Charlie Munger quotes:

When someone takes their existing business and tries to transform it into something else - they fail. In technology that is often the case. Look at Kodak: it was the dominant imaging company in the world. They did fabulously during the great depression, but then wiped out the shareholders because of technological change.

Wall Street has too much wealth and political power.

Ben Franklin and Samuel Johnson, he credits their wisdom for his success. "They were both utterly brilliant men. And powerful communicators. Both have helped me all the way through life. Their lessons are easy to assimilate."

You have to know accounting. It's the language of practical business life. It was a very useful thing to deliver to civilization. I've heard it came to civilization through Venice which of course was once the great commercial power in the Mediterranean. However, double entry bookkeeping was a hell of an invention.

A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.

If the same family were always on the bottom, then you'd have big resentments. But if DuPonts go down and Pampered Chef up, [that's good]. That much churn makes people think the system is fairer. Buffett: We don't like churn now, but we liked it more 30-40 years ago.

A banker who is allowed to borrow money at X and loan it out at X plus Y will just go crazy and do too much of it if the civilization doesn't have rules that prevent it.

I've been associated with Warren ( Buffett) so long, I thought I'd be just a footnote.

I think you'll make more money in the end with good ethics than bad. Even though there are some people who do very well, like Marc Rich-who plainly has never had any decent ethics, or seldom anyway. But in the end, Warren Buffett has done better than Marc Rich-in money-not just in reputation.

The hedge fund known as "Long Term Capital Management" collapsed last fall through overconfidence in its highly leveraged methods, despite I.Q.'s of its principals that must have averaged 160. Smart people aren't exempt from professional disasters from overconfidence. Often, they just run aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.

Well in the history of the See's Candy Company they always say, "I never did it before, and I'm never going to do it again." And we cashier them. It would be evil not to, because terrible behavior spreads.

I'm proud to be associated with the value system at Berkshire Hathaway; I think you'll make more money in the end with good ethics than bad.

Wesco had a market capitalization of $40 million when we bought it [in the early 1970s]. It's $2 billion now. It's been a long slog to a perfectly respectable outcome - not as good as Berkshire Hathaway or Microsoft, but there's always someone in life who's done better.

If all you needed to do is to figure out what company is better than others, everyone would make a lot of money. But that is not the case. They keep raising the prices to the point when the odds change.

There's more honor in investment management than in investment banking.

If mutual fund directors are independent, then I'm the lead character in the Bolshoi Ballet.

It takes almost no capital to open a new See's candy store. We're drowning in capital of our own that has almost no cost. It would be crazy to franchise stores like some capital-starved pancake house. We like owning our own stores as a matter of quality control.

If people tell you what you really don't want to hear what's unpleasant-there's an almost automatic reaction of antipathy. You have to train yourself out of it.

Creative accounting is an absolute curse to a civilization. One could argue that double-entry bookkeeping was one of history's great advances. Using accounting for fraud and folly is a disgrace. In a democracy, it often takes a scandal to trigger reform. Enron was the most obvious example of a business culture gone wrong in a long, long time.

What matters most: passion or competence that was born in? Berkshireis full of people who have a peculiar passion for their own business. I would argue passion is more important than brain power.

They [Mc Donalds] take people and give them a first job, which enables them to get a second job. They do a very good job of educating troubled young people to be good citizens and they're probably more successful than charter schools.

Forgetting your mistakes is a terrible error if you are trying to improve your cognition.

The whole concept of dividing it up into 'value' and 'growth' strikes me as twaddle. It's convenient for a bunch of pension fund consultants to get fees prattling about and a way for one advisor to distinguish himself from another. But, to me, all intelligent investing is value investing.

I'm used to people with very high IQs knowing how to recognize reality, but there's a huge human tendency where it may be instructive to think that whatever you're doing to succeed is all right.

I did not succeed in life by intelligence. I succeeded because I have a long attention span.

Fixable but unfixed bad performance is bad character and tends to create more of itself, causing more damage to the excuse giver with each tolerated instance.

I have a black belt in chutzpah. I was born with it. Some people, like some of the women I know, have a black belt in spending. They were born with that. But what they gave me was a black belt in chutzpah.

Economists get very uncomfortable when you talk about virtue and vice. It doesn't lend itself to a lot of columns with numbers. But I would argue that there are big virtue effects in economics. I would say that the spreading of double-entry bookkeeping by the Monk, Fra Luce de Pacioli, was a big virtue effect in economics. It made business more controllable, and it made it more honest.

Don't confuse correlation and causation. Almost all great records eventually dwindle...

No wise pilot, no matter how great his talent and experience, fails to use his checklist.

