Art of Stock Picking
By Charlie Munger, (Warren Buffett's partner at Berkshire Hathaway)
I'm going to play a minor trick on you today because the subject of my talk is the art of stock picking as a
subdivision of the art of worldly wisdom. That enables me to start talking about worldly wisdom a much broader
topic that interests me because I think all too little of it is delivered by modern educational systems, at least in an
And therefore, the talk is sort of along the lines that some behaviorist psychologists call Grandma's rule after the
wisdom of Grandma when she said that you have to eat the carrots before you get the dessert.
The carrot part of this talk is about the general subject of worldly wisdom which is a pretty good way to start.
After all, the theory of modern education is that you need a general education before you specialize. And I think
to some extent, before you're going to be a great stock picker, you need some general education.
So, emphasizing what I sometimes waggishly call remedial worldly wisdom, I'm going to start by waltzing you
through a few basic notions.
What is elementary, worldly wisdom? Well, the first rule is that you can't really know anything if you just
remember isolated facts and try and bang 'em back. If the facts don't hang together on a latticework of theory,
you don't have them in a usable form.
You've got to have models in your head. And you've got to array your experience both vicarious and direct on
this latticework of models. You may have noticed students who just try to remember and pound back what is
remembered. Well, they fail in school and in life. You've got to hang experience on a latticework of models in
What are the models? Well, the first rule is that you've got to have multiple models because if you just have one
or two that you're using, the nature of human psychology is such that you'll torture reality so that it fits your
models, or at least you'll think it does. You become the equivalent of a chiropractor who, of