Charlie Munger passed away on November 28, 2023 at the age of 99. This was a major loss to global investors. Munger's investment philosophy and life wisdom have more or less influenced generations of people. Munger’s experience tells us,If you take the right path, take the high road, and do the right things, you can also get rich returns on investment, and at the same time gain a wealthier, wiser, and happier life.. The predecessor that Munger followed throughout his life was Benjamin Franklin. He was also a role model based on personal wealth, rich in thought and experience, and willing to share the wisdom of life. A person's lifespan is limited, but the width of a person's life can be infinitely expanded through learning. In his 99-year-old life, Munger lived out the wisdom of a 300-year-old. This is the result of continuous learning and growth. Our attitude towards the rich is very complicated. We despise and despise those who exploit and plunder, and hope that something will happen to them and receive retribution. However, we are full of admiration and respect for those who become rich through wisdom. Everyone wants to become rich, wise, and respected, so they look for role models in life, learn from them, imitate them, and practice them. Munger's life is a life of thinking about the good and reflecting on the bad. He collected a large number of human follies and told them to his descendants and the general audience. He used negative teaching materials to tell us how to avoid living a painful life. Munger read a lot and invested in himself first before investing in financial assets. I think this is what each of us can do, and what we should learn from Munger the most.
Investing in yourself means continuous learning. Self-study and self-education are more important than school education. The diplomas, academic qualifications, and certificates we get from school are stepping stones to find employers, and we hope to be competitive in the job search competition. School education focuses more on how to become a useful person to employers. The effectiveness of academic qualifications and certificates decreases year by year after getting the first job. School education only completes the first stage of our lifelong learning, that is, how to become a screw. The second stage of learning is the shaping of critical thinking. For example, Munger said that thinking the other way around, always thinking the other way around, is a kind of critical thinking. If you want to succeed in investing, you must always think about how to fail in investing, and avoid behaviors that lead to overturning. Critical thinking alone is obviously not enough, because if you only know what not to do and don’t know what to do, you will still not be able to live a good life. The third stage of learning is improving judgment. This is the highest stage of learning and the most difficult to learn. In other words, it cannot be learned in books. It can only be learned through practical trial and error. Good judgment can make us richer, wiser, and happier.
Acquiring knowledge is preparation for improving judgment. Knowledge is not wisdom, nor does it equal judgment. Memorizing quotes from ancient and modern sages will not improve your judgment. To improve one's judgment, one needs to put the learned knowledge into practice in life and investment. In the process of continuous trial and error, test your knowledge, accumulate experience, and gradually improve your judgment. I know many people who are always studying and studying, but they are unwilling to practice. They dare not use the knowledge they think is correct as a basis for judgment and decision-making. Without practice, there is no experience, and without experience, there is no judgment. Buffett said that Munger can make correct judgments within 30 seconds and can clearly explain the cause and effect relationship from A to Z. This is the result of Munger’s continuous learning and practice.Learning that does not aim at improving judgment is false learning and true escape.Only through continuous learning and continuous investment can we continue to accumulate wisdom in life and expand the breadth of life.
The success or failure of real estate investment can well reflect a person's judgment. People who do not invest in themselves and do not continue to learn and practice may occasionally succeed, but they are very unstable. They move forward one step at a time and have no confidence in themselves.
01 Ability learning
The formal school education that everyone experiences is about ability learning. Specifically, it is learning the ability to help others solve problems. When people talk about their major, they are hinting at ways in which they can help others solve problems. People living in cities need to find their own occupation in the social division of labor as a basic condition for survival and development. The professional talents cultivated by school education are time-sensitive. The worst situation is that after graduation, you find that society no longer needs this major. I major in foreign trade and have never done any work in this field for a day. Before I started studying, I just thought that foreign trade companies had high wages. After graduation, I caught up with the decline of foreign trade companies and couldn't find a job. Later, I worked in the Bank of China for several years in international settlement work, which allowed me to use some international trade knowledge. It is very stupid to hold on to professional certificates and academic qualifications. To use a popular saying nowadays, even if you are wearing Kong Yiji's gown, you will starve to death without taking it off. Munger graduated from Harvard Law School and could work as a lawyer for a lifetime. When talking about the reasons for switching to investment, he said that people who seek lawyers to litigate are troublesome people. People who abide by the law and are self-disciplined may not need his services throughout their lives. The ability you have learned is one thing. Whether you can use this ability in society and whether you like your job are another matter. People like Munger who have multiple abilities can choose a job that they like and maximize it. People like me with limited abilities can only take off my long gown and put on work clothes. Whatever I can do, I can do whatever I want.Learning skills is a lifelong process, just learn by doing.
