Author The Way of Knowing and Doing in Eryu
Source Ealiu Investment Notes ID ealiu investment
In the second half of his speech at the 2010 WKF shareholders meeting, Munger had a lot to say about BYD and China’s economy. In addition to the specific cases of BYD, China’s economy, Goldman Sachs, Greece’s predicament, the insurance industry, railroads, and other specific cases, there are a few other points of reflection that are of general interest.
1 Thinking about high-tech enterprises, you can use the dogfish model, some new technologies and the emergence of new companies will disrupt the traditional industry ecology.
2 to avoid analysis paralysis, over-reliance on data, too much analysis, but can not make decisions.
3 The best way to solve a problem is to keep it from appearing. It is important to plan ahead.
4 To be successful in the capital markets, you must go where the competition is weak, look for stupid competitors, and specialize in soft targets.
5 There are two types of 20 rules: the traditional 80-20 rule, where 80% of profits come from 20 businesses, so focus on those 20 profits, and the 20 rule, where you focus your resources on the hardest 20.
6 Wealth is the road outside of the body, but born as a human being, if you do not pursue wisdom, it is a moral deficiency.
I Thinking about the Dogfish Model of High-Tech Companies
Models are a powerful way of thinking; our minds should be loaded with many models, and we need to learn to think objectively with more than one model. My new model is inspired by a friend, let’s call it the dogfish model. Dogfish are aggressive, a group of trout swimming in a pool, throw a few dogfish in, the trout will soon be eaten up. The ability of some companies to create value for their customers is so powerful that their rivals can’t even come close, and they are as invincible as the dogfish in the trout pool. Early Wal-Mart was a fierce dogfish. Wal-Mart found the secret to creating value for its customers, and as a result it rode to the top of the retail industry. Charlie Munger, 2010 Westco Financial Shareholder Meeting Speech
Modeling is a powerful way of thinking, and our minds should be filled with many models, and we need to learn to think objectively with more than one model. My new model, inspired by a friend, is called the dogfish model. Dogfish are aggressive, a group of trout swimming in a pool, throw a few dogfish in, the trout will soon be eaten up. Some companies are so powerful in their ability to create value for their customers that their rivals can’t even come close. They are like the dogfish in the trout pool, and they are bound to be invincible in the industry.
Early Wal-Mart was a fierce dogfish. Wal-Mart found the secret to creating value for its customers, and so it rode to the top of the retail industry.
Charlie Munger, 2010 Westco Financial Shareholder Meeting Speech
If there is a fish effect, it is probably better known as the catfish effect, where catfish are added to sardines so that they remain alive and kicking, but this is just a managerial analogy, and the sardines die much faster when the fish are actually sold that way. The catfish in the metaphor is actually a spoiler, but for the industry competition pattern will not have much change, just stimulate the vitality of the original market participants, but will not essentially affect the survival of existing enterprises.
However, the dogfish model here is different. Dogfish are fierce and cunning, and feed on fish, and eat a lot of them. Therefore, in this model, the new enterprise is not just an ordinary spoiler, but will directly eat up the existing market share.
Technology companies are to some extent a disruption of the market, changing the original pattern, such as online to offline disruption of a certain degree of digital cameras on the film market disruption of the smart phone on the traditional feature phone disruption and so on. Through a new form, to better meet the needs that already exist.
To put it mildly, science and technology, to a greater extent, did not create new demand, just a new way to achieve the original demand, or the original has not been materialized demand materialization, such as the hunt for curiosity, the desire to seek stimulation, and so on, may be strung on the streets and alleys gossip together, and now become a cell phone video and other needs Previously raised pets, as long as the family and friends from the home to bring a small yellow dog, and now derived from a huge Pet market.
Second, to avoid analysis paralysis
BYD always seeks to be sensible and down-to-earth. BYD doesn’t drag its feet; it doesn’t get bogged down by analyzing data. One of the most important reasons why I have confidence in BYD is because I am optimistic about BYD’s company culture. At BYD, you won’t find what you call analysis paralysis, an over-reliance on data, and an inability to make decisions without analyzing too much. Charlie Munger, 2010 WKF shareholders’ meeting.
BYD always seeks to be sensible and down-to-earth. BYD doesn’t drag its feet, it doesn’t get bogged down by analyzing data.
