A Lesson On Elementary, Worldly Wisdom As It Relates To Investment Management & Business – Charles Munger, USC Business School, 1994

On investment management. That is a funny  business because on a net basis, the whole investment management business together gives no value added to all buyers combined. That's the way it has to work.

I think a select few—a small percentage of the investment managers—can deliver  value added. But I don't think brilliance alone is enough to do it. I think that you have  to have a little of this discipline of calling your shots and loading up—you want to  maximize your chances of becoming one who provides above average real returns ... See more

There are huge advantages for an individual to get into a position where you make a  few great investments and just sit back and wait: You're paying less to brokers. You're  listening to less nonsense. And if it works, the governmental tax system gives you an extra 1, 2 or 3 percentage points per annum compounded.

But in terms of business mistakes that I've seen over a long lifetime, I would say that  trying to minimize taxes too much is one of the great standard causes of really dumb  mistakes. I see terrible mistakes from people being overly motivated by tax  considerations.

On stocks:Over the long term, it's hard for a stock to earn a much better return than the business  which underlies it earns. If the business earns 6% on capital over 40 years and you  hold it for that 40 years, you're not going to make much different than a 6% return— even if you originally buy it at a huge discount. Conversely, if a bus... See more

Most investment managers are in a game where the clients expect them to know a lot  about a lot of things. We didn't have any clients who could fire us at Berkshire  Hathaway. So we didn't have to be governed by any such construct. And we came to  this notion of finding a mispriced bet and loading up when we were very confident that&... See more

think the reason why we got into such idiocy in investment management is best  illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, "My  God, they're purple and green. Do fish really take these lures?" And he said, "Mister, I don't sell to fish."

The way to win [in the markets] is to work, work, work, work and hope to  have a few insights.  How many insights do you need? Well, I'd argue: that you don't need many in a  lifetime. If you look at Berkshire Hathaway and all of its accumulated billions, the top ten insights account for most of it.

It's not given to human beings to have such talent that they can just know everything  about everything all the time. But it is given to human beings who work hard at it—who  look and sift the world for a mispriced be—that they can occasionally find one.  And the wise ones bet heavily when the world offers them that opportunity. ... See more