📈🧠 In 1995, Charlie Munger, the renowned investor and Vice Chairman of Berkshire Hathaway, delivered a legendary lecture at Harvard not about investment strategies, but about the mental flaws that affect business decisions.
Charlie Munger’s Investment Wisdom: Top 10 Mental Flaws to Avoid for Success!
In this blog/podcast/video, we unravel Munger’s insightful guidance on avoiding cognitive biases and mental errors that can skew decision-making. Munger’s principles go beyond investing; they offer a blueprint for making smarter decisions in business and life.
🔍 What you’ll learn:
Overreaction to Loss: Understand why focusing too much on avoiding loss can lead to missing significant opportunities.
Inconsistency-Avoidance: How clinging to beliefs can blind you to vital information.
Availability-Misweighing: The dangers of oversimplifying complex situations.
Twaddle Tendency: Recognizing when information is fabricated or exaggerated.
Social-Proof Bias: The risk of following the crowd blindly.
Overoptimism Tendency: Managing unrealistic expectations and assessing risks accurately.
Reward and Punishment Superresponse: The underestimated influence of incentives in decision-making.
Pain-Avoiding Psychological Denial: The tendency to distort reality to protect the ego.
Influence-from-Association: Avoiding negative bias based on association.
Lollapalooza Tendency: Identifying when multiple mental flaws combine to create extreme outcomes.
Munger’s wisdom is a key to unlocking exceptional decision-making skills, as evidenced by his success with Berkshire Hathaway.
Join us as we delve into each of these principles, providing real-world examples and actionable insights. Share your thoughts and experiences in the comments below! #CharlieMunger #InvestmentPrinciples #CognitiveBiases #BusinessWisdom #BerkshireHathaway”
So, back in 1995, Harvard University invited Charlie Munger to give a lecture to its students. Now, one might assume that Munger, being the Vice Chairman of Berkshire Hathaway and a highly respected figure in investing, would impart valuable insights on how to excel in the world of finance. But interestingly enough, Munger had a different approach. He focused on something far more important than investing advice – he delved into the realm of mental flaws that affect every single business decision we make.
See, our brains are fascinating organs that constantly take shortcuts when it comes to decision-making. It’s just the way we’re wired. But here’s the kicker – these shortcuts often lead us astray, tricking us into believing that our flawed thinking is actually accurate. So, what Munger recognized was that avoiding these mental flaws was the key to his success in building Berkshire Hathaway.
In Munger’s most famous lecture, he emphasized the significance of being able to see and, importantly, avoid these mental flaws. He believed that it was more critical than any specific investing advice he could give. So, what were these mental flaws that Munger warned his Harvard students about? Let’s dive into the ten most critical ones.
The first flaw is the overreaction to loss. We have a tendency to overemphasize loss rather than focusing on potential gains. Munger advised his students not to miss out on a big opportunity just because they wanted to avoid a small loss.
The second flaw is inconsistency-avoidance. When we hold a belief, we tend to identify with it strongly. As a result, any information that clashes with our beliefs appears twisted or distorted. Munger urged his students to see information for what it truly is, without letting their preexisting beliefs cloud their judgment.
Next up is availability-misweighing. Munger pointed out that the simplest answers to complex situations often become viral and widely accepted. However, just because others provide a single explanation for why something happens, it doesn’t mean that the whole picture has been revealed. Munger encouraged his students to assume that they could be missing important information whenever they are presented with only one response.
The fourth mental flaw is what Munger called the “twaddle tendency.” People have a knack for making things up as they go along, especially when they want to appear more intelligent than they actually are. Munger advised his students to be skeptical and assume that some percentage of any given explanation is simply fabricated.
Then there’s the social-proof bias. As humans, we often tend to follow the crowd and assume that popular ideas must be true. But Munger cautioned against this tendency, reminding his students that popularity doesn’t equate to accuracy. It’s important to think critically and not blindly follow the masses.
Moving on to the sixth flaw, Munger highlighted the overoptimism tendency. We humans have a tendency to be overly optimistic, which can cloud our judgment and make it difficult for us to accurately assess risks. Munger advised his students to seek a third-party perspective to evaluate the downside risks of their decisions.
