Wisdom to start your week: Stanley Druckenmiller and Charlie Munger
"Almost everyone has three things. They're very intelligent. They worked very hard. They were very lucky. It takes all three to get them on this list of the super successful." - Charlie Munger
What can we learn from those who succeeded in markets for decades? It is rarely the what, the specific strategies or insights that made them a fortune. Instead, we need to look for enduring principles.
Last week, I pointed out the often contradictory nature of success investing, and in particular the investor’s attitude to the market. This weekend presented two perfect examples: Charlie Munger appeared on the Acquired podcast while Stanley Druckenmiller was at the Robin Hood Conference in conversation with Paul Tudor Jones.
While the conversation with Druckenmiller was all about the state of the world and markets, Munger shared anecdotes and wisdom. Both teach us that this business is difficult. Even the best make plenty of mistakes and battle their biases.
Munger teaches us about values and a way of thinking. To listen to him is to work on your attitude and expectations. Almost everyone who becomes “super successful”, he explained, has three things: “They're very intelligent. They worked very hard. They were very lucky.”
Luck includes timing. Early in their careers, Munger and Buffett faced a very different opportunity set. “There was a lot of low hanging fruit in the early days of our operation,” Munger said. That’s not the case today. Valuations are higher and the game of investing is “thoroughly understood.” “It was never easy”, he added. “It's harder now.”
Munger pointed out the importance of patience. Patience was required to build Berkshire (“it takes a very patient person to get rich in insurance”) and in the wait for fat pitches.
“There aren't many times a lifetime when you know you're right and you know you have one that's really going to work wonderfully. Maybe five, six times a lifetime you get a chance to do it.”
In one anecdote, Munger wanted Buffett to buy Carrefour’s stake in Costco, but “Warren wouldn't do it,” because “Warren doesn't like retailing.”
We know that’s not the whole story. Buffett has long been interested in retailing and learned an expensive lesson owning a Baltimore-based department store. Having said that, he also invested in retailers with strong local cost advantages like the Nebraska Furniture Mart. Even so, Buffett did not invest in Costco. The fat pitch was obvious to Munger yet Buffett didn’t swing. That should teach us compassion for our own mistakes.
In another example of getting in our own way, Munger was asked why Walmart didn’t compete more successfully once they understood Costco’s model. “They were too wedded by the ideas they already had,” Munger explained. “That's everybody's trouble. They just can't accept a new idea because the place space is occupied by an old idea.”
Whether it’s Buffett, Tudor Jones or Soros, a cursory Google will reveal hundreds of similar insights about the immense value of investors analysing their mistakes.
One of my most healing realizations is that the more you cringe about something in your past, the more you must have grown in the interim. Otherwise you wouldn’t cringe! Your shame is a lesson, a pain that stops you from repeating the same mistake.
Finally, hitting a fat pitch requires creating the right conditions ahead of time. Munger pointed out Buffett’s obsession with the “safety of shareholders”. Had Berkshire used “a little bit more leverage”, they’d have “three times as much now.” But that same obsession with safety created Berkshire’s stellar reputation and credit. And Berkshire’s credit unlocked access to the bet on Japanese trading companies which Munger compared to “God opening a chest and just pouring money into it. It was awfully easy money.”
Interest rates in Japan were half a percent per year, for 10 years. And these trading companies were really entrenched old companies. … You could borrow for 10 years ahead all the money and buy this stock and the stocks got a 5% dividend. So there’s a huge flow of cash with no investment, no thought, no way, anything. … We could do that nobody else could. You couldn't get it. But Berkshire with its credit could.
Even someone as smart as Buffett would only find this kind of no-brainer “maybe two, three times a century.”
Munger teaches us to be prepared and patient, to be curious, and to swing when we finally see a fat pitch. But he also tells us to adjust our expectations. And he makes it clear, between the lines, that we are on our own in the search for the next great opportunity. He doesn’t see low hanging fruit. The ideas that accelerated his and Buffett’s careers are well understood. And Berkshire plays a different game now.
Druckenmiller on the other hand is the perfect example of what I described as an obsessive player of the game. (“The best are completely immersed and obsessed with winning. They really can’t help themselves. Many never truly retire from the markets.”).
“I learned this business to solve economic puzzles,” he once explained, “and I try and think 18-24 months ahead.” This is what makes his takes inherently interesting, but it doesn’t mean we should try emulate him. I was glad to hear him outline the sequence of his bond trades because it illustrates how his views and positions change constantly to reflect an evolving world.
I will share a few highlights from the conversation below:
His views in a nutshell
How he traded bonds and the one rule he is breaking (an example of the Roman Empire Fallacy)
His view on the stock market, gold, and Bitcoin
“The beauty is you only have to get rich once,” Munger quipped. Both Munger and Druckenmiller show that we can learn from those who climbed the mountain before us. But we must not confuse this with trying to step into their exact footsteps.
Thank you for reading,
Highlights from Stanley Druckenmiller at Robin Hood
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