Charlie Munger on the Paradox in Hold vs. Buy Decisions in Long Term Investing

Ok, here’s a paradox for you, the long-term investor.

You already know that owning, that is buying at reasonable prices and steadfastly holding on to good quality businesses, run by good quality managers is likely to be quite profitable over the long term.

And so, based on this belief, you construct a portfolio of such businesses and plan to hold on to it for a long time, allowing the magic of compound interest to do its magic and after you make these investments you are fully invested.

But then after a while you get some cash and that’s what creates this paradoxical situation. Which is that you are no longer willing to buy more of what you already own (because they are too expensive now) but you don’t mind holding on to these businesses you love so much.

And then you meet a trader friend who is quite successful and he politely tells you that you buy your portfolio every day. That is, holding on to a position is the functional equivalent of selling it and immediately buying it back (ignoring transaction costs and taxes). And so if you’re not a buyer anymore of a position you own, then you should be a seller.

I have struggled with this paradox for many years and have written about it in the past (in my interviews with Vishal Khandelwal of Safal Niveshak) and elsewhere where I have basically said that for long-term investors in high-quality businesses, the rules for buying a stock and those for holding a stock are not the same.

In arriving at those conclusions, I was, in part, inspired by the writings of Philip Fisher in his wonderful books and also by the following three quotes by John Maynard Keynes and Ben Franklin.

“The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except by reason of death or other grave causes, might be a useful remedy for our contemporary evils. For this would force the investor to direct his mind to the long-term prospects and to those only.” — Keynes

“As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes.” — Keynes

“Keep your eyes wide open before marriage, half shut afterwards.” — Benjamin Franklin

Well then, on 20 December, I had the privilege and honour of meeting Charlie Munger over a wonderful lunch hosted by Howard Marks. Over two hours, I was mesmerised listening to Mr. Munger speak about many topics.

Here’s what he said about this particular topic:

“Psychologically, I don’t mind holding a company I like and admire and I trust and know that it will be stronger than now after many years. And if the valuation gets a little silly, I just ignore it. So, I own assets that I would never buy at their current prices but I am quite comfortable holding them.

Well, I am almost constitutionally. . . I have a defect. And I just won’t pay 30 times earnings… I have never done that but I have one or two now which are now worth 8 or 10 times what I paid for them and they are still marvellous businesses and are still growing and I just hold them. Many investors I know are like me. I cannot defend it in terms of logic. I don’t defend this logic. I just say this is the way I do it and it keeps me more comfortable to do it this way. And I am entitled to this, it’s my own money and I am entitled to do it my own way. A lot of people are just like me. Li Lu is just like me. He will hold things that he bought a long time ago at tiny prices in what are still great companies but he won’t buy more.” — Charlie Munger

If you agree with Philip Fisher, Charlie Munger, Li Lu (and me) on this, then, please spend some time contemplating the consequences of what Ben Franklin meant (in the context of investing,) when he talked about marriage: that you must keep your eyes wide open before marriage but half shut afterwards. This is especially true when you discuss what you own with someone intelligent who doesn’t own it and especially when you think about the whole situation in terms of what Richard Thaler calls the “endowment effect.”

39 thoughts on “Charlie Munger on the Paradox in Hold vs. Buy Decisions in Long Term Investing

  1. I don’t agree that hold should logically equal sell.

    There is a wide band of prices which all represent fair values. You can think of this as fair values under multiple likely scenarios, or just as a distribution of prices which are within a certain confidence interval of underlying growth/return expectations.

    Below the lowest price of the band is a buy, beyond the highest is a sell.

    Figuring out the band and the confidence interval is an art that one gains knowledge on over time.

  2. I think what Franklin means is that if you focus on little failings in a marriage you will destroy what is good about it. Charlie is willing to operate on autopilot because he trusts his autopilot. Where the analogy seems to break down is that you would be willing to remarry your spouse in an instant, even though you wouldn’t necessarily buy more of a stock. But the market for a stock is not the same as the private market of your spouse.