I have always disliked articles and sharing that introduce routines for career advancement.The workplace has only one function, which is to occupy a niche and work hard to learn all the knowledge and experience around it.When I was working in New York, many of my expatriate colleagues were studying for MBAs. I had no money and no interest in studying, so I had to work more overtime and travel more than others. The knowledge I learned on the job does not cost money and makes money, which is perfect for a poor boy like me. I have worked in internal audit for 8 years. Many people may think that this is a boring job and is a place to house the elderly who are about to retire. But I know that this position is the best place to learn banking business. In this position, I checked most of the businesses of the Heilongjiang Branch and the New York Branch of the Bank of China. Without these 8 years of experience, I would not have dared to choose my first job after arriving in Canada as a mortgage expert, which is the most unstable job in the bank. The most enviable position in Bank of China is international settlement, and I took the initiative to do auditing from this position. Originally, I could have continued my career as an international settlement expert for a longer period of time, but I felt that the learning opportunities were not as good as those in internal audit, so I changed positions. Only later did I see Munger’s famous saying, “The guy with only a hammer in his hand sees everything as a nail.” Fortunately, I didn’t become the guy with only a hammer in his hand. If I only knew the international settlement business, when my wife brought me to Canada, I would have started working as a strangler.
Inadequate ability, but eager to help others solve problems, will lead to disastrous consequences. Someone once asked the writer Liuliu a question: Why is your screenwriting industry so chaotic? In a few years, there was an accident of copying Aunt Qiongyao's script. Liuliu's answer impressed me deeply: "In every industry, there are people who are not qualified enough but want to make a living from it., it’s not just the screenwriting industry. "Some people's abilities are still at the level they were when they obtained the certificate. They still hold a hammer and smash nails everywhere. It is very common for ordinary people to have abilities that are not worthy of their reputation. It can be said that ordinary people are shocked at every step. I believe that many professionals have the heart and soul to serve customers well, but they lack the ability and enthusiasm. If you are a professional and want to win clients, your abilities and talents need to match the results you promise. The standard for finding a partner should be that you are worthy of the person you want to marry or want to marry. Munger said,The safest way to get whatever you want is to deserve it.This is an absolute truth. I once made a video in May 2021, titled "How to Make Yourself Worthy of Real Estate Investment (Canada)". It received 16,000 views on YouTube. Munger's thoughts were mentioned many times in this program.
Improving ability is a lifelong thing and does not need to be accomplished in one battle. There are many people who have achieved great success after failing the college entrance examination, and there are not a few who have achieved nothing after graduating from prestigious schools. Learn whatever the social division of labor requires. No matter what kind of work you do, do it first and learn while doing it.Work is the best college.The ladder of life is to constantly find better learning opportunities, constantly search for yourself, discover yourself, realize yourself, and continue to search, discover and realize yourself on a higher platform. Only when your abilities are worthy of wealth and fame can you be practical and respected by others.
02 Critical thinking training
In class, the teacher teaches how to do things correctly and is accepted. No teacher taught me how to avoid living a miserable life. Munger summarized how to live a painful and miserable life in "Poor Charlie's Almanac". I regard this book as a manual of human mistakes. We have a lot of psychological inertia and a lot of blind spots in our thinking. We don’t know where these problems come from. Munger believes that psychologists have not been doing their jobs properly for so many years. What humans need to learn most isThe psychology of misjudgment, but no psychology textbook discusses this. I think "Thinking Fast and Slow" can be regarded as a book on the psychology of misjudgment in economic decisions. The authors, Daniel Kahneman and Tversky, are psychologists who won the Nobel Prize in Economics for studying the psychology of misjudgment in financial decisions. The psychology of misjudgment that Munger studies not only includes financial decisions, but also talks about misjudgments in other aspects of life. The misjudgment psychology pioneered by Munger can be summed up in one sentence: "Think the other way around, always think the other way around." One of Munger's favorite sayings embodies this idea: "If I knew where I was going to die, I would never go there."
