Charlie Munger and the Power of Constancy

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Mark Tobak
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Boothbay Power of Constancy

Berkshire Hathaway is now a trillion dollar corporation, the only non-tech corporation ever to enter that rarified realm.

Internally diversified, it is perhaps the most likely to remain there. For tech giants notoriously rise and fall.

By comparison Berkshire is a rock.

So how did this happen?

Warren Buffett, Chairman and CEO of Berkshire Hathaway, told us one reason in his last annual report:

“Berkshire benefits from an unusual constancy….” - Warren Buffett

Constancy is the centerpiece of what Albert Einstein reputedly called the most powerful force in the universe: compound interest.

“My life has been a product of compound interest.” - Warren Buffett

No one is certain Einstein made that statement, but, as Charlie Munger said, of another Einstein quote, “If he didn’t. He should have.”

If you have never witnessed the awesome power of compound interest, behold the humble penny compounded daily for a month:

Penny compounded daily for a month

Berkshire Hathaway has, incredibly, compounded money at an annual rate of 20%.

(By comparison, the S&P 500 compounds at about 10%.)

Constant Compounding

As Warren’s “partner,” Charlie Munger, late Vice-Chairman of Berkshire Hathaway, proclaimed:

“The first rule of compounding is never interrupt it unnecessarily.” - Charlie Munger

Compounding must be constant to reach critical mass.

So the “worthless” United States penny coin, artfully castigated in a recent New York Times Magazine feature, if faithfully doubled 31 times, is still $10,737,418.24!

Doubled ten more times and it would exceed the Times’ current net worth of $9 billion dollars.

Our penny may be worth less, but it is not “worthless”.

Far more important than the worth of a currency is that it can be compounded more rapidly than it deteriorates.

Constancy and Inconstancy

Charlie Munger’s beloved thinking tool of inversion prescribes just how to achieve constancy: avoid inconstancy.

Inconstancy is borne of unreliability.

“If you’re unreliable it doesn’t matter what your virtues are, you’re going to crater immediately.” - Charlie Munger

Indeed Charlie attributed his own success not to his formidable intelligence but his constancy:

“I did not succeed in life by intelligence. I succeeded because I have a long attention span.” - Charlie Munger

Charlie also observed that constancy can beat intelligence:

“Very-high-IQ people can be completely useless---and many of the them are.” - Charlie Munger

Whereas the constant may rise despite lesser gifts:

“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than when they got up and boy does that help--particularly when you have a long run ahead of you. - Charlie Munger

The great Albert Einstein humbly agreed:

“It’s not that I’m so smart. It’s just that I stay with problems longer. - Albert Einstein

Slow But Steady Wins The Race

Constantly accumulate and compound wisdom over a lifetime, be constant in your work and your relations and leave your IQ betters far behind.

Remember the constant Tortoise and the inconstant Hare:

Or, as Charlie put it:

“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day, if you live long enough, like most people, you will get out of life what you deserve.” - Charlie Munger

See also, “The Power of the Force of Compound Interest

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Mark Tobak, MD, is a general adult psychiatrist in private practice. He is the former chief of inpatient geriatric psychiatry and now an attending physician at St. Vincent’s Hospital in Harrison, NY. He graduated the University at Buffalo School of Medicine and Columbia University School of General Studies. Dr. Tobak also has a law degree from Fordham University School of Law and was admitted to the NY State Bar. His work appears in the American Journal of Psychiatry, Psychiatric Times, and American Journal of Medicine and Pathology. He is the author of Anyone Can Be Rich! A Psychiatrist Provides the Mental Tools to Build Your Wealth, which received high praise from Warren Buffett.