Hard and Rare
Stock markets had their best week of the year. The S&P 500 rose 5.85% on the week, while the Nasdaq gained 6.61%. After a weak October that saw rising rates worry investors, interest rates moved down on hopes that the Fed might be done raising rates and that inflation is no longer a big worry—and this was apparently very happy news to Mr. Market.
Last week, the Acquired Podcast also released an episode with Charlie Munger—the first podcast appearance of the 99-year-old investor’s life. In the conversation, Munger discussed both the rarity and difficulty of finding genuinely great investment ideas:
“There aren’t many times in a lifetime when you know you’re right, and you know you have one that’s really going to work wonderfully. Maybe five, six times in a lifetime you get a chance to do it. And people that do it two or three times early all go broke because they think it’s easy. In fact, it’s very hard and rare.”
Munger’s comment about those finding big winners early going broke brings to mind the warning about early success. Having big winners early can make you think you are smarter or luckier than you are. It can make the game seem easy.
But investing is not easy. The formula for success may be simple, but it shouldn’t be easy to sit back after buying some shares of stock and get rich while other people run the business and do the work making that business successful—and it’s not.
It’s also getting harder. The world is more competitive. Information is more widely available for anyone to analyze. And more people are interested in the stock market than they were back when it was at least a little easier.
But the rewards for finding those five or six or maybe even a dozen great ideas in your lifetime are so great that it’s a worthwhile effort to pursue, especially if you’re interested in the pursuit, and especially if you’re committed to doing the work to put the odds on your side.
“A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind, loving diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.” —Charlie Munger
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