    There is something wonderful about durable relationships!

    Send from Boston, Massachusetts.

  3. It must have been amazing to meet with Mr. Munger – while he says jealousy is the stupidest of the sins as it’s all pain and no fun, one cannot but help in this case!

    You have mentioned a list of the investors who live with with this paradox (and do very well for themselves), can you name any who are the opposite? The ones who are long term value based investors but are dispassionate in how they deal with buying vs holding?

  4. An excellent post as always. Just some random thoughts:

    During every great company’s ascent, there have been legions of highly educated, articulate naysayers throwing stones at a perceived glass house. Only over time was it proved the house wasn’t glass but a strong stone castle. To be really good in this business you need to know your positions better than anyone else so you can develop the conviction to believe in your own research more than others. It’s important to have a self-awareness of yourself and your thesis. The business isn’t going to do well, the stock isn’t going to go up, the management isn’t going to execute just because you own it (endowment effect). It’s okay to fall in love with your positions because lovers know each other best, but be prepared to divorce quickly at any sign infidelity. Love the management teams and businesses that love you back (execution), and don’t let someone’s lack of conviction convince you to sell a great company too soon. I think you should keep your eyes fully open and your ears half shut.

  5. Thanks for sharing your and Charlie Munger’s thoughts. Hopefully you will share more from your lunch with Munger.

  6. Anand says:

    Other than “Endowment effect”, I can think of Anchoring Bias & “IKEA” Effect (We value things we have assembled ourselves much more highly than similar pieces assembled by others, often even more than beautifully crafted bespoke pieces) when planning to invest extra cash after initial investment.

    Now w.r.t hold decision, I feel that statement may be true when the position size is huge w.r.t overall portfolio, where we don’t want to make un-necessary switch especially if the HOLD position is profitable or Add to HOLD position because already it’s taking high percentage.
    Also, I think changing position frequently may be helpful by few percentage, but it’s not worth the stress it takes to switch over especially when portfolio position is big. [Why does it feel, on the highway/road other lane is always faster].

    Extract from Book “Married for Good” by David Faust:

    “ANYHOW LOVE”.

    It’s smart to enter marriage with your eyes open. Be honest about yourself and about your partner. Have you talked frankly about each other’s strengths and weaknesses? How do each of you react when you’re tired or depressed? Do you communicate thoroughly about your values, goals, worries, and beliefs? Before you marry, you must face these questions with your “eye wide open.”

    After you are married, you will continue to grow in your understanding of each other. But in Ben Franklin’s words, that’s when you’ll need to keep your “eyes half shut.” In other words, accept the things about each other that you cannot change.

    A marriage counselor calls this “anyhow” love. It’s the kind of love that says,
    1. “I don’t agree with what you’re saying, but I’ll listen carefully anyhow.”
    2. Or, “I don’t understand why you feel that way, but I’ll respect your opinion anyhow.”
    3. Or, “Right now it doesn’t appear that you’re holding up your end of the bargain, but I’ll fulfill my role in your marriage anyhow (and not resent you in the process).”

  7. My criteria is simple: I sell when I’d rather be short. So selling requires extreme conviction.if you’re willing to short the stock, that’s the time to sell (and if the portfolio permits, actually go short). And by the way, none of the consistently successful shorters go short only because of valuation.

  8. Completely agree with the thought here.
    In other words, we have entry or buy criteria for a firm.
    Once we have bought, the hold criteria are different than buy. Holding for the long term gives time to the company to expand, bloom and profit. Valuations can go high and low. But if the firm continues to execute strongly, you have to stay with it.
    Only if sell criteria are met, you should exit. That’s another subject.
    To answer one question, the canslim approach is different where they follow a more active approach to buying and selling.
    Not recommended for long term investors, but hey, nothing wrong there …..

  9. Using the “polite” trader friend’s logic in the Ben Franklin’s analogy…

    holding = daily selling & immediately buying; is like
    continued marriage = daily divorce & immediate remarriage.

    sounds ridiculous.