The seventh mental flaw is what Munger termed the “reward and punishment superresponse.” Essentially, we underestimate the impact that incentives have on driving behavior. Before working with others, it’s crucial to understand their incentives and motivations.
Next up is the pain-avoiding psychological denial. When faced with an uncomfortable truth, we often skew our perception of reality to avoid the pain that accompanies it. While this may protect our ego in the short term, it ultimately hampers our decision-making process. Munger encouraged his students to confront uncomfortable truths head-on and base decisions on accurate information.
Influence-from-association is another mental flaw Munger highlighted. Essentially, when we associate an idea with something negative, we automatically assume that the idea itself is bad. Munger advised his students to look for valuable lessons even in ideas that others tend to avoid due to negative associations.
Lastly, there’s the lollapalooza tendency. When multiple mental flaws come into play together, they can amplify each other and lead to extreme outcomes. Munger urged his students to be vigilant for situations where multiple flaws might be at work, as they can significantly impact the logic behind decisions.
Now, here’s the thing – most people are not fully aware of just how much these mental flaws skew their decision-making processes. But Munger, with his exceptional ability to recognize and confront these flaws, was able to build Berkshire Hathaway into a powerhouse. So, the key takeaway here is to protect against these mental flaws in your own decision-making. By doing so, you can elevate yourself to the level of a top-notch decision-maker, just like Munger.
And with that, we’ve covered the ten critical mental flaws that Charlie Munger warned his Harvard students about. These flaws have the potential to significantly impact our decision-making, so it’s essential to be aware of them and actively work to counteract their influence.
Remember, decision-making is a multifaceted process, and understanding the common pitfalls can help us make better choices in both our personal and professional lives. So, take Munger’s wisdom to heart, and may your decision-making skills soar to new heights!
Oh, do I have a book recommendation for you! If you’re itching to delve deeper into the realm of artificial intelligence for investing, then look no further than “AI Unraveled: Demystifying Frequently Asked Questions on Artificial Intelligence.” Trust me, this book is an absolute must-read for anyone seeking to expand their understanding of AI in the world of investments.
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What sets “AI Unraveled” apart from other books on the subject is its ability to demystify the frequently asked questions surrounding artificial intelligence. It’s not just about grasping the concepts; it’s about unraveling the mysteries and making AI approachable for everyone.
The author brilliantly breaks down complex ideas into easily digestible nuggets of information. So, whether you’re a seasoned investor or just starting out, you’ll find immense value in this book. With each turn of the page, you’ll uncover a wealth of insights that will empower you to make informed decisions in the world of AI-driven investments.
And let’s not forget the convenience of purchasing options! Whether you’re a fan of Etsy’s unique offerings, Shopify’s user-friendly interface, or the trusted platforms like Apple and Google, “AI Unraveled” is available on all of them. And of course, you can always rely on the mighty Amazon to deliver your copy right to your doorstep. The choice is yours!
So, if you’re ready to take your understanding of artificial intelligence for investing to the next level, don’t hesitate. Get yourself a copy of “AI Unraveled: Demystifying Frequently Asked Questions on Artificial Intelligence” and embark on an eye-opening journey into the world of AI-driven investments. Happy reading!
In this episode, we explored the importance of avoiding mental pitfalls in business decisions and recommended “AI Unraveled” as a comprehensive guide to AI investing. Thank you for joining us on the “Djamgatech Education” podcast, where we strive to ignite curiosity, foster lifelong learning, and keep you at the forefront of educational trends – so stay curious, stay informed, and stay tuned with Djamgatech Education!
