Wisdom from Lampert and Munger

07Dec05

Kiplinger’s has two interesting pieces on a couple of extraordinary investors. The first is a Q&A with Charlie Munger by Steven Goldberg. Munger is a longtime collaborator with Warren Buffett. It is worthwhile reading because Munger speaks his mind on a range of topics including investor temperment and long term expectation for the stock market.

How important is temperament in investing? A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. And that is why we say that having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success.

Ibbotson finds 10% average returns back to 1926, and Jeremy Siegel has found roughly the same back to 1802.
Jeremy Siegel’s numbers are total balderdash. When you go back that long ago, you’ve got a different bunch of companies. You’ve got a bunch of railroads. It’s a different world. I think it’s like extrapolating human development by looking at the evolution of life from the worm on up. He’s a nut case. There wasn’t enough common stock investment for the ordinary person in 1880 to put in your eye.

Andrew Feinberg has some choice words after reading a letter from Eddie Lampert to Sears Holding (S) shareholders. Feinberg expands on our long-standing theme of not trusting so-called “experts” and their many “forecasts.”

The best value investors are adept at filtering out the silly or unverifiable musings of sundry pundits. Far too many other investors rely on “expert�? opinions that really should carry very little weight. We all have a soft spot for experts, even though we should know better. If you’re smart and do your homework, you should develop a habit of trusting your own perceptions more than those of the experts. Unless, of course, results have shown you that your variant perceptions are not to be trusted!

Great investors, like Munger, Buffett and Lampert, are able to ignore consensus opinion and generate their own (variant) investment opinions. It was these unconventional investment opinions (and investments) that made them all wealthy men.

Feinberg’s bottom line is:

You can learn things by listening to experts — often, they’ll introduce you to important information you hadn’t known about — but be very leery of their conclusions. As Lampert says, many of them are paid to have very strong and interesting opinions, no matter how blockheaded those opinions turn out to be.

Hard to argue with any of that.