    Seriously, I think there are a few factors which are missed in holding=selling/buying concept:

    Liquidity: Traders assume underlying liquidity, which is not always a given. Also what you sell, need not be available immediately after.

    Wealth parking: Holding a good stock is like parking wealth into good hands (management). Many great investors have this perspective where they are happy to sell a good investment for a more lucrative opportunity (in their judgement).

    Cigar butt vs. Compounding: A great value investment is a compounding machine bought as a discarded cigar butt. You do not want the compounding machine go just because the “free puff” from cigar butt has been realized.

    Per unit of Stress: Frequent portfolio reconstruction leads to tremendous “search” stress (hat-tip to Prof Bakshi for teaching this perspective). It also presumes market efficiency, which is not always the case.

    Just my 0.2 cents worth.

  10. Thanks for sharing this professor:)
    It really feels great when your professor’s Professor teaches the same way your professor does 🙂

    And true… Its like what if you are the owner of the business and business is trading expensive.

  11. Is it also because the excitement of finding a new girlfriend is more overwhelming than investing in an old trusted sweetheart ? (like how we switch channels in hope of finding something better, even though we may be satisfied with the current channel – although i don’t watch much TV…)

    Inverting the question – in case we don’t have cash, but have found a good opportunity we find confidence in. In such a case, if we decide to sell some of our existing holdings to buy the newly identified one, then would it be the same like not buying existing portfolio holdings with new cash?

  12. ajayalmighty says:

    Somebody who beat you to your conclusion is GM Loeb who authored The Battle For Investment Survival in which there is a chapter dedicated to the initial buy/ignore decision and the subsequent hold/sell decision. Granted this is a book about trading, but there are snippets of wisdom for anyone willing enough to go through the entire thing.

  13. harinid says:

    Interesting discussion. Every investor in the Indian markets grapples with this problem. One way to to hold on to something would to think of the valuations not in terms of multiples but in terms of market capitalization or enterprise value (whichever is applicable for the business in question). To think of it in terms of the opportunity size and realistically the market share your company can get 5/10 years down the line (whatever your time horizon would be) and the market cap it would deserve for the same.

    At times multiples get stretched as earnings tell a story of a particular point in the life of a company. The market cap helps you feel like the business owner and thus stay invested until the “full potential” of the opportunity is realized. So one would sell only at the point when that potential is realized.

    The paradox that I face is that I tend to look at multiples when buying a business but at the market cap or the enterprise value while holding it.

  14. akbarkhangoa says:

    Well, in such times, when the good positions you own are expensive, it is clear that positions are to be held. The question remains what one does with the additional cash. Increase the portfolio size by adding more businesses or remain in cash waiting for your holdings to come back into buying range?

  15. Niraj says:

    Nice article. Good to know your thoughts and that of Mr Munger on this important but less discussed topic.

    Just one question. If ‘internal’ rate of compounding not that great for the business we own and valuation has breached its fair value and is trending in the expensive zone due to market’s whims & fancies and also if we have better opportunities to deploy our funds, wouldn’t it make sense to redeploy our capital, assuming size is not an issue?

    While writing this I can understand the complexity of this question rises if the business in question is strong and it is growing at decent pace – though certainly not something which its expensive valuation might suggest. And this doesn’t even account for biases we might developed due to our love for the business over the holding period!

  16. The margin of safety is different in both cases…when you are looking to buy a new stock the margin of safety should obviously be high…which is often not the case in stocks that one is “holding”…does not mean one should sell it because the margin of safety is built in because of the initial purchase price…

  17. Congratulations Mr. Professor on meeting Mr. Howard and Mr. Munger.

    As Phil Fisher said, If the job has been correctly done when a common stock is purchased, the time to sell it is – almost never.

    In my limited view, when someone says buying is like marriage, it only means that before buying one should perform all the due diligence and motive should be to stay forever with the business (from this paradigm, one tend to look at businesses differently and seeks answers to different set of questions) but doesn’t mean that one should always buy it (with extra cash) or stick to it in all conditions.

