📖Charlie Munger
Know the Edge of Competence
Recognizing your limitations is a strength.
Knowing what you don't know is more useful than being brilliant. If you know the edge of your competence, you're way ahead of the pack.
🏠 Everyday Analogy
📖 Core Interpretation
Charlie Munger advocates a repeatable process: define criteria, execute consistently, and review decisions against evidence. Process quality drives outcome consistency.
💎 Key Insight：Awareness of ignorance prevents costly mistakes.
AI Deep Analysis
Get personalized insights and practical guidance through AI conversation
❓ Why It Matters
Without process, there is no reliable feedback loop. Structured execution and review improve decision quality over time.
🎯 How to Practice
Run a decision loop of research, thesis, execution, and post-mortem; document assumptions and update playbooks with evidence, not hindsight bias.
⚠️ Common Pitfalls
Having opinions without execution criteria
Reviewing outcomes but not decisions
Abandoning rules during volatility spikes
📚 Case Studies
1
Housing and Financial Stocks (2007)
US homebuilders and mortgage-related financials enjoyed record profits and valuations pre-2008, driven by easy credit and belief that housing prices couldn’t fall nationally.
✨ Outcome：Mean reversion hit: defaults surged, profits evaporated, and prices crashed 2007–2009. Investors who assumed abnormal profitability would persist suffered large permanent losses.
2
Fermat-Pascal Betting System Insight (1994)
Munger discussed the ‘Fermat-Pascal system’ as the math behind rational betting, emphasizing expected value and edge in investment decisions.
✨ Outcome：Applied probability-weighted thinking to concentrate capital in high-odds situations.
See how masters handle real scenarios?
30 real investment dilemmas answered by legendary investors
Explore Scenarios →