Even if school education can produce human resources in batches and mechanization, and can assign these people to jobs in a one-to-one correspondence, then how do outstanding people from all walks of life stand out? School education tells you what is right, but during the exam, students still make all kinds of mistakes, so they fail the exam. How can they pass the exam? Students must give the correct answers that the teacher taught you. Here’s the problem. After long-term exam-oriented education and training, small-town problem solvers have filled all the job slots. If you want to be better than them, you need to think of and make solutions that are different, more valuable and contribute more. What Munger means by "thinking the other way around" is to use critical thinking to challenge the known correctness, because the known correctness will change over time and the environment and will no longer be correct, or a better way will never be discovered.Question existing conclusions, question existing practices, and do not blindly follow, is the first step in critical thinking.
Starting to think and reason from counterexamples in life is the second step of critical thinking. Do you have knowledge and theory about stock trading? Of course there is, otherwise what would people studying finance study? Economist Eugene Fama proposed the Efficient Market Hypothesis (EMH) in the 1960s, which holds that if the market is completely efficient, it will be very difficult to achieve long-term returns that exceed the market average. This is a theory that students of finance must learn. Buffett said, if the market efficiency hypothesis EMH is right, I will become a beggar on the street. From people such as Buffett and Soros who do not have a CFA financial management certificate, we can easily find that this hypothesis is too false and the certificate does not represent ability.Only by constantly questioning and thinking from counterexamples can we break through the knowledge cocoon of book education.Among the masters of counterexample thinking, I like Nassim Nicholas Taleb the most. He started with a "black swan" counterexample that overturned the conclusion that swans are all white, and taught readers how to engage in critical thinking.
The third step in critical thinking is to develop the habit of self-criticism and stop criticizing others.Critical thinking means criticizing yourself, not others.It is an instinct to defend your own opinions and ideas, so you need to deliberately and constantly question yourself in order to see your shortcomings and improve and make progress. Let me give you my own example: Because in the loan industry, interest rates are a key issue, and I am always asked for my opinion on the trend of interest rates. In the past, I could not help but predict the trend of interest rates, making mistakes over and over again, and always wanted to defend myself. A defense also requires a reason, so I read the autobiographies of the Chairman of the Federal Reserve, the Governor of the Bank of India, the Governor of the Bank of Japan, the Governor of the Bank of England, and the Governor of the Bank of Canada. As I read it, I realized my naivety and started to criticize myself. The central bank is responsible for controlling the amount of currency and setting currency prices. The purpose is to balance the two goals of employment and currency value stability. If employment is not good, it will fly doves; if the currency is weak, it will fly hawks. We may not necessarily encounter which bird when we go out today. Therefore, it is impossible to predict which bird we will encounter when we go out in six months. I now realize that interest rate trends are unpredictable. Self-criticism is effective. Now if anyone asks me what I think about the trend of interest rates, I will answer with Munger's opinion: If you want to live to be 100 years old, you have to deal with the fluctuation of interest rates from 0 to 20%.
It is not shameful to constantly deny yourself, but it is terrible to cling to your own opinions. Munger said that gaining wisdom is a moral responsibility. Lu Xun said that stupidity is a moral defect. I think it is foolish to be stubborn and not self-critical.
03 Cultivation of decision-making ability
Learning that does not aim at improving decision-making ability is all fake learning and real escape. Improving judgment is to deduce how we are different and outstanding from the expected results.The condition for improving judgment is: constantly expanding knowledge and experience+Continuously engage in critical thinking+control emotions+increase risk awareness+increase the ability to resist losses.
