Tom Russo: How Warren Buffett And Charlie Munger Life Lessons Are Linked To Investing

During his recent interview with WealthTrack, Tom Russo explained how Warren Buffett and Charlie Munger life lessons are linked to investing. Here’s an excerpt from the interview:

Russo: As far as the life lessons, there were countless over the years. But one of them is, how strange it is that people are willing to give up what they have and they need, for what they don’t need and probably can’t have.

And it’s an answer that’s so often arises when somebody asks Warren at the Annual Meeting. What the heck happened to Disney? Or what the heck happened to this company or that company?

And he’ll say, it’s just the human mind doesn’t recognise the risks of conduct that may expose somebody to lose what it is that they most value.

In the case of the Disney story for example. Disney had a five billion dollar loan in 1987 against a basket of holdings that they tried to correlate in a sophisticated manner with a trade with the… against the S&P.

At some point they had a margin call and the five billion dollars worth of pledged shares that were sold at a spanking discount went away and they realized after the fact that they actually needed that five billion to feel the profound wealth that they once had. But they sacrificed it.

And Warren has a pretty sharp and quick answer to what that suggests. His partner Charlie Munger has quantified so many of his answers into what he calls Behavioral Science.

He said remember that the stock doesn’t know you own it because people make the mistake of projecting their affection on an investment. Like that is somehow a reward. There’s no reward. He said, you don’t have to make back your losses the same way you’ve lost the money.

The big pitfall in investing is somebody takes an ill-advised position and it goes down. They say I now understand it, that was wrong, when it gets back to my purchase price I’ll sell it, and then it just never does.

You can listen to the entire discussion here: