Lessons from Charlie Munger-XVI - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Lessons from Charlie Munger-XVI

Jan 18, 2013

In the previous article, we discussed the importance of use-it-or-lose-it tendency for investors. Today we shall discuss another psychological tendency which is pertinent to investors of all age groups.

Senescence-misinfluence tendency

The word 'senescence' may not seem familiar. It derives its roots from the Latin word 'senescere' which means 'to grow old'. So effectively, senescence-misinfluence refers to the cognitive decay and mental limitations on account of biological aging. Of course, the aging process may differ from person to person in terms of the time it commences and the pace at which it progresses. But, by and large, old people have difficulty acquiring new skills. As such, the probability of learning complex new skills is practically zilch.

But here is an interesting twist. Though acquiring new skills may be challenging, the good news is that some people very well manage to retain old skills that they have practiced intensely over the years. In fact, there is a long list of people who have achieved great feats despite their old age. Benjamin Franklin, who has been Charlie Munger's personal hero, helped frame the US Constitution at the age of 81 years. At the age of 76 years and 340 days, a Nepalese gentleman by the name of Min Bahadur Sherchan became the oldest person to climb Mount Everest, the world's tallest mountain. Age did not hinder the famous deafblind American author and political activist from writing a book called 'Teacher' at the age of 73 years. Across the world and across fields there is long list of such achievers who have seldom let old age get in their way.

What does senescence-misinfluence tendency have to do with investing?

You may be wondering why we are discussing old age in the context of investing. Let us explain a bit and you will see the connection.

Our financial needs change with the various phases of our life. Given that the topic under discussion concerns old age, let us focus on a person's financial needs post retirement. At this age, you may not have the burden of educating and marrying your kids. You may also not have to worry about buying a home. With all major investments and expenses behind you, you may be relatively relieved.

But you may have several other expenses. For instance, your healthcare expenses could be significantly higher. You may also want to fulfil all the dreams that you may have sacrificed in your youth. And so on. The point is that you are going to need a good deal of money irrespective of your age.

But would your pension income be enough to take care of your post-retirement needs? And wouldn't you want to avoid depending on your kids for money? At an age when you may not be in the best physical frame to travel distances and perform demanding tasks, what could you do for an alternative source of income? The answer is investing.

Some may counter with the usual argument that investing in stocks is risky. Of course, there is no denying that there is an inherent risk. But the real risk of significant losses lies in speculative short-term trading. If you choose the path of long term value investing, you will not only live with minimal risk, but the chances of immense profits will be significantly high. Remember, in the long run, equities tend to outperform all major asset classes.

But it would be a big mistake if you wait until retirement to start investing actively. The preparation has to start much earlier. When you are relatively young, invest time regularly to educate yourself about value investing. Let this be a life-long process of learning and investing. In this way, you will be very well-equipped to deal with your investments in your latter years.

But wouldn't old age hinder your thinking abilities and decision making? Your greatest inspirations could be Warren Buffett (82 years) and his so-called Siamese twin Charlie Munger (89 years). What is the secret behind their outstanding thinking prowess and investing acumen even at this age? The answer is simple. If you develop useful skills early in your life and practice them rigorously over the years, you could manage to retain those skills for a much longer period, despite the aging process.

We will continue to discuss some more thinking errors and psychological tendencies that can affect your investment decisions in the subsequent articles of this series.

Lessons from Charlie Munger Article Series - Previous article | Next | All Articles
Try the Charlie Munger Quiz

Equitymaster requests your view! Post a comment on "Lessons from Charlie Munger-XVI". Click here!


More Views on News

Smallcap Revival: Should You Wait, Keep Holding, or Buy Now? podcast (Views On News)

Jan 25, 2021

Here's how to not miss 10 best days for your portfolio returns.

You Are What You Believe (Fast Profits Daily)

Jan 25, 2021

In today's video, I'll show you why it's not a good idea to blindly support the bullish consensus prevalent in the market these days.

Is the Tata Motors Stock Running Out of Juice? (Profit Hunter)

Jan 25, 2021

Is the valuation for this 5-bagger running ahead of its fundamentals?

Will the Top Mutual Fund Schemes of 2020 Be among the Top Performer in 2021? (Outside View)

Jan 25, 2021

PersonalFN explains whether you should invest in top performing mutual funds of 2020.

Great vs Good: Which Stock Will Win in 2021? podcast (Views On News)

Jan 22, 2021

Rahul Shah discusses which group of stocks performed the best in 2020 and its implications for your portfolio.

More Views on News

Most Popular

Top Investing Gurus of India

Investing gurus are the champions of value investing. These are the people who've mastered the art of compounding wealth from...

Time to Book Profits in Pharma Stocks (Fast Profits Daily)

Jan 15, 2021

In this video, I'll show you why it might be the right time to take money of the table in pharma stocks.

Smallcap Stocks: Your Best Bet for 2021 and Beyond (Profit Hunter)

Jan 15, 2021

The pandemic failed to thwart Richa's investing success formula for 2020.

Buzzing Sectors Before Budget 2021 (Fast Profits Daily)

Jan 12, 2021

The budget is just a few weeks away. Which stocks can you expect to move? Find out in this video.

Here's Why Smallcaps Could Be Your Best Investment in 2021 (Profit Hunter)

Jan 12, 2021

Select smallcaps hold a great potential to become the multibaggers of tomorrow. Here's how you could get in early into these stocks.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jan 25, 2021 (Close)