One of the most important reasons why I have confidence in BYD is because I am optimistic about BYD’s company culture. At BYD, you can’t find what you call analysis paralysis, an over-reliance on data, and an inability to make decisions without analyzing too much.
Analysis paralysis is the inability to make decisions and take action because of an over-reliance on data analysis in decision making, to the point where the focus is entirely on the analysis itself.
Munger says that this is a common problem in large companies, because the company is very large, and the management of the pursuit of everything justified, naturally, it is easy to focus too much on the data, analysis for the sake of analysis, but forget the purpose of the analysis itself.
From Munger’s high evaluation of BYD, we can see a few points First, rationality does not lie on the surface of how much it seems to love to analyze will be analyzed, but to be embodied in the action Second, rationality does not mean that things hesitate to look forward and backward, the decision to decide to decide to do things, and never procrastinate.
Over-emphasis on data analysis, often easy to miss good opportunities. Data analysis is based on past data, which in itself cannot reflect future trends What does not appear, cannot appear in the past data. Therefore, we need to avoid analysis paralysis when we look at investment opportunities, or when we make investments ourselves.
III No one wants to change without hitting the wall, and no one wants to change without tasting the bitterness of failure
I also believe that after chaos comes great governance. China has had its share of turmoil, which was a reversal of history, but they eventually came out of it. How did they find a new way out? Because that path didn’t work. By the same token, while you are worried about the current problems in American society, I see a ray of light in these problems. It’s clear to me that no one is willing to change until they hit the wall and taste the bitterness of failure. Now, we have already experienced the taste of failure. From the current social ills, you see the end of the world, and I see a ray of dawn, I hope I am right. Charlie Munger, 2010 Westcoast Financial Shareholder’s Meeting Speech
I also believe that a great deal of chaos will be followed by a great deal of healing.
China had a period of turmoil, which was a reversal of history, but they came out of it in the end. How did they find a new way out? Because that way did not work.
By the same token, while you are worried about the current problems in American society, I see a ray of light in these problems. It is clear to me that no one is willing to change until they hit the wall and taste the bitterness of failure. Now, we have already experienced the taste of failure. From the current social ills, you see the end of the world, while I see a ray of dawn, I hope I am right.
For Munger’s phenomenon of not hitting the south wall and not turning back, our history can be said to have a personal experience of the ancient dynasties, why the repeated occurrence of the descendants of the later generation to mourn but not to learn from, but also to make the descendants and again mourn the descendants of the situation, is also the same, although it is said that there are historical cases in the, but successive generations of the history of the retrogression of a large number of people, and the behavior of the group has a very strong inertia, and finally, it can only be through the crisis to prevent the continuation of the The wrong way to go on.
It can be said that this is the human nature and human society, when things are not serious to a certain extent, is not to attract attention, and then become a big problem, and then come to repair. Put on the individual may be a small problem, but put on a society and a country, it may be a big catastrophe. For example, during the Ming and Qing Dynasties, while others were engaged in the Renaissance and the Industrial Revolution, we were engaged in the Celestial Kingdom, which became the psychological consensus of the upper class at that time, such as the three kneeling and nine kowtowing, the locking up of the country, and the arrogance of the night and day. And this is not unique to our country, other countries do the same, once in a stable environment, they will seek comfort, and then the crisis.
Munger’s quote also reflects optimism, of course, because he is clear that many crises are caused by not hitting the south wall, but if they do, people will turn back, and this is the source of optimism. Although human weaknesses can bring about crises, human beings, as a species that has survived on earth until now, have some corrective mechanisms.
IV The best way to solve a problem is to keep it from arising
In my experience, the best way to solve a problem is to keep it from arising. In my opinion, city centers are doomed when groups of highly qualified residents begin to flee, and while others may think there is room for redemption, I don’t hold out any hope. The same applies to both countries and companies. I advise parents to discipline their children strictly and guide them sensibly with a heart full of goodwill. Easier said than done. Let’s remember the saying that a little prevention is better than a lot of cure . It is important to take precautionary measures before it is too late. One point of prevention is better than 10,000 points of treatment. Prevention is the answer, but unfortunately many people don’t know how to save for a rainy day. Charlie Munger, 2010 WKF Shareholder Meeting Speech
In my experience, the best way to solve a problem is to keep it from arising. In my opinion, urban centers are doomed to decay when quality residents start fleeing, and while others may think there is room for redemption, I don’t hold out any hope. The same applies to both countries and companies.