You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. But there are also cases where you have to recognize that you have no wisdom to add - and that your best course is to trust some expert.

A rough rule in life is that an organization foolish in one way in dealing with a complex system is all too likely to be foolish in another.

A lot of people think if you just had more process and more compliance -- checks and doublechecks and so forth -- you could create a better result in the world. Well, Berkshire has had practically no process. We had hardly any internal auditing until they forced it on us. We just try to operate in a seamless web of deserved trust and be careful whom we trust.

In my life there are not that many questions I can't properly deal with using my $40 adding machine and dog-eared compound interest table.

Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.

I bet Richard Fuld doesn't have an ounce of contrition. It's just megalomania. When it's like that, you need rules to prevent catastrophe. When banks are borrowing the government's credit rating, you need rules to prevent stupid things.

Like the stocks of both Berkshire and Wesco to trade within hailing distance of what we think of as intrinsic value. When it runs up, we try to talk it down. That's not at all common in Corporate America, but that's the way we act.

My idea of a good place to shop is Costco - it has these heavily marbled fillet steaks. The idea of eating some wheat thing and washing it down with carrot juice has never appealed to me.

I see almost no change in the price of the composite product that flows through Costco I don't feel sorry for the people who pay $27 million for an 8,000-square-foot condo in Manhattan. So inflation comes in places.

Kellogg's and Campbell's moats have also shrunk due to the increased buying power of supermarkets and companies like Wal-Mart. The muscle power of Wal-Mart and Costco has increased dramatically.

In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables - like the discount warehouses of Costco.

You don't want to be like the motion picture exec who had so many people at his funeral, but they were there just make sure he was dead. Or how about the guy who, at his funeral, the priest said, "Won't anyone stand up and say anything nice for the deceased?" and finally someone said, "Well, his brother was worse."

Great investing requires a lot of delayed gratification.

The world of derivatives is full of holes that very few people are really aware of. It's like hydrogen and oxygen sitting on the corner waiting for a little flame.

Most people early achieve and later intensify a tendency to process new and disconfirming information so that any original conclusion remains intact. They become people of whom Philip Wylie observed: "You couldn't 't squeeze a dime between what they already know and what they will never learn."

The idea of excessive diversification is madness.

In engineering, people have a big margin of safety. But in the financial world, people don't give a damn about safety. They let it balloon and balloon and balloon. It's aided by false accounting.

With Congress and the S.E.C. so heavily peopled by lawyers, and with lawyers having been so heavily involved in drafting financial disclosure documents now seen as bogus, there was a new "lawyer" joke every week. One such was: "The butcher says 'the reputation of lawyers has fallen dramatically', and the check-out clerk replies: "How do you fall dramatically off a pancake?

Finding a single investment that will return 20% per year for 40 years tends to happen only in dreamland. In the real world, you uncover an opportunity, and then you compare other opportunities with that. And you only invest in the most attractive opportunities. That's your opportunity cost. That's what you learn in freshman economics. The game hasn't changed at all. That's why Modern Portfolio Theory is so asinine.

In the corporate world, if you have analysts, due diligence, and no horse sense, you've just described hell.

The definition of hell in the legal system is: endless due process and no justice; (in the corporate world) it would be: endless due diligence and no horse sense.

Strategic plans cause more dumb decisions than anything else in America.

...being an effective teacher is a high calling.

We only want what success we can get despite encouraging others to share our general views about reality.

We try more to profit from always remembering the obvious than from grasping the esoteric.

I know just enough about thermodynamics to understand that if it takes too much fossil-fuel energy to create ethanol, that's a very stupid way to solve an energy problem.

The reason we avoid the word 'synergy' is because people generally claim more synergistic benefits than will come. Yes, it exists, but there are so many false promises.Berkshire is full of synergies - we don't avoid synergies, just claims of synergies.

Wells Fargo behaves better than the average big bank. But nobody's perfect.

I always like it when someone attractive to me agrees with me, so I have fond memories of Phil Fisher. The idea that it was hard to find good investments, so concentrate in a few, seems to me to be an obviously good idea. But 98% of the investment world doesn't think this way.

The ethos of not fooling yourself is one of the best you could possibly have. It's powerful because it's so rare.

The theory of modern education is that you need a general education before you specialize. And I think to some extent, before you're going to be a great stock picker, you need some general education.

The stupid and dishonest accountants allowed the genie of totally inappropriate accounting to descend on derivatives books. And once this has happened - people get status, etc. - it's impossible to get it back into the bottle.

It's hard to predict what will happen with two brands in a market. Sometimes they will behave in a gentlemanly way, and sometimes they'll pound each other. I know of no way to predict whether they'll compete moderately or to the death. If you could figure it out, you could make a lot of money.

