Kill Your Most Beautiful Ideas (Avoiding Confirmation Bias)

Disagreement with Yourself Is Healthy. Learn to Kill Your Most Beautiful Ideas

Charlie Munger: “Everybody with any sense at all knows that some companies are better than others. What makes it difficult is they sell at higher prices in relation to assets, and earnings and so forth, and that takes the fun out of the game. If all you had to do was figure out which companies were better than others, an idiot could make a lot of money. But they keep raising the prices to where the odds change. I always knew that. They were teaching my colleagues that the stock market was so efficient that nobody could beat it. But I knew people who beat the pari-mutuel system in Omaha by knowing more about horses than other people. I knew it was bull. When I was young I never went near a business school so I didn’t get polluted by craziness [laughter].

“I never believed it. I never believed there was a talking snake in the Garden of Eden. I had a gift for recognizing twaddle, and there’s nothing remarkable about it. I don’t have any wonderful insights that other people don’t have. I just avoided idiocy slightly more consistently than others. Other people are trying to be short, all I am trying to be is non- idiotic. I’ve found that’s all you have to do to get not cheated in life, is to be non- idiotic and live a long time. It’s harder to be non- idiotic than most people think lxxiii.”

Mr. Brown was overexcited with Charlie’s answer and added, “Get right to the point, Charlie. You want to tell me that this theory of efficient market does not exist at all? Well I, myself, have been taught at school and then at university. Sometimes I want to laugh about myself; you just destroy my theory. I really love your arguments, Charlie. I have a feeling we are in a temple, and you give me all of these intellectual stories and courses. ‘Intellectual courses.’ You know, I am fond of reading these Wall Street researches and comments. It influences me; I like to act. I am comfortable with its hectic pace and gambling. I understand the rules of the game. I share their opinion on many subjects. This is what is so attractive to folks like me: we are gamblers. I feel myself to be an artist—honestly, Charlie! So, what does it mean, all of this teaching is not useful at all? You want to tell me this evil is coming to earth to teach us wrong theories. But your results are amazing. But I have more fun. What is it about Berkshire’s records? How have you managed to get these results?”

Munger challenges a theory his interviewer learned and accepted. To apply the same scrutiny to your own beliefs, ask what evidence would make you revise them. Disagreeing with a popular theory is not enough if you never test the alternative you favor.