Charlie Munger Quotes

Most investors give too much credence to the theory that prices are rational; they presume that a market collapse must have been justified by serious economic trouble.

Markets do very weird things because it reacts to how people behave, and sometimes people are a little screwy.

The generally accepted view is that markets are always right -- that is, market prices tend to discount future developments accurately even when it is unclear what those developments are. I start with the opposite view. I believe the market prices are always wrong in the sense that they present a biased view of the future.

The markets are moved by animal spirits, and not by reason.

If the financial system has a defect, it is that it reflects and magnifies what we human beings are like. Money amplifies our tendency to overreact, to swing from exuberance when things are going well to deep depression when they go wrong. Booms and busts are products, at root, of our emotional volatility.

It seems to me that at least as far as the financial markets are concerned, there is increasing evidence against rational expectations, even at the macro level.

Economists who adhere to rational-expectations models of the world will never admit it, but a lot of what happens in markets is driven by pure stupidity - or, rather, inattention, misinformation about fundamentals, and an exaggerated focus on currently circulating stories.

Bubbles and crashes are textbook examples of collective decision making gone wrong. In a bubble, all of the conditions that make groups intelligent - independence, diversity, private judgement-disappear.

I started in business journalism from the outside, so when I started writing about markets and business, I was struck by the fact that markets seemed to work well even though people are often irrational, lack good information and are not perfect in the way they think about decisions.

During periods of extreme fear or greed, you don't have the proper balance between those two to generate market efficiency and you get extremes in behavior.

The average investor does significantly worse than a simple index... It's literally because of the way our brains are wired.

While neurological studies have tried to identify components responsible for fear and greed, the impact on finance is less clear.

Markets as well as mobs respond to human emotions; markets as well as mobs can be inflamed to their own destruction.

Numerous academic studies have shown that amateur investors make poor traders - buying stocks for the wrong reasons, holding losers for too long, and acting on whims and emotions.

Financial markets have a tendency to go to excess.

Looking at the stock market to understand the economy is like studying a manic depressive in order to understand human nature.

Abnormal stresses and strains tend to accentuate man's animal instincts and provoke irrational and socially disruptive behavior among the less stable individuals in the maddening crowd.

Economists discount any factors that would not influence the thinking of a rational person.

The lesson of my field, behavioral economics, is that we need to understand the ways in which we differ from the rational human assumed in standard economic theory.

Market timing doesn't work. If all the bubbles and all this mispricing really exist, how come so few people see it before it turns out that way?

I believe, in the stock market - that's one of my fields - that most people are irrational. And to be irrational, you can be irrational in so many different ways that, practically, the result is indeterminate.

The markets represent the aggregate interaction of many investors. Their attitudes, philosophies, and behavioral patterns on many levels are predictable... and repetitive.

Every bubble has two components: something - some real trend, and a misconception about that trend.

History demonstrates that participants in financial markets are susceptible to waves of optimism. Excessive optimism shows the seeds of its own reversal in the form of imbalances that tend to grow over time.