...all man's desired geometric progressions, if a high rate of growth is chosen, at last come to grief on a finite earth. And the social system for man on earth is fair enough, eventually, that almost all massive cheating ends in disgrace.

If you want good behavior, don't pay on a commission basis. Our judges aren't paid so much a case. We keep them pretty well isolated with a fixed salary. Judges in this whole thing have come out pretty well - there have been relatively few scandals.

Darwin paid particular attention to disconfirming evidence. Objectivity maintenance routines are totally required in life if you're going to be a great thinker.

You must know the big ideas in the big disciplines, and use them routinely - all of them, not just a few. Most people are trained in one model - economics, for example - and try to solve all problems in one way. You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.

Look at those hedge funds - you think they can wait? They don't know how to wait! I have sat for years at a time with $10 to $12 million in treasuries or municipals, just waiting, waiting...As Jesse Livermore said, 'The big money is not in the buying and selling...but in the waiting.'

I've heard that one-half of the students at elite schools want to go into private equity or hedge funds. They want to keep up with their age cohorts at Goldman. This can't possibly end well in terms of meeting these expectations.

It's a finite and very competitive world. All large aggregations of capital eventually find it hell on earth to grow and thus find a lower rate of return.

I do not think you can trust bankers to control themselves. They are like heroin addicts.

If the technology hadn't changed, [newspapers would] still be great businesses. Network TV [in its heyday,] anyone could run and do well. If Tom Murphy as running it, you'd do very well, but even your idiot nephew could do well. Fortunately, carbide cutting tools [such as those made by Iscar] don't have these types of substitutes.

Berkshire was built on the eternal verities: basic mathematics, basic horse sense, basic fear, and basic diagnosis of human nature to make predictions regarding human behavior. We stuck to the basics with a certain amount of discipline and it has worked out quite well.

You have to realize the truth of biologist Julian Huxley's idea that 'Life is just one damn relatedness after another' "So you must have the models, and you must see the relatedness and the effects from the relatedness.

If you took our top fifteen decisions out, we'd have a pretty average record. It wasn't hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor.

If you, like me, lived through 1973-74 or even the early 1990s... There was a waiting list to get OUT of the country club - that's when you know things are tough. If you live long enough, you'll see it.

It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.

As I talk about strengths and weaknesses in academic economics, one interesting fact you are entitled to know is that I never took a course in economics. And with this striking lack of credentials, you may wonder why I have the chutzpah to be up here giving this talk. The answer is I have a black belt in chutzpah. I was born with it.

Invert, always invert.

The general culture of investment banking has deteriorated over the years. We did a $6 million deal years ago for Diversified Retailing and we were rigorously and intelligently screened. They bankers cared and wanted to protect their clients. The culture now is that anything that can be sold for a profit will be. 'Can you sell it?' is the moral test, and that's not an adequate test.

It's natural that you'd have more brains going into money management. There are so many huge incomes in money management and investment banking - it's like ants to sugar. There are huge incentives for a man to take up money management as opposed to, say, physics, and it's a lot easier.

I 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." Investment managers are in the position of that fishing tackle salesman.

Crowd folly', the tendency of humans, under some circumstances, to resemble lemmings, explains much foolish thinking of brilliant men and much foolish behavior - like investment management practices of many foundations represented here today. It is sad that today each institutional investor apparently fears most of all that its investment practices will be different from practices of the rest of the crowd.

In investment management today, everybody wants not only to win, but to have a yearly outcome path that never diverges very much from a standard path except on the upside. Well, that is a very artificial, crazy construct. That's the equivalent in investment management to the custom of binding the feet of Chinese women

A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business

Understanding how to be a good investor makes you a better business manager and vice versa.

Those who keep learning, will keep rising in life

Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.

I think liberal art faculties at major universities have views that are not very sound, at least on public policy issues - they may know a lot of French however.

...by regularly reading business newspaper and magazines I am exposed to an enormous amount of material at the micro level.. I find that what I see going on there pretty much informs me about what's happening at the macro level.

In Gillette's case, they keep surfing along new technology which is fairly simple by the standards of microchips. But it's hard for competitors to do. So they've been able to stay constantly near the edge of improvements in shaving.

Mimicking the herd invites regression to the mean.

...Missing out on some opportunity never bothers us. What's wrong with someone getting a little richer than you? It's crazy to worry about this....

How do you compete against a true fanatic? You can only try to build the best possible moat and continuously attempt to widen it.

The general systems of money management [today] require people to pretend to do something they can't do and like something they don't. It's a terrible way to spend your life, but it's very well paid.

