How could economics not be behavioral? If it isn't behavioral, what the hell is it?
Charlie MungerRead
We believe that almost all really good investment records will involve relatively little diversification. The basic idea that it was hard to find good investments and that you wanted to be in good investments, and therefore, you'd just find a few of them that you knew a lot about and concentrate on those seemed to me such an obviously good idea. And indeed, it's proven to be an obviously good idea. Yet 98% of the investing world doesn't follow it. That's been good for us.
Interpretation
What this quote means
Successful investing often comes from focusing on a few high-quality investments rather than diversifying across many.
Charlie Munger emphasizes the importance of concentrating investments on a select few high-quality options instead of spreading one’s resources thinly across many. He highlights that while this approach is proven to be effective, most investors do not adopt it, providing a competitive advantage to those who do choose to concentrate on their strongest investment ideas.
Themes
InvestmentDiversificationSuccessQualityFocus
In practice
Example use cases
In a financial seminar discussing investment strategies.
More from Charlie Munger
All quotes →The world of derivatives is full of holes that very few people are really aware of. It's like hydrogen and oxygen sitting on the corner waiting for a little flame.
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I believe in the discipline of mastering the best that other people have ever figured out. I don't believe in just sitting down and trying to dream it all up yourself. Nobody's that smart.
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Economics is in many respects the queen of the soft sciences. It's expected to be better than the rest. It's my view that economics is better at the multi-disciplinary stuff than the rest of the soft science. And it's also my view that it's still lousy.
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Look at this generation, with all of its electronic devices and multitasking. I will confidently predict less success than Warren, who just focused on reading.
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Economics profession, they've been - they've been confident in various formulas, but economics is not physics. The same formula that works in one decade doesn't work in the next. Economics is a difficult subject.
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