Charlie Munger – A Practical Thought
“If, in your thinking, you rely entirely on others, often through purchase of professional advice, whenever outside a small territory of your own, you will suffer much calamity.”
Charlie Munger, “Damn Right”, Appendix D – Practical Thought about Practical Thought?
Estimated reading time, 3 minutes, 45 seconds
“And it is not just difficulties in complex coordination that will do you in. You will also suffer from the reality evoked by the Shavian character who said: “in the last analysis, every profession is a conspiracy against the laity.”
Indeed, a Shavian character, for once, understated the horrors of something Shaw didn’t like. It is not usually the conscious malfeasance of your narrow professional adviser that does you in. Instead, your troubles come from his subconscious bias. His cognition will often be impaired, for your purposes, by financial incentives different from yours. And he will also suffer from the psychological defect caught by the proverb: “to a man with a hammer, every problem looks like a nail.”
Often when I share my opinions with others, I’m aware that I may be speaking as, “a man with a hammer”. It concerns me that the nature of my trade is such that my thoughts and actions may be impaired due to my own personal or professional bias. As Munger points out, financial incentives which may conflict with my client’s best interest could be influencing my comments, “with no conscious malfeasance.” Recognizing a problem exists is the first step toward solving a problem.
As a result of Munger’s practical thought, I often offer the proverb about, “The man with a hammer”, as a form of warning label attached to an opinion. The presence of bias is why we are intuitively guarded against the opinions of others, especially when it could mean we are being separated from our wallets. Charlie describes our suspicions about those offering to “help” us in a way that makes it clear and logical.
An independent mindset is critically important when it comes to investing. It may take several decades to gain useful insights and build a reputation and then in a matter of minutes the reputation can be ruined by delusional thinking that ignores the presence of a financial bias, or any other bias for that matter.
The man with a hammer can be found just about anywhere. The prudence of, “Caveat Emptor” or “Buyer Beware”, has been practiced for a long time because the same vulnerabilities exist in other professions and in most walks of life, from the food we eat to the medicines we take.
As an example, you can make your Will in your own handwriting on the back of a napkin. A lawyer preparing your Will would hopefully be using other ideas and techniques. Either way could work, but the legal professional may, “through no conscious malfeasance”, convince you that a professional opinion, (likely their own), is necessary in order to choose the “right” wording and technique to prepare the document “correctly” on your behalf.
As with most of humanity, many professional advisors also want to be appreciated for what they know or what they can do to benefit others. Also many professionals work hard to be “indispensable” to gain the continuing favor of their employer/clients. As a result, there is a predisposition to do the right thing, not just because it’s the right thing to do, but because doing so will continue to support an appreciative environment which includes the ongoing prosperity of the advisor.
In the process of gaining your appreciation and making the advisor indispensable, the advisors depth of knowledge including all the tools of the trade will be on full display, much like a peacock at the zoo! Whether we care to admit it or not, we make snap judgements on who we favor with our trust so to gain that trust, most of us are inclined to polish our attractive attributes and downplay our negative attributes. In the arena of professional advice, there is a wide range of opportunities available to accentuate the attractive qualities that may be valued by any given individual. Everyone has a “hot button”, something that compels them to act, and so successful professional advisors learn to know what that hot button is and how to appeal to it.
The “involuntary” subconscious response to our human condition, to give or gain appreciation, is part of what makes us vulnerable to the man with a hammer or to become the man with a hammer. All we can do to protect ourselves is to exercise good due diligence to ensure we maintain clear thinking to make wise choices. Considering all the facts, taking the time to study, is time consuming and we often realize that the more we think we know, the more we know we don’t know. Most of us are overwhelmed outside of a small territory of our own (our circle of competence) so the vulnerability causes all sorts of inefficient behavior.
Trust in the advisor is often the default for busy people. In my opinion, subjecting one’s opinions to the scrutiny of others in a critical but openly supportive environment is the best insurance against the risk of trusting a man with a hammer. I like to think PEACE™ is helping with that process, but then, heads up! I’m a man with a hammer and this is another problem that looks like a nail!
Related reading can be found at,
Charlie Munger | Buyer Beware | Caveat Emptor | PEACE | Professional Advice | To the Man with a Hammer