I regard the amount of brainpower going into money management as a national scandal. When some idiot would get rich, they'd say, 'Well, old Charlie was out in the field playing the big brass tuba on the day it rained gold.' A lot of people have become rich lately who were playing the tuba on the day it rained gold.

For some odd reason, I had an early and extreme multidisciplinary cast of mind. I couldn't stand reaching for a small idea in my own discipline when there was a big idea right over the fence in somebody else's discipline. So I just grabbed in all directions for the big ideas that would really work.

If you skillfully follow the multidisciplinary path, you will never wish to come back. It would be like cutting off your hands.

Mutual funds charge 2% per year and then brokers switch people between funds, costing another 3-4 percentage points. The poor guy in the general public is getting a terrible product from the professionals. I think it's disgusting. It's much better to be part of a system that delivers value to the people who buy the product. But if it makes money, we tend to do it in this country.

The first chance you have to avoid a loss from a foolish loan is by refusing to make it; there is no second chance.

...If you take sales presentations and brokers of commercial real estate and businesses... I'm 70 years old, I've never seen one I thought was even within hailing distance of objective truth.... 'incentive-caused bias,' causes this terrible abuse. And many of the people who are doing it you would be glad to have married into your family compared to what you're otherwise going to get....

Intelligent people make decisions based on opportunity costs.

After nearly making a terrible mistake not buying See's, we've made this mistake many times. We are apparently slow learners. These opportunity costs don't show up on financial statements, but have cost us many billions.

We're guessing at our future opportunity cost. Warrenis guessing that he'll have the opportunity to put capital out at high rates of return, so he's not willing to put it out at less than 10% now. But if we knew interest rates would stay at 1%, we'd change. Our hurdles reflect our estimate of future opportunity costs.

Obviously, consideration of costs is key, including opportunity costs. Of course capital isn't free. It's easy to figure out your cost of borrowing, but theorists went bonkers on the cost of equity capital. They say that if you're generating a 100% return on capital, then you shouldn't invest in something that generates an 80% return on capital. It's crazy.

Opportunity cost is a huge filter in life. If you've got two suitors who are really eager to have you and one is way the hell better than the other, you do not have to spend much time with the other. And that's the way we filter out buying opportunities.

I'd say 3/4 of advertising works on pure Pavlov. Think how association, pure association, works. Take Coca-Cola company (we're the biggest share-holder). They want to be associated with every wonderful image: heroics in the Olympics, wonderful music, you name it. They don't want to be associated with presidents' funerals and so-forth.

You'll find many markets where bottlers of Pepsi and Coke both make a lot of money and many others where they destroy most of the profitability of the two franchises. That must get down to the peculiarities of individual adjustment to market capitalism. I think you 'd have to know the people involved to fully understand what was happening.

Cicero's words also increased my personal satisfaction by supporting my long-standing rejection of a conventional point of view.

The quality of the medical care delivered, including the pharmaceutical industry, has improved a lot. I don't think it's crazy for a rich country like the USto spend 15% of GDP on healthcare, and if it rose to 16-17%, it's not a big worry.

I have concluded that most PhD economists under appraise the power of the common-stock-based "wealth effect", under current extreme conditions.. "wealth effects" involve mathematical puzzles that are not nearly so well worked out as physics theories and never can be. ...what has happened inJapan ... has shaken up academic economics, as it obviously should, creating strong worries about recession from "wealth effects" in reverse.

There is the sheer amount of Franklin's wisdom. And the talent. Franklin played four instruments. He was the nation's leading scientist and inventor, plus a leading author, statesman, and philanthropist. There has never been anyone like him.

In the 1930s, there as a stretch here you could borrow more against the real estate than you could sell it for. I think that's hat's going on in today's private-equity world.

If we mix only a moderate minority share of turds with the raisins each year, probably no one will recognize what will ultimately become a very large collection of turds.

I mean people are really crazy about minor decrements down. And then, if you act on them, then you get into reciprocation tendency, because you don't just reciprocate affection, you reciprocate animosity, and the whole thing can escalate. And so huge insanities can come from just subconsciously over-weighing the importance of what you're losing or almost getting and not getting.

There is bound to be a regression toward the mean.

The average result has to be the average result. By definition, everybody can't beat the market. As I always say, the iron rule of life is that only 20% of the people can be in the top fifth. That's just the way it is.

I believe in the discipline of mastering the best that other people have ever figured out. I don't believe in just sitting down and trying to dream it all up yourself. Nobody's that smart.

Over the very long term, history shows that the chances of any business surviving in a manner agreeable to a company's owners are slim at best.

Quoting Demosthenes, 'For what each man wishes, that he also believes to be true.' I would rather make money playing a piano in a whorehouse than arguing that no cost is incurred when employees are paid in stock options instead of cash. I am not kidding.