“It seemed like a good idea at the time”

Posted on by fundooprofessor

Oh, I just love this story told by Charlie Munger at 2002 shareholders meeting of Wesco:

“[Our investment in] USG obviously hasn’t worked out very well. It wasn’t just asbestos — the market for wallboard went to hell. We missed that too. What can I say? It reminds me of a story about a man who had a wife and three kids. He conceived an illegitimate child with a woman he’d just met. When asked why he did it, he said, ‘It seemed like a good idea at the time.'”

Hilarious, isn’t it? But it explains so well how we think before making dumb decisions.

Like the explanation I give to my students in my class on why couples have unwanted pregnancies. I mean, what the hell were they thinking? Why didn’t they use protection?

The answer is that when people are in a “hot state,” they think differently. And they get into situations which clearly look like a dumb idea to anyone in a “cold state.”

Now, this is a very important point. What is obviously a very dumb idea to anyone in a “cold state” doesn’t look like a dumb idea at all to someone in a “hot state.”

People in a “hot state” never think of risks. They only think of the returns. Later, when they are facing the consequences of their prior dumb behavior, their explanation is usually along the lines that Munger gave: It seemed like a good idea at the time.

And there are all sorts of “hot states” in the world of business and investing. The second highest bidder in an auction which is about to end is in a hot state. The investor/speculator who just made a killing in the market is in a hot state.

Hot states make people do very dumb things. And just a recognition of that fact is worth something, isn’t it?

I think it’s a great idea to use the Munger joke on yourself because it makes you laugh at your own dumbness. At least it works for me. I laugh at some of my past dumb decisions. I first ask myself: What the hell was I thinking before doing so-and-so. And then I say to myself: “It seemed like a good idea at the time.”

And that makes me laugh. But hopefully, post that laugh, I also learn some important lessons for the future about how not to make the same type of mistake again.

I think a lot of people out there take life too seriously. They never laugh at their own dumb behavior. That’s a shame. Laughter reduces stress caused by mistakes without taking away the lessons that mistakes teach us.

Published by fundooprofessor

I am Distinguished Adjunct Professor at Flame University, Pune. Previosuly, I was Adjunct Professor at MDI, Gurgaon, where I taught MBA students two popular courses titled “Behavioral Finance & Business Valuation"(BFBV) and Forensic Accounting and Corporate Governance (FACG) for many years. I am also Managing Partner at ValueQuest Capital LLP— an investment advisory boutique which helps its clients invest their capital in good quality businesses.

11 thoughts on ““It seemed like a good idea at the time””

  2. Super cool.. nice analogy. Always wonder how Buffett and Munger came up with these metaphors. I was just wondering in the morning why the heck did i buy XXXX few months back at XXX, now i got the answer

  3. Excellent professor. I guess the net writeup should be about how to remain in cold state forever. Is it possible? We are wired to get hot and think instinctively many times in our lives. I know of 2 mental models which could answer these

    1. Reversible and Irreversible decisions – (Borrowed from Shane Parish’s blog)
    For decisions which are reversible – we can go light and do things instinctively as the error is rectifiable. For irreversible decisions (Unwanted pregnancies), one has to think and reflect.

    2. Precaution is better than cure – (Gandhiji’s 3 monkey’s – Bura Mat Dekho, Bura Mat Suno and Bura Mat Kaho)

    Avoid landing yourself in situations which would require you to think in hot state of mind.

    How practical are these is a matter of individual capability and tolerance.

    1. I think it will be a progressive journey.
      Step 1. Look back and acknowledge that there were some ‘hot state’ situations in your life.
      Step 2. Try to draw some learning out of those ‘hot state’ situations and ‘laugh’ at some of the dumb decisions you made.
      Step 3. In future recognize you are getting into or you are already in ‘hot state’.
      Step 4. Once you realize this, try not taking dumb decisions.
      Step 5. Probably this is highest level of maturity – try not getting into ‘hot state’.

      I think it is practical and possible. Mindfulness can be one approach.

  6. Thanks Prof. for writing this article. The article reminds of Creative Whack Pack cards:

    Take a Whack At It;
    Don’t Fall in Love with Ideas;
    Ask a Fool;
    Be Whacky;
    Loosen up(monkey have an expression of seriousness too);
    Think like a Kid.

    Few quotes related :

    “It takes more than just awareness for us to change. It takes courage and humility and the willingness to occasionally feel like fools and laugh at ourselves.” – Bud Harris.

    “I laugh when Analysts write long pieces analyzing the economic data I make up in my room at night” – Bruise Li, Chinese Emperor, 1632

  7. Brilliant.

    A reverse. I was the person who used protection for 9 years and then intentionally tried to conceive. After having joy of baby for two and half years, now I am think “what the hell was I thinking during those 9 years”. I of course may not think the same if it were the 14th baby.

    >> On Temptation/ how to live in cold state.

    A wise man said, “The time to catch temptation is the first time a thought arises, even a lesiurely passing thought when in cold state, kill it in the seed form”.

    On forgiving oneself: What else is the option? Sins are also relative. I used to consider interviewing in a company as sin, earning money as sin (out crowding others chances). Correction was required in those definitions.

    A wise man said, “No saint ever lived who did not have a past or did not need money. A saint is a sinner who never gives up”.

  9. Sir while reading your article i was thinking of the so called legendary Bill Miller. In the crash of 2008 he even loaded his portfolio even after stocks crashed more than 30% and finally he was wiped out. He must be thinking seemed a good idea back then. His whole track record was destroyed.

Comments are closed.