I advise parents to discipline their children strictly and guide them sensibly with a heart full of goodwill. Easier said than done. Let’s remember the saying that a little prevention is better than a lot of cure . It is important to take precautionary measures before it is too late, and one point of prevention is worth 10,000 points of treatment.
Prevention is the answer. Unfortunately, many people don’t know how to save for a rainy day.
This point can be said to be related to the previous point, prevention is always the best way to solve the problem.
Because of the nature of the human mind, everything can only be realized and implemented. Munger has repeatedly emphasized that prevention is better than cure, reminding us to recognize the importance of prevention.
And do a good job of prevention means that when dealing with the problem, we have to consider more of all kinds of scenarios, assessing all kinds of possibilities. Often, we can not do prevention, often because of the following three situations: First, do not realize the importance of prevention; Second, do not recognize the various possibilities of the development of things; Third, wrongly assessed the probability of various possibilities.
For the second and third points, much depends on people’s perceptions of how things are going to develop, and perceptions are often based on their own or others’ experiences. Cognition can easily be deceived by falsehoods. Typical examples are King Fu-chai of Wu and King Gou-chuan of Yue. The veteran minister Wu Zixu reminded Fu-chai of this many times, but unfortunately Gou-chuan’s acting was too good, and Fu-chai ignored the possibility of Yue’s rise to power because of reasons such as arrogance or satisfied selfish desires.
V In the capital market, to be successful, you must go to the place where the competition is weaker and pick the soft targets to pinch.
I will play to my strengths, do a lot of research work, looking for opportunities where the market appears ineffective, looking for opportunities where I have an information advantage over my rivals. Such opportunities may be scattered in many places. The most important thing for you to understand is that to succeed in the capitalist world, you must go where the competition is weaker. That’s my secret, and I’m telling you without reservation. At the Berkshire shareholders’ meeting, Patrick Wolfe, who was twice the U.S. chess champion, said it was harder for us to make investments than it was for him to play chess. And I replied to him that Patrick, it should be more difficult for you to play chess. When we invest, we are always looking for stupid competitors and picking on the soft ones, whereas when you play chess, you are always playing against the best, going toe-to-toe. Charlie Munger, 2010 WKF Shareholder Meeting Speech
I’ll play to my strengths, do a lot of research, look for opportunities where there’s inefficiency in the market, and look for opportunities where I have an information advantage over my competitors.
Such opportunities may be scattered in many places, and the most important thing for you to understand is that to be successful in the capitalist world, you must go where the competition is weaker. That’s my secret, and I tell it to you without reservation.
At the Berkshire shareholders’ meeting, Patrick Wolfe, who was twice the U.S. chess champion, said it was harder for us to make investments than it was for him to play chess. And I replied to him that Patrick, it should be more difficult for you to play chess. When we invest, we are always looking for stupid competitors and picking on the soft ones, whereas when you play chess, you are always competing with the best of the best, going toe-to-toe.
This passage, is Munger face investor inquiries if the size of the capital is small to make the answer, Munger said he would also go to do some small-cap stocks, but will try to find all the existence of information asymmetry of the opportunity to hope that they can make money through the information they have the advantage.
To do well in the capital market, we can’t say we’re going to go up against people who are smarter than us and more powerful than us, but we’re going to look for competitors who are stupider than us. Not all the money in the stock market we can make, only in the areas where we have an advantage. Of course, specifically, it is not that small-cap stocks have an advantage. The small-cap stocks in the A-share market have a heavy speculative atmosphere, and the average stockholder does not have an information advantage.
Specializing in picking soft targets to pinch, it seems to look a bit unkind, not in line with our Confucian superficial propaganda ideas, in addition to human nature on self-esteem, but it is indeed the basic way to make money in the capital market, and thousands of years the society is so run, each class of people like to bully can bully, if you are good at bullying, there will be a lot of people to bully you.
Of course, although this is a simple truth, but not everyone is able to practice, the market often have voices, tell us how to realize the freedom of wealth how to make money quickly, tell us some seemingly everyone can make a lot of money as the same reasoning, and constantly amplify people’s greed and arrogance, so that people think that they seem to be the smartest people really like. The essence of these operations is similar, that is, as far as possible to pull the soft persimmons into the market, in order to carry out a concentrated harvest.