    Without bringing in such an high intensiveness (like that of in marriage), one may not be doing a proper job in picking the “suitable” business. I guess this is the motive behind saying that buying is like marriage.

    And I think the moment fundamentals have permanently changed or reasons behind buying are no more valid then it should be sold. The reasons cannot be the latest price alone as things could go crazy in markets, unless it is ridiculously high priced. All the other “noise” can be ignored (half shut) but still keep the other half eye open (on fundamentals). As long as fundamentals are intact, one may or may not buy further but need not sell it.

  18. Saurav Jalan says:

    Thanks for sharing your views Sir. As per my understanding, buying more quantity of an expensively valued long-term compounder should also be judged in terms of individual portfolio allocation strategy of an investor. If somebody wants to maintain a discipline of 10 stocks in his/her portfolio with equal allocation to every stock then he has to deploy the additional cash equally among the ten holdings if it is worthwhile to invest(gap between intrinsic value and market value) at a particular point of time. Else, cash should be partially or wholly parked in liquid funds till he finds value in those 10 holdings. Alternatively, one can expand his portfolio from 10 to 12 stocks by being flexible but even in that case the discipline of individual allocation among a group of 12 stocks has to be maintained.
    At the end of the day it’s the return of the portfolio which matters not margin of safety in an individual position.

    Finding comfort in holding a long-term compounder but reluctance in buying additional quantity of it (to maintain portfolio allocation discipline) gives the view that the conviction of the investor in holding such a position is coming from the difference between the initial purchase price and the current market value. In order to add more quantity of such a stock at expensive valuation, the conviction of the investor should come from how accurately he could calculate and visualize the future earnings of the company provided the valuation multiple remains the same or within a range. There are very few high quality businesses which can consistently grow its earnings over a fairly long period of time. They will not be valued cheaply by the market at any point in time. The conviction to buy additional quality of such a business should always come from taking a forward view about their earning potential.

    If we get trapped in the comfort zone of holding a ‘statistical bargain’ bought 10 years ago which eventually turned out to be a growth stock then temperamentally we are a bargain hunter not an investor who is willing to pay for future growth.

    Thanks and Regards,
    Saurav Jalan

  19. Sir,

    Thank you for the insights. This is something on the top of my mind these days.
    I have a bias leaning towards the BFBV style of investing (of hold and sit tight, irrespective of valuations) vs my boss is more of the opinion of sell when valuations are high.

    The way I think about it is
    1) Liquidity : For very large portfolios lack of liquidity makes it tough to either sell and buy later at a reasonable valuation

    2) Alternative Opportunities: Finding other potential companies with better potential returns. Since the (opportunity) cost of holding cash could be pretty high. Thus hold on expensive valuations ( as long as not crazy high).

    3) Watch list : It is always easier to keep track of a smaller list of companies more thoroughly, than do the same on a larger list.

    Thus if I am is able to get all of the above 3 boxes ticked i.e. low liquidity related cost, good alternative opportunities ( absence of high opportunity cost) and able to track the company well enough (not having a huge watch list) , then Sell.

    Also another aspect which we need to consider (in many countries, but not so much in India) is tax on Capital gains.

  20. Sir – as usual thanks for the wonderful insights, however my views are different and if we are holding an stock for future gains , then we should also consider buying it at cmp. only exception should be better alternative opportunity or diversification.

  21. I agree with Prof Bakshi, Charlie Munger and Li Lu that not buying more of a company at a price doesn’t necessarily equate to sell (with such august companions you can’t go wrong!).

    My reason for the same is what Warren describes as “There is a wide zone of prices that we consider as reasonable for a business”. So one buys when the price is unreasonable (price is too pessimistic) and one sells when price is unreasonable (price is too optimistic). At all other times, one needs to keep the eye half shut and enjoy the fruits!

  22. Gaurav says:

    Great post Sir… Holding would have been synonymous to selling had intrinsic value been an exact number and not a range. And had it been an exact number, growth would have been perfectly predictable and I would be gazing in crystal balls rather than reading about mental models. Had growth been perfectly predictable (and hence a certainty wherever applicable), then why do I need margin-of-safety? What is that margin needed for if future is certain?