Okay Crayon Sniffers, Here is the low down on BMY and why I have a 350K YOLO. It Their main revenue sources are facing a series of patent cliffs. They have a few years to replace their revenue with new products from their pipeline or you can draw a big red arrow down on the share price. They posted their Q2 2024 ER today and showed some decent progress in alleviating that fear. They have done a ton of acquisitions over the past few years and it looks like many new drugs will enter their pipeline, get approved, and generate a ton of revenue. This is exactly what happened to AbbVie a few years ago. And look where their stock price is now! I think they will replace the revenue and grow it. I believe the share price will be $80-$100 in 3-5 years. In the meantime, I’m going to enjoy the dividends, 5B share buyback on the books, and 18 years of dividend increases and I expect it to continue! I plan on drawing a big green arrow from here to that PT. Disclaimer: I am long BMY. This is not investment advice. Do your own DD and make your own investment decisions. submitted by /u/Commodore64__ [link] [comments]
Found out about this stock 2 years ago from a meme here after losing 40k in BoBBBY. Have been holding and buying dips for 2 years since BW3 launch and want to thank @spacanpanman and @CatSE__ApeX_ for their unreal DD and allowing me to create generational wealth. Holding until 2030. LFG #Spacemob submitted by /u/corey407woc [link] [comments]
Lost money for 3Y in a row. Never gave up. Account went as low as $595 on April 16th. As of today no positions. All of them are closed as of yesterday. No trades today. These results are not typical, I know. Went full regard and so you can say I'm at pure luck or do well when volatility is at lowest time frame. Biggest trades that lifted the account in last three months are.. started with IBM puts last quarter, SPY calls, followed by TSLA, and then Gamestop, BABA, SLV, CHWY, AMD and NKE puts. There were total 554 trades executed using my phone while working on 9-5. Paid 56K as commissions to fidelity. Now I will call fidelity to remove options from my account and will buy stocks NVDA, AVGO and AMD is the plan. submitted by /u/optionsplayonly [link] [comments]
To win, all we have to do is remember the simple truths and act accordingly. Don't let anyone's behavior convince you otherwise. Don't get distracted by the noise. Don't let the market movements adjust your perception of reality, for they do not decide it. All of the known information is priced in, yes. Interpretation of that information is not. It cannot be. We as investors fundamentally disagree on how to weigh all of the data. That interpretation is your alpha. And then there is the constant barrage of media stories moving people's perceptions. Don't be fooled by the noise. That is your alpha. So what is true? Computers can now read and write. Say that to yourself. Computers can read and write. If someone had told you that this would happen in 2024, would you have believed them? The "is AGI coming or not" is nerd bait. A distraction. Even if the new technology plateaus here, there would be 20 years of economic gains purely because computers can now read and write. But that is not all that has been unlocked, is it? They can also hear and speak. They can see and act. Self-driving cars are here. Waymo has them. Tesla will have them soon. I am an AI engineer. I read and re-read the original Transformers paper over and over and over again until I understood every single word. Thats how I learn. Over and over, deeper and deeper, until it all clicks. I can see with 100% confidence that the technology underpinning LLMs is completely non-specific to any specific domain. We have just begun to harness this new power Inputs in. Predictions out. Past in. Future out. That's it. It can learn any and every pattern the world has. Compacting the information of the past into a machine that can predict the future. I don't know how big that opportunity is. But I know we will underestimate it. We always do. Unless you're von Neumann. This is obviously going to create a huge bubble. You can't have this kind of transformation without people getting overexcited for a few years. But we aren't at that stage yet. Look at how long the dotcom bubble took, and more importantly, look how the late stage was characterized - explosion of IPOs. Until we get a flood of IPOs, we aren't in the late stage. Until we see an IPO for SexRobots Inc, we aren't in the late stage. At the moment we've got a handful of companies beating expectations because of AI revenue (good for Nvidia, long-term), and some beating CapEx expectations because of AI spending (good for Nvidia, short-term) The current situation Look at Nvidia P/E compared to its share price. We're halfway through the year. At the end of this fiscal year, Nvidia will be worth $180 at the midline of this trend. It is currently $113. That is a 57% return, 157% on an annualized