The Unseen Discipline: Decoding the Clear Thinking of Buffett and Munger
Non-obvious Insights Beyond Theory, from The Masters of Patience
In today's world, where instant gratification often hijacks our brains, it's challenging to cultivate a long-term mindset like that of Buffett and Munger.
To navigate this, we need to curb the impulse to constantly check our investments and understand that real value comes from a well-thought-out strategy.
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We hear and read a lot of Munger’s & Buffett’s wisdom, yet it can be hard to decode and apply it in real life because the nuances are hidden in the non-obvious stories of our daily lives.
Back then, I often found myself in a restless cycle of checking my phone or my brokerage account. One day you’re up, riding a wave of enthusiasm; the next day, you’re down, drowning in disappointment.
This daily ritual raises a critical question: Is it helpful, or rather a hindrance?
Let's get to the bottom of why this is the case, and how we can break this habit and develop a long-term mindset instead - like Warren Buffett and Charlie Munger.
Understanding Our Brain’s Addiction and what it can cause
Our daily lives are mined with screaming triggers from companies that have specialized to hijack our brains. Social media notifications, the modern fast food for our brain, and the constant news updates from the financial world. You might already know, that each phone unlock, and each check-in to our favorite app fosters this behavior.
But why is it so hard to resist? And how can we put an end to it?
To understand the connections and the big picture, it is important to dive into the details. Each of the following pieces plays an important role in understanding the whole because they all blend.
Dopamine, the ‘feel-good’ neurotransmitter, spikes with the anticipation of rewards – that’s the buzz you feel when your stocks rise or when you’re about to enjoy your favorite ice cream.
Then there’s Oxytocin, the ‘social glue,’ fostering trust and bonding in groups. It’s what you feel during a warm family dinner or a friendly hug. But, venture outside your comfort zone – like trying a new restaurant – and the drop in Oxytocin can leave you seeking the familiar to feel safe again.
Endorphins, our natural painkillers, provide short-lived euphoria, masking physical or emotional pain. They’re the reason we might binge-watch TV or overshop to escape a current discomfort, but they are just a short-term solution.
Our brains, shaped by natural selection, often compare us with others, rewarding us when we perceive ourselves in a stronger position.
This is done by the fourth player, Serotonin.
But.
Serotonin is a double-edged sword because it is a complex subject. I'm now taking more time to explain its impact with two different scenarios, and yet they are based on the same principle.
Understanding the underlying principle is even more important when it comes to our investments, especially for our sense of what we think is "important" or "right", because it can be the trigger for us to buy a stock based on a wrong bias.
As we already know, Serotonin rewards us when we see ourselves in a superior position, e.g. when our stocks skyrocket.
In fact, real Serotonin is hard to earn, because you have to work hard to achieve good investment results. But the human brain prefers shortcuts (to save energy), and it's constantly on the chase for an easy access to Serotonin.
The pursuit of (social) comparison leads to a new phenomenon - moral superiority, where the desire to align with certain causes or movements stems more from enhancing our sense of self-worth than from the cause itself.
The result?
Easy access to Serotonin. We feel very good, and it’s easy. And yet it’s a tricky thing.
Let's turn away from theory and take a dive into real life.
Example number one
Take Greta Thunberg. By attracting attention, she has become a symbol of moral selflessness for some. This behavior reflects a broader pattern: individuals and organizations elevate their social standing because it’s popular to support a popular thing. It gives you an identity, for free.
Yet, nothing comes for free in life.
A critical examination shows that while such alignment has good intentions, it often neglects the complexity of the issues involved. In the rush to endorse Thunberg's narrative, investors can slip into oversimplifications. This (for most, unconscious) tendency towards moral superiority and well-sounding slogans, rather than a nuanced understanding, comes at a cost.
Particularly evident in the renewable energy sector.
The fact that many wind energy projects have stalled or failed due to a lack of profitability or investor money starkly illustrates this. Just as uncritical support for a public figure may lead to a simplified perspective on a complex topic, a focus on moral superiority in investing can cause bad choices.
