“The difference between successful people and really successful people is that really successful people say no to almost everything.” – Warren Buffett
Humans are congenial by nature.
Humanity is a team sport.
Fraudsters, con artists and crooks, politicians and demagogues, advertisers and merchandisers, all know how easily an untutored human is moved to just say, “Yes.”
Warren Buffett and Charlie Munger recognized early that success is not facilitated by people Charlie called “the compliance practitioners of this life.”
And that saying “No,” no matter how it displeases, must be the most frequent response to any offer or invitation, because so few are worthwhile.
Charlie always taught that great opportunities are rare, only a few in a lifetime:
“You’re only going to get three or four of these invitations to the pie counter. And when you get your invitation, for God’s sakes, don’t take a small helping.” – Charlie Munger
Of course, financial television would have you believe investment life is bathed in great opportunities.
But, truth be told, most investments simply lose money. 90% of all businesses eventually fail.
Most financial advisers and money managers never beat or even meet index fund results and charge a fee for that failure: a sum subtracted from a portfolio which compounds mightily over time.
So the most frequent response to investment opportunities should be “No.”
At Berkshire Hathaway it is 99%.
I once knew a man of considerable intellect who became enraptured by the rantings of a TV stock market pundit and duly followed every last advice, despite his wife’s protests.
After two years of avid trading, he cratered: “She said I didn’t know what I was doing. She was right.”
The Abominable No-Man
To be successful in life you must learn the power of “No!”
Warren Buffett dubbed his friend and partner, Charlie Munger, “The Abominable No-Man.”
Because Charlie nixed most every business proposition offered Berkshire Hathaway.
“So you see, I have got to say No! No! “ – “All or Nothing at All,” Arthur Altman and Jack Lawrence, sung by Frank Sinatra
In one way or another, Charlie Munger cautioned us to say “No!” more often than not.
Far more often:
“No” To Self-Pity
“Self-pity is always counterproductive. It’s the wrong way to think. And when you avoid it, you get a great advantage over everybody else.” – Charlie Munger
Charlie Munger always distinguished a naive disposition and an educated, experienced one. He read and absorbed the Stoics at an early age and often invoked the slave-philosopher, Epictetus, who taught that it is not what happens to you but how you react which counts. Reacting to adversity with self-pity is natural but self-defeating. Charlie spoke plainly:
“Self-pity is a standard response. And we can train ourselves out of it.” – Charlie Munger
He urged us to always take responsibility for our fates and not blame others:
“Whenever you think that some situation or some person is ruining your life, it’s actually you who are ruining your life.” – Charlie Munger
Even in the worst of times:
“Every time we find we’re drifting into self-pity, whatever the cause, even if our child is dying of cancer, self-pity is not going to help.” – Charlie Munger
“No” To Self-Indulgence
“Rationalizing foolish or evil conduct based on our subconscious tendency to serve ourselves is a terrible way to think. We want to drive that out of ourselves, because we want to be wise, not foolish, and good, not evil.” – Charlie Munger
Charlie Munger always advocated underspending one’s income, investing the difference and compounding for the rest of one’s days, twin principles he learned from Ben Franklin which helped him become a billionaire. Charlie abhorred overindulgence and overspending, thinking “why shouldn’t the true little me overspend my income?”
“Well, there once was a man who became the most famous composer in the world, but he was utterly miserable most of the time and one of the reasons was he always overspent his income. That was Mozart. If Mozart can’t get by with this kind of asinine conduct, I don’t think you should try it.” – Charlie Munger
“No” to Denial
“Simple psychological denial. The reality is too painful to bear, so you just distort it until it’s bearable. We all do that to some extent and it’s a common psychological misjudgment that causes terrible problems.”
Charlie believed in breaking the ever-present psychological defense of denial, insisting you face reality even when you don’t like it. “Especially when you don’t like it.” Because that’s when you are most likely to deny it.
Stories of life or death make the danger of denial very real. A young girl arriving at Auschwitz was sorted by camp doctors to a waiting column of the ill, very young, and very old. She did not yield to denial. When guards were not looking, she ran to the able line and survived to liberation.
See also, Charlie Munger and the Power of Denial
“No” to Bad Bets
“I won’t bet $100 against house odds between now and the grave.” – Charlie Munger
Charlie understood it is human nature to gamble and embrace risk, accepting adverse odds as a challenge: that it is somehow manly and brave to accept risk and proceed regardless. From that perspective, shooting fish in a barrel is cowardly.
