Charlie Munger is a living legend with an enormous power to invert and find out what he should not do. In fact, Peter Bevelin has mentioned the title of the book ” All I want to know is where I’m going to die so I’ll never go there” “Buffett and Munger – A Study in Simplicity and Uncommon, Common sense”. Excellent book, it should be read by anyone contains a lot of wisdom.
Let’s try to take a real life situation and get some learning from it to what we should avoid in our life. I will share an example of a chat I was having with one of my friend which shows the typical life of a student.
A: Hi, how is your preparation for ABC degree for finance going?
B: It is good I have cleared part 1 and will clear the next part soon.
A: Why are you pursuing ABC degree? I understand you are from an engineering background, still why?
B: See I want a good job and to get a good job I need something on my CV to show. How do I prove my employer? Then, I will go for another higher degree it makes my profile stronger.
A: B you are my friend, still from my experience, I think you should again give it a thought, Will you do the same thing if you had $1 billion in your pocket? I am not trying to offend you please think.
B: See A, my whole idea is different you’ll not get it.
After reading this chat what comes to my mind is what Mr Warren Buffett once famously said:
“Taking up jobs to build your resume is like saving up sex for old age.”
Replace jobs with a degree and you get a clear picture.
Let’s try to do a thought experiment of what took Mr.B into such a situation and try to analyse the various psychological tendencies involved.
Before doing the analysis let me tell you about few psychological tendencies in few lines what they mean. Definitely, It is better to read or listen to Mr Charlie Munger’s Speech on the Psychology of Human Misjudgement:
- Social Proof — Humans by the gift of evolution have a tendency to move in herds or follow what the others are doing especially when uncertain. Though good in most cases like standing in a queue, it can lead to terrible consequences in certain cases.
- Misinfluence from Authority: When under authority we may do certain things which we may not do otherwise. This was demonstrated by the famous Milligram’s experiment. We are influenced by people who have authority. Now it all depends on who is under the authority and which kind of influence it exerts on us.
- Doubt Avoidance Tendency: We usually believe in the first answer we get and avoid any doubts regarding the answer/solution we get. Instead of changing our mind or thinking about other solutions, we avoid all the doubts to think what we are thinking is correct. On this, I remember the famous quote by John Maynard Keynes: “When the facts change I change my mind, what do you do sir?”
- Commitment Tendency: When we have started something and into it, it’s working we will keep on doing it even if we know it’s wrong. If a person has started accepting bribes, he will find all the reasons in the world to justify it without agreeing to it is wrong. Even if he comes to know whether it’s wrong, he will still keep on doing it.
- Lollapalooza: This is a metaphor for extreme outcomes (failures and success) both given by Mr Munger. When two or more of these psychological tendencies move in one direction we get a Lollapalooza outcome.
Let’s start with the thought experiment:
Mr B. is a young student he is searching for his passion. He hears about finance. Then as he is unknown to finance field. He tries to find entry into it. Under uncertainty and stress, not knowing what to do he looks for Social Proof. He sees various students of his age are doing this degree and it is very well famous over the internet. He gets the advice from wrong inexperienced people and blindly follows what others are doing (Misinfluence from Authority). As he is young inexperienced he is more influenced by peers rather than his parents. Once into doing the degree, even after recognising he may have taken the wrong step, rather than changing his mind he consistently sticks to his theory and rationalises it (Doubt Avoidance Tendency & Consistency/commitment tendency). Such a case may lead to Lollapalooza outcome whereby he will never realise how many years he wasted just by following what others did rather than using his own brains.
Though I may seem like commenting on someone, Probably I was Mr.A some time ago.
Let’s Invert and try to think how we could have avoided all these things if we can?
Antitode to such thinking —— Some clear cut answers come from one of the hard science
- Gathered evidence and use probability along with Bayesian statistics. The key here is you don’t need to be a maths genius to understand Bayes rule. The key is to how to use it to update your beliefs. We live in an uncertain world and the game of odds/probability is the best chance one has. You have to understand that when you get the new evidence you need to constantly update your prior beliefs like Mrs Julia Galef does in the video.
- Or we could have followed one of the best people of all times and read about them (Make them our friend living or dead, learnt from their vicarious experiences) Like if you want to be a cricketer read various biographies of cricketers, understand the history of cricket, If you make Mr.Tendulkar your friend and think in each complicated situation how he would think of the problem.
- Do Independence thinking regardless of what people think (Keep an Inner Scorecard, not an outer one) — Judge your outcomes by what you were doing in the past how have you improved it, better keep a journal.
- Once realised you are doing something wrong leave it. The best way is to find disconfirming evidence, always consider the risk and welcome disconfirming news. Be more focused on what is wrong rather than what is right. Remember to react to evidence not only on what others are saying. Remember to get up once failed, making mistakes is fine unless it’s not a terrible life threatening one. Not learning from mistakes is deadly. If you have taken a wrong degree realised your mistake switch it, don’t wait for someone to tell you the same.
- Will I do the same thing If I have a $billion in my pocket? If the answer is yes go for it, otherwise you are doing it only for money. Use this as a thinking tool to judge whether you are really doing something you like or you are being forced upon to do so.
- After reading about various great people in history try to find who is alive, from who you want to learn. Try to find someone whom you really admire and work with them. Choosing the right guru is your job.
- Read the books of best professors meet them understand them, then choose which degree to do try to get entry into their college. If you want to learn about investing Prof Sanjay Bakshi is a living legend.
- Think long-term, not 2-3 years longer than that. Try to think in terms of compounding. Good habits and bad habits both compound in Life. Let me give an example: Let’s think of two batsman one who plays for 40 years scoring 100 runs on average in each year, the other one playing for 10 years has an average of 200 runs. The first one is far better. Take the example of who are smoking every day and think?
- Read and learn about various disciplines, not one, keep learning and evolving. Try to evolve a multidisciplinary approach. Our world is not governed by one single idea or subject. Learning the basic disciplines of each subject is the key to avoid major follies. A doctor needs to know about engineering to learn the principle of using a checklist, psychology to understand the mistakes he will make, philosophy to develop useful thinking tools. Same applies for everyone.
- Remain foolish and humble – In order to keep learning, we need to remain humble and foolish.
The truth of the matter is “We are wise too old in our lives“, So remember even the author of this article is foolish and will make tremendous mistakes.