basis. https://preview.redd.it/i4tguqzn8yed1.png?width=2324&format=png&auto=webp&s=d0e0112355ff9ff89dac811c03202050eadf34a6 Nvidia is down 17% from its peak. Its hard to call the bottom, but yesterday we saw a major flash crash followed by a v back up. Much like the opposite of the "blow-off" tops that we see when the bull runs peak. Big volume selling, big volume buying. Big down, big up. I expect the fast bears used that to get out. The slow ones will watch their profits start eroding before also bailing and taking their gains. The slower ones will hit their stop losses, and the slowest will drift back into the red. If you're a bear in the green, take the W and get out Upcoming catalysts Other company earnings next week - MSFT, META, SNAP, AMD, ARM Upcoming earnings What are the market expectations for next earnings? They say they are expecting $0.59 per share. But last quarter Nvidia made that, on the back of 26B in revenue. For this quarter, Nvidia predicted 28B revenue. If they hit that, we're looking at $0.66. But of course they're being conservative. Why wouldn't they? When your growth is 262% you have plenty of room to estimate conservatively. How conservative are they usually? Last time they predicted 24B and hit 26B. If roughly that amount extra happens again, we're looking at 30B in revenue and $0.70 in profit. My positions $100 call 8/16 expiration (bought +20 for $32,000) Don't do what I do. Buy a longer expiration. submitted by /u/Enodios [link] [comments]
I thought it’d just bounce back up two weeks ago. Truly my most regarded moment. QQQ $510 calls exp 08/16. Kept averaging down until I ran out of buying power. Considering selling my other holdings to buy more. submitted by /u/Zenenator [link] [comments]
Lost every single dollar I had to my name and in debt 45k. Took out a loan of 45k and had 30k of my own money. Totaling 75k, lost it on some options plays. I wish I can reverse back in time and stop myself from doing that. Wish me the best of luck and don't Yolo your life savings + a loan. https://preview.redd.it/aoypr025jwed1.png?width=2278&format=png&auto=webp&s=2cf335c55eb8d07b542129bbbaa05832e2cd8c50 submitted by /u/No_Giraffe3252 [link] [comments]
$SMH Index Just a quick preface, if you don't like technical analysis then skip this one. It's not DD based on fundamentals, it's just technicals. The fundamentals for chip makers ( especially market leaders such as NVDA ) remain the same and remain positive. So I'm only looking at the technical aspect here, because the fundamentals haven't changed, yet. This is the daily chart for $SMH, the semiconductors index ( chip makers ) ETF. Semiconductors formed a double top in early July. A bearish technical structure that often indicates more downside is ahead. Double tops form all the time, but unless they're confirmed they're usually harmless. A double top is confirmed when price closes below the neckline ( the purple line ). This happened on July 17th. As soon as that happens we can extrapolate a full measured move. It's basically a price target that's equal to the distance between the top and the neckline. ( the vertical blue line you see is the full measured move ) If you take that distance and you place it below the neckline you get the downside target for this technical structure. As of yesterday, we have hit this downside target. A similar but slightly different bearish structure also formed when chip stocks topped in March-April. It wasn't a double top, but a slightly different variation. That looks like a spike, then an inverted cup. The spike represents euphoria and the inverted cup represents buyers trying to get going again to crack through the highs, but failing to get momentum going and eventually they give up and sell and it results in a sharp sell off and a bottom. Chip stocks also bottomed right around the full measured move down from the neckline back then. And it's happening again. This will sound a lot like meaningless mumbo jumbo reading tea leaves or astrology. In reality technical analysis works for two main reasons. 1- It's just a representation of investor sentiment and psychology. Just like an ECG is a chart of your heartbeat. There's no fortune telling, there's no clairvoyance. It's just putting market psychology in defined, measurable numbers on a chart. 2- It works because everyone uses the same concepts. Just like I saw this double top and full measured move, every technical analyst at every big bank will have seen the same thing and came to the same conclusion. I plan to build an aggressive position once an S&P 500 bottom is confirmed. We're getting very close here, probably just days away. I don't want to buy any chip stock until the S&P 500 bottoms. So for now, just waiting patiently. submitted by /u/CaspeanSea [link] [comments]
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submitted by /u/Hopeful-Candle-4884 [link] [comments]
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