    But this is not so because nothing (other than death and taxes :)) is certain… Hence I read what Stephen Penman says and try make sure that I don’t pay much for the speculative growth. But I am not averse to the speculative growth… In fact I like serendipity… So I will stick to my investment as long as the serendipity is driven by underlying growth and is not present just on charts… Will I pay much for that growth? Maybe not….

  23. evan w says:

    Great topic so I will explain how I handle this investing conundrum. Just a quick introduction which I deem necessary to make my point. I am a self-directed, self-taught, lone wolf style investor with over 25 years experience. I have witnessed crashes, bubbles, and then back again. In the early days my mentor was the WSJ and less frequently the internet today. I never turn on the T.V. and I don’t care what the talking heads have to say. I rarely (if ever) speak to other investors and exchange ideas. Individual thought (to its extreme) and inner speech within my own mind, as it relates to investment decisions, is my lonely way. I am an anomaly but how I invest works. I am successful, financially independent, and that’s all that matters.

    I developed a rule based on decades of market watching and self-observation which I call the “shake my head” rule. I will focus on how this rule applies to action with over-valued, long-term positions held in an over-bought bull market or less frequently over-exuberance in an individual name. The same rule can apply when adding/buying stock in the depths of a sustained bear market after a severe equity valuation reduction.

    Let’s say I am looking at my core LT positions and I am doing extremely well. Making money and feeling like a genius. Say this feeling goes on for a couple more weeks as my positions continue to tick up. There will come a point I will say to myself “this is ridiculous” and around the same time, if the rally continues, I will start shaking my head. From experience I observed this is a non-verbal triggering event in a bull or bear market and I use it to step into the ring per say and become active.

    Generally I am loyal and committed to holding companies LT (for years). But during these rare moments in time, as I think to myself and shake my head, I will start placing limit orders to sell and let the sustainability of the bull market rally decide how much of my core position I will liquidate. For many years I held steadfast like Munger but in all due respect, this works better for me.

    If this system can work for someone else, that remains to be seen. One thing I know is you need decades of market watching experience and to have witnessed many cycles to find the fundamental value in what I say. So the moral here is observe the markets, observe yourself, and don’t ignore your own non-verbal cues. Don’t underestimate the value being alone with yourself. Many will express their feelings to others during these moments of crisis or euphoria yet verbal dialog just might paper over the self-analysis within your own mind. This might not serve your best interests as an investor.

    Have a prosperous 2017 everyone. Please don’t be offended if I don’t respond to replies (Haha).

  24. Mr Watzisname says:

    This feels like an incomplete shit session! It still begs the question – Why are the rules for buying a stock and holding it not the same? The endowment effect is a fallacy, probably a result of evolutionary baggage. It just tells you why people do it; not whether they should! Should I? Should you? Charlie Munger clearly seems to be saying it’s defective but I do it, wtf! That’s not in the realm of debate or even discussion. The wife analogy sounds good but seems flawed coz neither can u buy her again nor can u have an extra-marital.
    Rationally, there’s no difference between buying and holding, and, if so, then, should u differentiate between them. Ha! Back to square one!

  25. A trader by his very nature is Alpha Male who is bound by his duty to add meat even to his fragile conviction. That is not to say its bad, but it is what is more often needed to execute a belief or as they say ‘trade idea’. A long term investor (who buys on fundamentals) however does not need to live with such binaries. He can (and should) use such arguments to objectively evaluate his investments once in a while; to emotionally detach from them. But such feelings should not necessarily be actionable. It will take a self-confirming optimist (fool would be too harsh a word) to wake up every-day and rely on his senses to process the intermediate information and come-out with either a buy or sell decision (like proposed by the trader). Its not the actions (decisions) that matter; its the conviction behind it. Stocks are merely the embodiment of the conviction which we actually invest/trade in…I feel.