Continuously expanding knowledge and experience is lifelong learning. Human life is limited, and there are not many things that we can try and experience personally. Reading is the most effective way to expand the breadth of life. Most people, because they are busy making a living, have no time to read and think. When it’s time to make decisions, they go to other people’s social platforms to copy homework, and the results can be imagined. If the judgment of others and the public is reliable, it will not succeed for Buffett and Munger. “If People weren’t so often wrong, we wouldn’t be so rich.” – Charlie Munger
Continuous critical thinking means constantly questioning your past self, because if you want to become a better self, you must deny and criticize your past self. Only by constantly criticizing yourself can you make yourself smarter every day. You will gain nothing by criticizing others.
Emotional control is an important prerequisite for making correct judgments and decisions. Human beings are animals that put sensibility first and rationality second. Physiologically speaking, we cannot put rationality first and sensibility second. American neuroscientist Antonio Damasio conducted an experiment and asked a person whose right brain was damaged but whose left brain was still intact to answer the pros and cons of eating French fries and eating vegetable salad. The subject answered fluently. Antonio finally asked the subject, "Do you want to eat French fries or vegetable salad?" The subject replied, "I don't know." Without the perceptual judgment of the right brain, it is impossible to make a judgment solely by relying on the rationality of the left brain. Emotional factors are essential to human judgment.Emotional control means that decision-making cannot be completely determined by the right brain, and cannot only be based on wishes and emotions without objective analysis; the purpose of emotional control is not to make decisions easily when the mood is high; at the same time, to avoid indecision when the mood is low.
Improving risk awareness is not an empty talk, it refers to a philosophical thought of "thinking about retreating before advancing". Don't think about getting rich overnight after making a certain decision, but think more about the possibility of losing everything after making this decision. Economist Frank Knight provides a compelling account of risk and uncertainty. Knight defined risk as uncertainty that can be quantified and measured, that is, a situation that can be described and estimated using probabilities. Risk can be quantified and managed through statistical methods and mathematical models. Knight defines uncertainty as uncertainty that cannot be accurately quantified or measured, that is, the probability of different outcomes that may occur cannot be determined. Uncertainty is characterized by the lack of sufficient information to make accurate predictions. In a word, risks can be diversified by buying insurance; uncertainty cannot be diversified without insurance. Any decision is faced with risks and uncertainties. If you wait until you are sure of it before making a move, there will be almost no reward. The so-called improvement of risk awareness means improving the ability to "not overestimate the possibility of success and not underestimate the possibility of failure."
Improving loss resistance is the final step to improving decision-making capabilities. Any decision will have a consequence, either good or bad, and the person who makes the decision needs to bear all the profits and losses. Why do so many people keep studying, observing, and researching, but just don’t take action? The reason is that they are unwilling to bear the consequences, or cannot afford the consequences. People with stronger loss-bearing capacity have more fully trained decision-making ability, and their decisions are more decisive and accurate. On the contrary, people who never make decisions or take action may seem to have no losses, but the opportunity cost is already as high as a mountain. Risks and uncertainties will always exist. Only by not making decisions or taking action can you avoid 100% of risks and uncertainties. There are many knowledgeable vegetative people in life. They dare not use their own knowledge as the basis for decision-making, and they dare not use their own real money to test the knowledge they have learned. Improving the ability to withstand losses requires capital for trial and error. People who cannot afford to lose dare not try or practice, so they cannot improve their decision-making capabilities. To improve your decision-making ability, you need to try it yourself. You cannot improve your ability by watching business war movies. To enter the game, you must have a cost and you must be able to afford to lose. Therefore, the last and most difficult step to improve your decision-making ability is to have a capital that you can afford to lose.
Only those who keep learning and investing have the opportunity to test their knowledge and opinions, train their ability to control emotions, criticize themselves, develop risk awareness, accumulate capital they can afford to lose, and continuously improve their decision-making abilities. Charlie Munger's life is a life of improving his decision-making skills every day.
