Billionaire Charlie Munger, vice chairman of Berkshire Hathaway, has long been considered a source of wisdom for established professionals and students alike.
In 1996, Munger was asked to speak to a Stanford Law School class, and he decided to revisit one of his well-known speech he had first delivered two years earlier, at the University of Southern California Marshall School of Business, "A Lesson on Elementary, Worldly Wisdom."
Munger emphasized three key pieces of advice:
1. Figure out what your talents and advantages are
Munger expressed the importance of honing in on individual talents.
"Each of you will have to figure out where your talents lie," Munger told the students. "And you'll have to use your advantages. If you try to succeed in what you're worst at, you're going to have a very lousy career. I can almost guarantee it."
It took Munger himself many years to finally land in a career that capitalized on all of his talents. Prior to his start at Berkshire Hathaway, he co-founded his own law firm. But while he was there, he watched his clients make investment decisions that he believed could be better.
Still, he didn't think to leave law until his longtime friend Warren Buffett, CEO of Berkshire Hathaway, advised him to do so. In an interview with Fortune, Buffett says that law "didn't use [Munger's] full talents"
Knowing your talents and advantages also helps in choosing individual investments, Munger said. He says that he and Buffett only invest in businesses they understand, have a knack for and have advantages in.
He asked the students, "Why would we want to play a competitive game in a field where we have no advantage — maybe a disadvantage — instead of in a field where we have a clear advantage?"
2. Learn how to handle your mistakes
Munger prides himself on being able to handle his mistakes and said he learned how to let go and cut his losses.
"You can learn to make fewer mistakes than other people, and how to fix your mistakes faster when you do make them," he said. "But there's no way that you can live an adequate life without [making] many mistakes."
He told the Stanford Law students that regardless of how much they learn, making mistakes is unavoidable. What matters, according to Munger, is how you react to these mistakes.
One important part of that is knowing when to abandon a project that isn't working. "Failure to handle psychological denial is a common way for people to go broke," he said. "You've made an enormous commitment to something. You've poured effort and money in. And the more you put in, the more that the whole consistency principle makes you think, 'Now it has to work. If I put in just a little more, then it'll work.' People go broke that way."
He told The Wall Street Journal in May, "Part of the reason I've been a little more successful than most people is I'm good at destroying my own best-loved ideas,"
3. Saying "I don't know" is a perfectly fine answer
"Nobody expects you to know everything about everything," Munger said. "When you don't know and you don't have any special competence, don't be afraid to say so."
Munger says that Jack Welch, former CEO of General Electric, showed him the best way to say "I don't know." When asked about decisions being made by Apple, Welch said "I don't have any special competence that would enable me to answer that question."
This response, in Munger's opinion, is the best way to react when asked about an unknown topic.
"I try to get rid of people who always confidently answer questions about which they don't have any real knowledge," Munger said.
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