  26. Sir

    Thanks for an interesting read. However, it took me some time and effort to even understand the intent of the statement when it was made. So, me went about to check for the reference in which this statement was made. The statement was made in “Poor Richard’s Almanack”. Link to the book. However, the statement comes with a * which signifies that statement is to be taken as two distinct and different thoughts. Though, I understand the thought that pertains to the personal relationships, but the one being discussed i.e. Hold Vs. Buy still eludes me.
    Since Ben suggests an alternative thinking, applying a more engineering approach for thinking.
    There are two state functions (link): a) Value of the stock b) CMP of the stock. Please bear in mind that state functions do not matter how the system arrived at this state (!!). Now, to try and plot these two state functions axially, it may look something as below:

    Understand from your letters to Vishal, you don’t pay importance to CMP or any price but this is the closest I could think of.
    Request your views.

  27. paras says:

    I think what Franklin means is that before marriage you look for you want in your partner and what is valuable to you. But after marriage you will realize that there are many small things that you didn’t realize about your partner that you don’t like. You don’t want to keep your eyes wide open (meaning look for other potential partners) because they will also have small things that you won’t like. Instead you want to keep eyes half open and be aware and accept the small peculiarities.

    Munger is saying the same thing w/ buying companies on a cheap PE but not willing to sell when they get to 30-40x PE. Logically these (30-40x PE) are things you would not have accepted in your partner, when you were single, but now you realize that these are only small things. So you keep your eyes open and accept these small illogical decisions (to not sell a company w/ 30x PE). You don’t want to fall for the endowment bias by keeping your eyes half open and accepting the bias, but being fulling aware that you are accepting it.

    It is like the saying from the movie Good Will Hunting, where Sean (the professor) says:

    “But Will, shes been dead for 2 years, and that’s the stuff I remember: wonderful stuff you know? Little things like that. Those are the things I miss the most. The little idiosyncrasies that only I know about: that’s what made her my wife. Oh she had the goods on me too, she knew all my little peccadilloes. People call these things imperfections, but there not. Ah, that’s the good stuff.”

  28. […] highly recommend that you read the post before continuing further. Sanjay’s post can be found here.  At the end of the post he asks us to contemplate the consequences of Ben Franklin’s quote […]

  29. Isn’t holding the (newfound) cash functionally equivalent to trimming your positions? If yes, then I see no paradox…

  30. Sanjay Bakshi Sir,

    More than the endowment effect, I believe that this happens due to an anchoring bias, rather than people valuing what they own more than what it should be valued objectively (endowment). Personally, i find it very easy to buy (no mental agony) in case prices are closer to / lower than when i first evaluated the stock as an attractive opportunity and purchased the same. As prices rise, I find it difficult to buy because the price seems much higher than the price I first paid for the stock.
    Would be really helpful if you could provide your views on how to mitigate such a bias.

  31. […] The Fundoo Professor and Charlie Munger on the diffêrences between buying and holding a stock […]

  32. Adam Mead says:

    In my view it’s very simple: You keep your eyes wide open before marrying the stock (i.e. asking yourself whether this is a business you would be happy to own forever if the stock market never re-opened), and then keep your eyes half shut, or even totally shut, TO THE MARKET. If you are the type of long-term investor Mr. Bakshi describes then it is of no consequence to you what the market does, and you can feel free to completely ignore it. You will, of course, be acutely aware of the long-term strategic position of the company, and likely disregard the short-term perturbations in business performance as inconsequential.

  33. […] Munger’s thoughts on the decision to continue to hold a stock vs. the decision to buy a stock. (link) The comment section should be read as well as there are many insightful comments. As illustrated […]

  34. […] Charlie Munger On The Paradox In Hold vs. Buy Decisions In Long Term Investing (The Fundoo Professor) […]

  35. Mukul Singh says:

    1) You can sell if you have better opportunity to invest, but that opportunity needs to be not just marginally better but much better in every manner or else your biases won’t let you.

    2) If you are doing goal based investing then you may not bother if you know you are going to achieve your goal with current investments.