04 Invest in yourself first, then investreal estate
In November, a targeted offline lecture was held for self-employed people. One of the main topics is "The procyclical nature of income plays a trick on people." The income of self-employed people fluctuates with the market. This is a normal phenomenon, but what is abnormal is that according to my own statistics, among those who have multiple investment properties, office workers account for more than 80% of their families, while self-employed people account for less than 20%. Many self-employed people earn a good income and are also interested in real estate investment, but things often backfire. For example, if you buy a house or off-the-plan property when the bubble is at its peak, you will lose a lot of money after signing a contract, and you will not be able to recover for many years. I analyzed the specific reasons in the lecture, but the conclusion is very simple,The key to success or failure in real estate investment is people, not houses.
The key to buying a house is a loan. Therefore, some people say that 90% of the time in the process of buying a house is looking for a loan, and 10% of the time is looking for a house. It is easy to find a house, but difficult to find a loan. The prerequisites for obtaining a loan are verifiable income and the ability to pass the loan's stress test. Therefore, the ability to obtain a loan equals the ability to make money. The ability learning mentioned above plays a huge role here.A person's income is directly proportional to the irreplaceability of his or her social contribution.The more people are needed by this society, the higher their income. Mortgage is a reward for those who contribute to society, work hard, and pay taxes honestly.
The real estate market is the noisiest market. Since I settled in Canada in 2008, I have seen the following statements every year: The real estate bubble is about to burst, real estate investment is no longer as profitable as it once was, and household debt has reached unaffordable levels, blah blah blah. At the end of 2008, when I first arrived in Canada, the headlines in major newspapers and tabloids said that Canadian housing prices would fall by at least another 30%. Fifteen years have passed, and the average house price in Greater Toronto has increased from 380,000 in 2008 to 1.1 million in 2023. During this period, loan policies have been tightened year by year, and mortgage interest rates have fluctuated greatly from 1.5% to 7%. Although house prices have fluctuated, the general trend is very certain and stable. Even if you have been confused by the noise, everyone has enough time to wake up and catch up, but this requires critical thinking and denying your previous views. We don’t need to criticize the person who made the noise, we only need to criticize the ideas we once thought were right.
The decision-making ability of real estate investment depends on borrowing ability, risk awareness, and loss tolerance. After some people immigrate to Canada, they don't even want to learn English and give up the opportunity to contribute to Canadian society. Therefore, it is very difficult to apply for a mortgage. Borrowing ability is a test of the size of social contribution and a test of a person's irreplaceability in the society in which he or she lives. The threshold for real estate investment is set on tax income, which is a relatively fair approach. At present, the basic standards for mortgage loan approval by Canadian commercial banks are no income, no mortgage. Of course, there are exceptions, but the general requirement is to use tax reported income to measure whether you have the ability to repay.Risk awareness, simply put, means not to get carried away when you are optimistic and not to miss opportunities when you are pessimistic. If you don’t have the ability to borrow money, don’t make an exception, don’t buy futures real estate when the market is crazy, and don’t buy real estate in tourist areas when housing prices are soaring. Remember these three things to avoid it.80% of the risks caused by over-optimism.When you have the ability to borrow, buy decisively and ignore short-term market fluctuations in housing prices, thereby getting rid of emotional control and avoiding excessive pessimism and missing investment opportunities. Finally, real estate investment must have the ability to withstand losses, have the cash to maintain the monthly payment when the house cannot be rented, and be able to maintain the monthly payment when interest rates rise sharply and the monthly payment increases. This means that the landlord's family must have a surplus of food.
It is easy to invest in real estate, but difficult to invest in yourself. As Wang Yangming said, it is easy to kill the thieves in the mountains, but it is difficult to kill the thieves in the heart. There is no shortcut to investing in yourself. You can only continue to read, learn, reflect, and invest. Every day, you will be wiser than yesterday. Munger said, “In my whole life, I have known no wise people who didn’t read all the time, none, zero.”
Conclusion
I would like to write this article in memory of Charlie Munger who just passed away. I wish all families who rely on their own abilities, wisdom and judgment, work hard, and file their taxes honestly to live a richer, wiser, and happier life in Canada.