We Study Billionaires - The Investor’s Podcast Network

TIP739: The Psychology Of Human Misjudgement

195 snips
Jul 25, 2025
Dive into the world of cognitive biases with a focus on Charlie Munger's insights. Discover how incentives can compromise moral judgments and the pitfalls of emotional bias in investment decisions. Learn about the dangers of overestimating abilities and the importance of simplicity over complexity in investing. From navigating market bubbles to the influence of social proof, the conversation highlights real-world implications of psychological traps. Get equipped with strategies to enhance rational thinking and decision-making.
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INSIGHT

Power of Incentives

  • Incentives shape behavior more than we often realize, overriding moral behavior at times.
  • Misaligned incentives without proper safeguards lead to unethical or disastrous outcomes.
ADVICE

Avoid Falling in Love

  • Actively fight the tendency to fall in love with investment ideas by re-evaluating your thesis regularly.
  • Make deal-based exit plans to avoid ignoring obvious faults and distorting reality.
ANECDOTE

Munger's BYD Contrarian Bet

  • Charlie Munger bought BYD when the market strongly disliked Chinese stocks.
  • He earned a 32% compounded annual return between 2008 and 2021 due to market disfavor creating opportunity.
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