The shortfall is clear: without a viable business case and solid business fundamentals based on a real competitive advantage, investments, regardless of their ethical appeal, are unsustainable in the long term.
Buffett and Munger paid their price and learned this lesson the hard way.
Enter Example number two
Buffett’s Textile Mill Investment: Buffett purchased Berkshire Hathaway, then a textile mill, because he thought it was a brilliant investment. He soon realized that the real reality was different, that the industry was declining and his investment was not as profitable as imagined.
Instead of clinging to his mistake, Buffett made a boss move, started his critical thinking brain, and as a result pivoted. He re-examined his reasoning from back then (potentially already understanding the impact of Serotonin), transforming Berkshire into a holding company that invested in insurance and other profitable companies. This pivot was crucial in his journey towards becoming one of the most successful investors in history.
Thus, investors must exercise discernment, ensuring that their pursuit of moral alignment, whether in social causes or investment decisions, is underpinned by a comprehensive understanding of the business, the issues, the fundamentals of a company, and a robust business case.
Investing with a long-term mindset means looking beyond immediate gratification like checking your phone, slogans, or an ideological alignment, but rather understanding how our brain works and how it might trick us.
Again, a reminder that ideology or belief alone can not propel market success.
By maintaining this state of awareness, we can make more conscious investment choices.
That was a long take on Serontonin.
Understanding the complex interplay of these neurotransmitters gives us insight into why our emotions can so powerfully sway our (investment) decisions and reasoning.
Recognizing this is the first step.
But awareness alone is not enough. We must also learn how to apply it practically, like Warren did, to break free from the cycle.
Breaking the Cycle: Strategies for Cultivating a Long-Term Mindset in Investing
How do we break free from this cycle?
Taking Control: Five Key Tactics
Embrace Control: It all starts with awareness. And we gain awareness by asking questions.
Ask yourself:
- Does this activity bring me closer to my goals?
- How do I feel after (5 minutes, or an hour) engaging in it?
As a coach, I always asked this question, “What can you do instead?”
This forward-looking mindset helps you find alternatives that align with your long-term objectives.For instance, reducing the frequency of checking your brokerage account can actually increase the likelihood of seeing a positive return. Why? Because the historical trend of the stock market is generally upward.
Seek environments you control. Swap endless social media scrolling for a refreshing walk or dive into a great article here on Substack to gain perspectives.Trust Your Portfolio: Good investments today are likely still good tomorrow. Munger said. Stock price fluctuations are part of the game and normal, but a company with a solid competitive advantage remains valuable.
Self-Reflection: If constant checking causes stress, it’s time for introspection. As we learned, questions bring awareness, so ask yourself.
- Have I over-invested?
- Do I trust my strategy?
- How did I came to the decision to buy this stock?
- If doubts persist, consider gaining more knowledge or adjusting your strategy to better suit your personality.Learn from the best: It's easy to admire Warren Buffett and Charlie Munger for their incredible success and quotes, but it's their reaction to mistakes that really set them apart. Their journey is a testament to the power of clear thinking that leads to a long-term mindset. They show how to learn invaluable lessons from mistakes through resilience and adaptability.
Munger's Blue Chip Trading Company: Munger bought into a trading company at a low price as the company was struggling and assumed it was a bargain with a great business model. This taught Munger a valuable lesson and morphed into a great quote:
Price is what you pay. Value is what you get.
This insight was based on his ability to think critically because he understood that our brains follow biases. And yet, even Munger wasn’t free from mistakes. But he had the ability to think clearly with a lot of mental models at hand. These crucial thinking sessions and sometimes costly insights led both of them to focus more on the quality and potential of a company than just the share price or the narrative around a company.
It shows how Munger (and Buffett) turned their interpretation into a success through the right reasoning.
