How could economics not be behavioral? If it isn't behavioral, what the hell is it?
Charlie MungerRead
There are two kinds of businesses: The first earns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested - there's never any cash. It reminds me of the guy who looks at all of his equipment and says, 'There's all of my profit.' We hate that kind of business.
Interpretation
What this quote means
Different types of businesses have varying cash flow dynamics and profitability.
In this quote, Charlie Munger emphasizes the distinction between businesses that provide consistent cash flow to their owners and those that require continuous reinvestment of profits, thereby offering little liquidity. He illustrates a common frustration among entrepreneurs who prefer businesses that yield cash returns rather than those that seem profitable on paper but do not deliver actual cash, which can hinder personal financial flexibility.
Themes
BusinessCash FlowProfitReinvestmentEntrepreneurship
In practice
Example use cases
This quote can be used in a finance seminar to illustrate the importance of cash flow management.
More from Charlie Munger
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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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