Another Lesson Courtesy of Charlie Munger
If you know Berkshire Hathaway (NYS: BRK.B) , then you probably know its vice chairman, Charlie Munger -- Buffett's right-hand man. Munger's book, Poor Charlie's Almanack, collects his speeches and musings, including his intriguing thoughts on the 25 tendencies that lead us humans to make really bad decisions. For your benefit and mine, this series will review each of those ill-fated impulses, the errors they create, and the antidotes that can help make us better investors.
Today, we'll talk about tendency No. 4: Doubt/Avoidance Tendency.
Don't just stand there ... do something!
Have you ever noticed how whenever we have some kind of decision that needs to be made, we tend to just want to get it over with? Regardless of the outcome, and many times when the situation becomes more and more stressful, we as humans seem to be programmed to just want some finality to the situation, whatever it may be. Such is the nature of the Doubt/Avoidance Tendency.
Think about a judge and/or jury for a moment. So powerful is this idea of just reaching a decision and removing all doubt that we have it set up in our judicial system that deciders must take the time to deliberate, lest they reach a decision based purely on emotion and no fact in the matter.
So why do we just want finality? Typically, it's caused by one of two triggers (or some combination of the two): puzzlement and stress.
Buy? Sell? Hold? What do I do??!!
We can see a great example in investing when news hits on a stock we own or are thinking of owning. If the price starts falling, what do you do? Is there enough time to make an informed decision? Should you hold or sell? Or buy more? It's not an easy answer at all. But being well informed on the stock in the first place can help check this dilemma. Imagine if you saw some news blurb that came out and you could immediately recognize whether it was a valid threat or just "noise," as Nassim Nicholas Taleb might call it.
Take Best Buy (NYS: BBY) , for example. Best Buy has been facing a long uphill battle for a while now, as powerhouse online retailer Amazon.com (NAS: AMZN) continues to take away customers. When Best Buy released earnings yesterday, the market reacted by selling off the stock to the tune of 6.5%! Was this an opportunity disguised as bad news? I don't think so. As one who follows both companies, I wasn't surprised in the least. I own shares of Amazon and can't imagine a scenario where I would ever buy shares of Best Buy. I've been paying attention to that story for a while now and have my money on Amazon. In fact, I may even buy more.
Therein lies the importance of knowing what you're invested in and keeping a record of why you're invested in it. Remember, sometimes it's these moments of puzzlement and stress that open the window of opportunity for us as investors. And when that opportunity comes, you gotta be ready to take it.
Read the other installments so far in this series:
- Charlie Munger and the Psychology of Human Misjudgment
- Charlie Munger and the Psychology of Human Misjudgment, Continued
- Why Charlie Munger Thinks Hate Creates Opportunity
At the time this article was published Motley Fool Stock Advisor analyst Jason Moser owns shares of Amazon and Berkshire Hathaway. The Motley Fool owns shares of Best Buy and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Amazon.com and Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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