Marginal utility and time preference
Bay Area Housing Crash

Pearls of wisdom from Charlie Munger

If you always wondered what it takes to be a successful investor, then who better to tell it than Charlie Munger. Charlie Munger is a partner of Warren Buffett, the chairman of Berkshire Hathaway. He is also the chairman of Wesco Financials. Here is the speech he gave on the Art of Stock Picking. Just one example from the speech ought to tempt anybody to read the whole thing:

For example, one great advantage of scale taught in all of the business schools of the world is cost reductions along the so-called experience curve. Just doing something complicated in more and more volume enables human beings, who are trying to improve and are motivated by the incentives of capitalism, to do it more and more efficiently.

The very nature of things is that if you get a whole lot of volume through your joint, you get better at processing that volume. That's an enormous advantage. And it has a lot to do with which businesses succeed and fail....

Let's go through a list albeit an incomplete one of possible advantages of scale. Some come from simple geometry. If you're building a great spherical tank, obviously as you build it bigger, the amount of steel you use in the surface goes up with the square and the cubic volume goes up with the cube. So as you increase the dimensions, you can hold a lot more volume per unit area of steel.

And there are all kinds of things like that where the simple geometry the simple reality gives you an advantage of scale.

Here is a another great speech from Charlie Munger, attacking academic  economists.
Update: Atanu Dey has an article giving a set of useful mental tools and ideas.


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