years, is that he automatically thinks in terms of decision trees and the eleme

19、ntary math of permutations and combinations.Obviously, you have to know accounting. Its the language of practical business life. It was a very useful thing to deliver to civilization. Ive heard it came to civilization through Venice which of course was o nce the great commercial power in the Mediter

20、ranean. However, double-entry bookkeeping was a hell of an invention.And its not that hard to understand.But you have to know enough about it to understand its limitations because although accounting is the starting place, its o nly a crude approximation. And its not very hard to understand its limi

21、tations. For example, everyone can see that you have to more or less just guess at the useful life of a jet airplane or anything like that. Just because you express the depreciation rate in neat numbers doesnt make it anything you really know.In terms of the limitations of accounting, o ne of my fav

22、orite stories involves a very great businessman named Carl Braun who created the CF Braun Engineering Company. It designed and built oil refineries which is very hard to do. And Braun would get them to come in o n time and not blow up and have efficiencies and so forth. This is a major art.And Braun

23、, being the thorough Teutonic type that he was, had a number of quirks. And o ne of them was that he took a look at standard accounting and the way it was applied to building oil refineries and he said, This is asinine.So he threw all of his accountants out and he took his engineers and said, Now, w

24、ell devise our own system of accounting to handle this process. And in due time, accounting adopted a lot of Carl Brauns notions. So he was a formidably willful and talented man who demonstrated both the importance of accounting and the importance of knowing its limitations.He had another rule, from

25、 psychology, which, if youre interested in wisdom, ought to be part of your repertoire like the elementary mathematics of permutations and combinations.His rule for all the Braun Companys communications was called the five Ws you had to tell who was going to do what, where, when and why. And if you

26、wrote a letter or directive in the Braun Company telling somebody to do something, and you didnt tell him why, you could get fired. In fact, you would get fired if you did it twice.You might ask why that is so important? Well, again thats a rule of psychology. Just as you think better if you array k

27、nowledge o n a bunch of models that are basically answers to the question, why, why, why, if you always tell people why, theyll understand it better, theyll consider it more important, and theyll be more likely to comply. Even if they dont understand your reason, theyll be more likely to comply.So t

28、heres an iron rule that just as you want to start getting worldly wisdom by asking why, why, why, in communicating with other people about everything, you want to include why, why, why. Even if its obvious, its wise to stick in the why.Which models are the most reliable? Well, obviously, the models

29、that come from hard science and engineering are the most reliable models o n this Earth. And engineering quality control at least the guts of it that matters to you and me and people who are not professional engineers is very much based o n the elementary mathematics of Fermat and Pascal:It costs so

30、 much and you get so much less likelihood of it breaking if you spend this much. Its all elementary high school mathematics. And an elaboration of that is what Deming brought to Japan for all of that quality control stuff.I dont think its necessary for most people to be terribly facile in statistics

31、. For example, Im not sure that I can even pronounce the Poisson distribution. But I know what a Gaussian or normal distribution looks like and I know that events and huge aspects of reality end up distributed that way. So I can do a rough calculation.But if you ask me to work out something involvin

32、g a Gaussian distribution to ten decimal points, I cant sit down and do the math. Im like a poker player whos learned to play pretty well without mastering Pascal.And by the way, that works well enough. But you have to understand that bellshaped curve at least roughly as well as I do.And, of course, the engineering idea of a backup system is a very powerful idea. The engineering idea of breakpoints thats a very powerful model, too. The notion of a critical mass that comes out of physics is a very powerful model.All of