Human nature is reluctant to admit acceptance of their own stupidity, to achieve the true meaning of the guard of the weak has a great deal of difficulty Investing to understand a little bit of guard of the weak , through the pinpoint success can bring greater satisfaction, the same, the risk is also greater, that is to say, the vast majority of people have failed. The reason why such mistakes are repeated is also due to the wrong self-perception and lack of control over their own desires.
VI The 80 20 Rule vs Specializing in the Toughest 20 Rule
It’s right to follow the 80 20 rule, and it’s also right to specialize in the hardest 20 in your business and choose to compete on the wrong side of the fence. The latter model, in particular, is worth thinking about. If you’re smart enough and hard enough to do something that no one else will do and you’re afraid to do it, then that’s your opportunity. Charlie Munger, 2010 WKF shareholders’ meeting.
It’s right to follow the 80-20 rule, and it’s also right to specialize in the most difficult 20 areas of your business and choose to compete at the wrong level. The latter model, in particular, is worth thinking about. If you’re smart enough and hard enough to do something that no one else wants to do and you’re afraid to do, if you’re smart enough and hard enough to do it right, then that’s your opportunity.
For the traditional law of two or eight The law of two or eight in investment , we all know very well that it is a law of nature and social development. What we need to look at here is the second model, which is to achieve mismatched competition by specializing in the most difficult 20, which no one else will dare to do.
This is true for enterprises in doing business, and it is also true for us in doing business. People are willing to do what they can do, and in fact, it is very difficult to excel, and we have to do what other people can’t do, and we can do it well.
At the same time, there is a premise that we need to find the most difficult 20 things, and can attract enough attention, rather than just know the difficulties and retreat to live in the comfort zone.
VII The Pursuit of Wisdom is the Tao of Righteousness
It may not be appropriate to have particularly young children learn about investing. I have gained something more valuable than money from doing investing. Analyzing a company from an investor’s perspective allows me to see a company more thoroughly. Money is something you can’t take with you, you can’t take it with you. How much money did old Charlie leave behind? All of it. That’s the way it’s always been. When a man dies, he can’t take a penny with him, and his wisdom disappears with him. Nevertheless, I still believe that the pursuit of wisdom is a moral obligation of mankind. To be born a human being and yet neglect to pursue wisdom is a moral failing. I have a soft spot for the Chinese because this idea of mine is very close to Chinese Confucianism. I believe that the pursuit of wisdom is a moral imperative. Charlie Munger, 2010 WKF Shareholder Meeting Speech
It may not be appropriate for particularly young children to learn about investing. In the process of making investments, I have gained something more valuable than money. By analyzing a company from an investor’s perspective, I can see a company more thoroughly.
Money is something you can’t take with you, you can’t take it with you. How much money did old Charlie leave behind? All of it. That’s the way it’s always been. When a man dies, he can’t take a penny with him, and his wisdom disappears with him. Nevertheless, I still believe that the pursuit of wisdom is a moral obligation of mankind. To be born a human being and then neglect to pursue wisdom is a moral failing.
I have a soft spot for the Chinese because this idea of mine is close to Chinese Confucianism. I believe that the pursuit of wisdom is a matter of morality and righteousness.
This passage tells us that the acquisition of wealth is not the ultimate goal of investment because people will eventually die and leave this world, and the wealth acquired cannot be taken away at all.
What then is the meaning of investment? On the one hand, it is to acquire wealth, and to acquire wealth to bring enjoyment, including material enjoyment and spiritual enjoyment, and on the other hand, it is to acquire wisdom and the way to acquire wisdom. The second point is obviously more long-term, after all, wealth is not as much pleasure for those who have it, which is called the diminishing marginal utility of wealth.
In terms of the goal of pursuing wisdom, investing is not so different from other human activities, it just has a different perspective to analyze. Wisdom can be understood as the cognition of external objects, and human cognition often depends not only on the thing itself, not only on the observer’s mentality and experience, but also on the perspective and standpoint, etc. Different positions see completely different landscapes. Sometimes the scenery looks ordinary, but a different angle can reflect its magnificence, more angles to see the world, in order to be closer to its reality.
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