Get Your Moral Code Straight
Munger advocates a clear moral code and vivid examples when persuading clients. The passage also presents Marks on resisting crowd emotions and Buffett on investing within his circle of competence.
THE IDEA
Get Your Moral Code Straight
Charlie Munger discusses the value of thinking correctly and having the courage to intervene when needed. He highlights the use of constructive tricks, such as dreaming up vivid examples, to persuade others in a good cause. He also addresses borderline ethical situations, like a client wanting to commit tax fraud, and suggests framing advice without moral superiority.
Howard Marks elaborates on contrarianism in investing: unemotionalism is crucial to avoid buying at euphoric highs and selling at depressed lows. Contrarianism involves doing the opposite of the crowd at extremes.
Warren Buffett explains his filters and circle of competence: he only invests in simple things he understands, and good decisions scream at him, like buying cheap assets during crises. He cites the Nebraska Furniture Mart example where Mrs. B took cash because she didn't understand stocks.
Dostoevsky’s warning is: "If not reason, then the devil."
When to use it
Persuading a client to follow ethical tax practices by using a humorous, relatable example instead of moral lectures.
Considering whether fearful market conditions offer an opportunity, as in the passage’s account of Buffett in 2008, while testing valuation and the possibility of further losses.
Applying the circle of competence filter to avoid investing in industries you don't understand, focusing only on simple, clear opportunities.
Using unemotional analysis to examine a rising market before buying, while recognizing that emotional detachment does not guarantee a profitable decision.
FROM THEORY TO EVERYDAY LIFE
In practice
Joe Flom's Vivid Examples
Joe Flom, a successful lawyer, used vivid, humorous examples to persuade clients and pound points home effectively, honing a natural gift.
Market Extremes and Emotions
Howard Marks observes that emotional investors buy at euphoric tops and sell at depressed bottoms, while unemotional contrarians do the opposite at extremes.
Nebraska Furniture Mart
Warren Buffett bought the Nebraska Furniture Mart from Mrs. B, who preferred cash over stock, illustrating a simple decision within his circle of competence.
A MOMENT TO REFLECT
Put it to work.
How can you develop a personal moral code that guides your decisions in ethical gray areas?
What vivid examples or stories can you craft to persuade others effectively in a business or personal context?
In your own investment or decision-making process, do you tend to follow the crowd at extremes, or do you practice contrarianism and unemotionalism?
Often confused with
CONTINUE THE CONVERSATION
Source texts
- The Art of Being Rational Charlie Munger