    3) However, the best option is to think like Ben graham :- will you do the same if you were the complete owner of the business ?

  36. I totally agree with Mukul Singh! Selling an excellent company/stock has something to do with your available opportunities. Why selling an excellent business you already own – just to own average money/bonds/stocks? But if you have a better opportunity to invest, and did enough research on that, you can go for it.
    On the other hand: “The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.” If you own an excellent business, don’t feel the pressure to seek an even better one! Holding a top company for 30x Earnings is not a tragedy (see link 1).

    Warren Buffett (see link 2):
    “I just wanted to do the best I could reasonably do with the talent, time and resources I had available. That’s what I was doing then and now. Everything is based on opportunity costs. Academia has done a terrible disservice: They teach in one sentence in first-year economics about opportunity costs, but that’s it. In life, if opportunity A is better than B, …”
    (seel link 3: Buffett & Munger on Cost of Capital: Don’t listen to what they say but look at what they do)

    Link 1:
    http://brontecapital.blogspot.de/2017/01/valuation-and-investment-analysis.html

    Link2:
    http://www.gurufocus.com/news/393334/why-investors-must-always-consider-opportunity-costs

    Link 3:
    https://valueandopportunity.com/2015/11/24/buffett-munger-on-cost-of-capital-dont-listen-to-what-they-say-but-look-at-what-they-do/

  37. If I’ve to use a metaphor, this can be compared to what Indian women do with their gold ornaments. if they get new gold coins ( = cash in investment world) they won’t necessarily create a replica of jewelry they own but would look for new designs or a new ornament. However, this doesn’t necessarily mean that they dislike ornaments they have, and melt them into gold nuggets and coins.

  38. our view will always be biased. few factors that can reinforce using this heuristic.

    main point: endowment effect matters less when you got near best possible deal.. better have endowment effect then.. you try to get best possible deal, when it is the only deal you are allowed to do.

    elaboration:
    holding dearly takes care of endowment effect. once you have decided you are to till death do us part.. unless it becomes a nightmare.. endowment effect is taken care of.. you no longer need to justify your choice..

    (friend: man you can do so much better
    you: i bought right lemme sit tight.. wont let go of unless turns into a ……. nightmare.)

    .. no need for our brain to construct new justifications.. you can see all faults and think… man i could have done better than nagging gal…. and still stay..

    there is no “grass is greener on other side… lets buy that field”..there is no “man i can’t handle that anymore…too young for this.. lets breakup” …. just acceptance…. a forced self imposed stoic like observation unless forced to reach a major decision point.

    data shows money is made when you hold…. remember that munger and fisher did not necessarily horded the best stocks of their time, but what they understood the most..

    monies minted via insights rather then through hyperactivity..(though only in LONG term)..

    reinvestment problem: assuming that every day you can find a mispriced bet, additional returns of which can beat fractional cost, efforts put in due diligence, and you can make good decisions on a daily basis is a tiny little bit way too much out of dis world far fetched to assume.

    remind me again why we dont do day trading ? yup.

    when you have chosen the path of till death do us part.. you turn ‘endowment effect’ into buffett’s ‘only car you are ever going to buy’.. things gets too serious for endowments… skepticism paramount… long term thinking… more cold feet at alter before the vows than at escapades with “current galfriend”… decisions are better there… parents intervene when you wanna commit.. not when you are eating panipuri (metaphor not related to previous example)

    final : subconscious mind. reading so much of great investor stuff will train your mind to think that .. good investments have certain characteristics.. and that they are rare and hitting my head with a cricket bat level obvious.

    it will desist bad long ideas cause.. now due to excessive hours of conditioning we have made our gurus like family members.. (as munger would say.. fathers in different sense.)
    brain does not like pissing off authority figures.. thus decisions taken infrequently and after much deliberation and looking around hard, will be of higher quality if you got the process right. the same process getting you different result? … rare.. then we sell.

    buy a few securities and you are looking at operating performance as private biz anyway.. may be endowment at stock price quotation is easy.. sales level is hard.

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