How could economics not be behavioral? If it isn't behavioral, what the hell is it?
Charlie MungerRead
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.
Interpretation
What this quote means
The quote warns about the hidden complexities and potential dangers in the derivatives market.
Charlie Munger highlights the underappreciated risks and unforeseen consequences associated with derivatives, comparing them to hydrogen and oxygen which can be harmless on their own but create a powerful explosion when combined with a spark. This analogy serves to remind investors that the derivatives market, while seemingly simple, can lead to significant financial instability if not understood properly.
Themes
DerivativesRisksFinanceMarketComplexityInvesting
In practice
Example use cases
When discussing the potential dangers of financial markets at an investment seminar.
More from Charlie Munger
All quotes βI 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.
Charlie MungerRead
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.
Charlie MungerRead
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.
Charlie MungerRead
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.
Charlie MungerRead
As I talk about strengths and weaknesses in academic economics, one interesting fact you are entitled to know is that I never took a course in economics. And with this striking lack of credentials, you may wonder why I have the chutzpah to be up here giving this talk. The answer is I have a black belt in chutzpah. I was born with it.
Charlie MungerRead
Similar quotes
It's not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.
Matt TaibbiRead
When your outgo exceeds your income, the upshot may be your downfall.
Paul HarveyRead
Nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you've invested
Peter LynchRead
Most women file for bankruptcy in the aftermath of a serious medical problem, a job loss, or a family break up. It is hard to protect against those.
Elizabeth WarrenRead
Stock market bubbles don't grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.
George SorosRead
Earnings don't move the overall market; it's the Federal Reserve Board... focus on the central banks, and focus on the movement of liquidity... most people in the market are looking for earnings and conventional measures. It's liquidity that moves markets.
Stanley DruckenmillerRead