Both had the ability to think and reflect and if they made mistakes; they dissected them, understood them because they reflected on their past decisions, and used this knowledge to refine their investment philosophy. This continuous process of learning, adapting, and staying true to their core principles is what helped them develop their legendary, calm long-term mindset, turning setbacks into extraordinary wealth, success, and many famous quotes.Statistics Are Your Ally: Remember, inaction can be rewarding.
Want proof?
Acquaintance of mine invested $15,000 in 2008 and simply forgot about it.
Today, it’s worth $149,000. Sometimes, doing nothing is doing something.
Conclusion: Beyond Quick Fixes
The Power of Doing something else
Our brains are often pretty quick and often stage quite a drama. The unseen puppeteers—Dopamine, Oxytocin, Serotonin, and Endorphins—each unconsciously vying for the spotlight, compelling us to act in ways that might not always serve our long-term interests. It’s this internal tussle that often leads us down paths like obsessively checking our brokerage accounts, a habit fueled more by emotional unawareness, than rational choice.
But here’s the twist: we can choose to be in control, not just passive passengers of our hormonal play. By understanding this dynamic, we recognize the conflict it creates and the behaviors it fosters. Awareness is your first step to escape.
Adopting a long-term mindset in finance, as in life, is all about finding mental models that lead to mental peace and clarity amidst these hormonal whispers. It’s about trusting the strategy you’ve laid out, knowing that constant checking is like watching a pot waiting for it to boil—it doesn’t speed up the process and only adds to your stress.
So, what’s the move?
Simple.
Do something else.
Redirect the nervous energy into something else. Instead of succumbing to the urge to check your account, channel this impulse into activities that enrich your life. Read a book, take a walk, learn something new, or engage in a hobby to gain perspective. These actions not only provide a healthier outlet for your energy, they also contribute to your personal growth.
The right investment strategy is like a good life philosophy—it’s something you can commit to because you trust it, even when the immediate results aren’t visible. By embracing patience and redirecting our focus, we can transform not just our portfolios, but our entire approach to life.
So, next time you feel the itch to check your account, ask yourself: What else can I do right now that will add more value to my day?
Ask yourself: Am I making this choice based on a clear understanding and sound reasoning, or am I being swayed by the allure of social validation caused by my body?
Before you next check your portfolio, resist the urge and pause. Reflect on what drives your decisions. Are you chasing a fleeting satisfaction, or are you steadfastly pursuing your well-thought-out financial strategy?
The answers might just lead you to a richer, more balanced life.
The decision is yours.
So, what’s your next move?
Tap that heart if you like clear thinking!
Have a great day StockStar!
Michael
Progress
The parameter optimization is running. I’m currently testing 65,000 strategy variants pushing the total number to over 70,000.
Made a lot of progress on the back-end side
Started to detail the final PDF report. Here for example the industry distribution. What else would like to see on a higher level?
Write it down in the comments.Planed the elements of the website
Plan
I will finalize the PDF report and test whether its creation also works in the backend.
Start working on the website
What’s on my head
I’m looking forward to the Christmas dinner with my family
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I share my stock investment story without sugarcoating – you get the good, the bad, and those tricky ego trips. I'm developing a service with a mix of smart code and proven investment strategies, making stock analysis a thing of the past if you wish. Because life offers so much more beyond the confines of stock analysis.
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Disclaimer:
The information in this article is my personal opinion. I’m not a certified investment professional. It is not consulting, nor does it constitute investment recommendations.
I do my research carefully and follow my personal investment strategy.
The stock market is a complex building with its own rules. There are no rules set in stone, like the rules of physics.
Therefore, use the contents of this newsletter at your own risk and do your own research as well. Investing in the stock market can lead to a total loss of the capital invested.
Always how you marry psychology and finance together to form compelling arguments and drive actionability. Another great post.
Wow, I have never thought that my hormones could play with my financial decision.... Last summer I read and learned more about hormones and digestion and I know, that our digestion affects our brain activities... why not our decisions. :) Great article! Thank you