But as a sober investor, Charlie thought otherwise:
“My idea of shooting fish in a barrel, by the way, is to drain the barrel first.” – Charlie Munger
Likewise on a Las Vegas stopover newlywed Warren Buffett observed gamblers eager to surrender their hard-earned dollars to casinos. He remarked to his wife, Susie:
“We are going to make a lot of money.” – Warren Buffett
See also, Charlie Munger and the Allure of the Bad Bet
“No” to Active Trading
“You don’t trade!” – bitter complaint of a past broker
“If somebody bought Berkshire Hathaway in 1965 and they held it, they made a great investment – and their broker would have starved to death.” – Warren Buffett
“There are huge advantages for an individual to get into a position where you make a few great investments and just sit on your ass. You are paying less to brokers. You are listening to less nonsense. And, if it works, the government tax system gives you an extra 1, 2, or 3 percentage points per annum, compounded.” – Charlie Munger
In 1688 Joseph de la Vega published “Confusion de Confusiones,” the first ever portrait of the emerging Amsterdam stock exchange, offering profound observations which remain true of markets unto this day. Key was that frequent trading leads to losses: he counseled combining “money and patience:”
“Traders should trade little because it is better to digest your food well than to eat a lot.” – Joseph de la Vega, “Confusion de Confusiones”
“Patience – an indispensable quality. If one were asked to name the quality which as much as any other is essential to success in speculation, the answer would be patience.” – R. W. McNeel, “Beating the Market”
“The stock market is designed to transfer money from the active to the patient.” – Warren Buffett
“No Sale” When the Market Drops by Half
“If you’re not willing to react with equanimity to a 50% decline two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.” – Charlie Munger
Selling compulsively when the market drops is a basic human instinct, like grabbing the kids when running from a fire. But a market drop is not a fire. It’s a fire sale. A time to buy, not sell. Old market hands know this and newbies don’t.
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it’s marked down.” – Warren Buffett
“No” to Your Own Sunk Ideas
“You have to let ideas die.” – Charlie Munger
“One of the reasons I’ve been a little more successful than most people is I’m good at destroying my own best-loved ideas.” – Charlie Munger
“I knew early in life that that would be a useful knack and I’ve honed it all these years, so I’m pleased when I can destroy an idea that I’ve worked very hard on over a long period of time. And most people aren’t…I know how much power and wealth is in it. Plus, that’s enlightenment. Power, wealth and enlightenment. Not a bad combination.” – Charlie Munger
Charlie Munger made a huge bet on Alibaba. It did not go well: Charlie did not anticipate the primacy of politics in China. Rather than defend his bet he sold much of it, and called the purchase, with classic frankness, “One of the worst mistakes I have ever made.”
“There are a million tricks the human mind can play on its owner. That’s what causes stupidities. Think of how many times you’ve had to say to yourself, ‘Why in the hell did I do that?’” – Charlie Munger
How often do we fall prey to the “sunk cost fallacy,” throwing “good money after bad,” in the hope of saving an idea or project better left sunk and abandoned?
Inversion Begins with “No!”
“Invert, always invert! [Mann muss immer umkehren!]” – Carl Gustav Jacob Jacobi
Charlie’s favorite thinking tool was always mathematical inversion. Running a problem backwards and forwards, turning it upside down and right side up until the answer spills out before you. Rather than seek success, avoid failure. Rather than try to be brilliant, avoid stupidity.
“Many problems can’t be solved forward.” – Charlie Munger
But inversion must begin with a full stop, a “No!” and then proceed to inversion, seeing the problem with fresh eyes.
See also, Charlie Munger and the Power of Inversion
No to Say-Something Syndrome
“I have nothing to add.” – Charlie Munger
At the annual Berkshire Hathaway meetings Charlie Munger famously responded to Warren Buffett’s request for commentary with this pithy response. And it never failed to garner widespread chuckles.
Because Charlie consistently decried what he termed, “twaddle,” the endless prattle of those who must say or do something when the wisest course is silence and inactivity.
In Charlie’s greatest and legendary speech, “The Psychology of Human Misjudgment,” he analogized twaddle to the incoherent dance of a honeybee, purposely dumbfounded in psychologist B. F. Skinner’s experiment by mislocated nectar.
No Exit from the Circle of Competence
Warren Buffett and Charlie Munger jointly developed the “Circle of Competence,” the realm within which you possess deep expertise and experience, where you are far less likely to be misled or make a mistake. When you leave your circle of competence you increase risk and may fall prey to the lure of the bad bet.
“Know your circle of competence and stick within it. The size of the circle is not very important. Knowing its boundaries, however, is vital.” – Warren Buffett
“It’s not a competence if you don’t know the edge of it.” – Charlie Munger
See also, Charlie Munger and His Circle
No to Human Misjudgment
And if this list has whetted your appetite for a more complete compilation of Charlie Munger’s No-No’s, the above-mentioned mother lode, “The Psychology of Human Misjudgment,” can be found below:
An hour could not be better spent. Charlie will repay you many times over in compounded wisdom, virtue and success.
“We [Warren and Charlie] both tend to collect the asininities of the world in a kind of checklist.” – Charlie Munger
“Other investors lose money as well, so you don’t have to learn the same lessons with your own money.” – Charlie Munger
“I want to learn as much as I can vicariously. It’s too painful to do it by personal hardship. Of course, I collect big calamities in my head and big stupidities. I do that so I can avoid them. Think of how little in the way of big calamity has ever come to Berkshire. And it’s not that we don’t ever have reverses and disappointments in that or never have whole businesses disappear. But averaged out, we have less misfortune than others.” – Charlie Munger
Full disclosure: faithful and grateful Berkshire Hathaway student-shareholder.
