'Richer, Wiser, Happier' Author on investing: 'There's a tremendous psychological pressure'

'Richer, Wiser, Happier' Author William Green joins Yahoo Finance's Berkshire Hathaway annual meeting pre-show.

Video Transcript

- And joining us now is William Green, author of a new book, Richer, Wiser and Happier: How the World's Greatest Investors Win in Markets and Life. William, and it's great to talk to you. One of those investors, of course, that you did speak to for this book, Charlie Munger. And I wonder if we start by talking about the big takeaway for you-- what you took away from your conversation with him, in terms of the keys to building wealth.

WILLIAM GREEN: For me, one of the most fascinating things about Charlie Munger is that here you have one of the brightest guys alive-- a guy who Warren says has the greatest 30 second mind of anyone alive. He can-- he can see the essence of-- of what any subject is about before you've even finished the sentence. And yet, what Charlie does-- that I think is extraordinarily helpful for any of us, both in investing and in life-- is he focuses on reducing what he calls standard stupidities.

And so he says, if-- if you really want to succeed, both as an investor and in life, you want to focus on being non-idiotic and-- and, as he puts it, living a long time. And so what he does is, he actually systematically collects examples of absurd, dumb, foolish things that people do. And then he asks himself, well, what-- what caused those things?

What caused this disaster? And then he says, let me focus on not doing that. And so, if you think about this as a takeaway for any investor-- think about the ways in which most of us mess up as investors. We're impatient. We try to time the market. We speculate on things that we don't really understand.

We trade in and out. We're-- we're much too emotional. We get caught up in fads. And here you have Charlie and Warren, basically just avoiding all of those standard stupidities. And it's as-- as Charlie says, it's actually easier to-- to avoid being stupid than to be smart. And so I-- I thought that was a wonderful paradox, that you have the smartest guy alive just trying to be systematically less stupid.

- William, I want to follow up on that point. You know, when Charlie and Warren talk, it sounds so easy. And you listen to it, and you go, Yup. I'm going to do that. I'm going to do that. I'm going to do that. And then you try to do it, and you can't do it. Why is there this gap?

WILLIAM GREEN: You know, Charlie always says about investing, it's simple, not easy. And-- and I think one of the things you have to understand-- you have to start by saying, well, there are these inviolable principles that I need to understand about how investing works, like, for example, you want to be patient. You want to buy assets when they're worth considerably more than the market thinks they're worth-- so there's a margin of safety there-- and then wait.

But think about the difficulty of actually buying things that are unpopular, that everyone else thinks are undervalued-- that-- that everyone else thinks are actually cheap because they deserve to be cheap. So I think there's a-- there's a tremendous psychological pressure. And when I look at Charlie and Warren I think one of their greatest advantages is actually that they're just entirely unemotional.

And so, they're-- they're not really sucked up by the emotions of the crowd. And-- and when I went to interview Charlie, I said to him, during the market crash in 2009-- when you were buying things like Wells Fargo at the-- the bottom tick of the crash in-- in March 2009. Did you feel these emotions like-- like fear, anxiety, worry? And he said, no. I-- I just didn't feel them at all.

And I said, does Warren feel it? And he said, no. He's-- he's wired exactly the same way. And so I think there's a tremendous temperamental advantage that they have, which is that because they don't really feel these emotions, they can step back and just be hyper rational. And so if you look at a period like this, where everyone is saying-- is saying, I can't believe they have $145 billion in cash and they're not doing anything.

Why don't they do something? They're just sublimely indifferent to those cries from the crowd. And-- and Warren just says, we're not paid for activity. We're paid for being right.

- And yet to Andy's point-- easier said than done-- to break away from all the noise that's out there. The principal-- the guiding principles, when you think about Warren Buffett and Charlie Munger, extreme patience and selectiveness-- which you just kind of alluded to. How do investors who are watching at home apply that, though, to their portfolio?

WILLIAM GREEN: Yeah. Charlie has this beautiful image that-- that I take very seriously, which he says-- he says, you should be like a spear fisherman. So you should be standing by the side of the stream most of the time doing absolutely nothing. And then he says, once in a while, a fat juicy salmon swims by, and you spear it. And then you just go back to doing nothing.

And he said, but it may be that for the next six months, nothing comes along. And so I think one of the great takeaways for regular investors is that the market doesn't always offer you tremendous opportunity. And so, if risk is being priced in a way that's not particularly attractive-- which is, probably generally speaking, the case at the moment-- you want to-- you want to tread with extreme caution.

And then at these moments where suddenly, the bipolar market goes the other direction-- is going nuts and is presenting you with lots of fat juicy salmons-- that's when you want to really strike with what Charlie calls gumption. And so, in a way, what you're trying to do is set yourself up counter culturally. So while everyone else is hyperactive and they're saying, I must do something because look, Bitcoin's surging.

And-- and Tesla is surging. I must act. Here are Charlie and Warren just acting calmly like spear fishermen, just-- just waiting by the stream, happy to do absolutely nothing, and just fish and-- and twiddle their thumbs. And-- and they've actually set their-- their lives up in a way that I describe as heroically inactive.

They're-- they're playing bridge. They're reading four hours a day. They're-- they're fishing. They're golfing. They're chatting with friends. And-- and just reading tons of annual reports and tons of biographies. And so I think you want to actually try to structure your life in a way that enables you to be much more patient, so that-- so that you're not getting sucked into the hyperactivity of the market.

- I like that image that you just put out there, William, about two fishermen spear fishing on the side of the river. But you talk about the two of them together. How important is that partnership, do you think? And Julia La Roche was talking about them being reunited this year. But how important is that, to achieve investing results, to have someone to bounce something off of like that?

WILLIAM GREEN: I think it's been hugely important for them. And Charlie talks about hanging out with the eminent dead is one of the ways that you learn. And-- and one of the eminent dead that he hangs out with is Darwin. And-- and he says that what he learned from Darwin is that Darwin was always seeking disconfirming evidence. He wasn't-- he wasn't trying to support his religious views with his investigations into evolution.

He was actually trying to destroy his own most cherished beliefs, in a sense. And I think part of what this relationship between Charlie and-- and Warren enables them to do is to test each other's beliefs. And so, Warren famously has described Charlie as the abominable no-man. And I think to have this mechanism-- this structure-- where somebody is-- is challenging your beliefs and-- and is-- is smart enough to be able to-- to challenge you.

I think that's hugely powerful. But I-- I think for most of us, we're not-- we're not going to have that opportunity. But we can still be constantly and consciously searching for disconfirming evidence. And it may be something as simple as if-- if you're politically liberal, you read the Wall Street Journal Op Ed page. And if you're politically conservative, you read the New York Times Op Ed page.

And this is something that-- that Charlie very consciously does. And I think it's interesting that you have Warren as a-- as a-- as a Democrat, Charlie as a Republican. And they've had this kind of wonderful relationship, where-- where they're actually seeking out views that are different from their own. And then at the same time, I think treating each other with tremendous decency and kindness-- and I-- I think that's-- that's something that we're all excited about for today.

It's that-- it's, in a sense, the reunion of this odd couple. And on-- the occasions that I've been to Omaha for the Berkshire meeting, one of the most joyous and memorable things is just that it's-- it's almost like a comedy act. You're watching these-- it's as if you're watching Walter Matthau with Jack Lemmon wisecracking together.

And I think there's something really wonderful about that partnership between them, and then the fact that they also treat their shareholders as partners. So there's a-- there's an old fashioned sense of honor and decency and-- and transparency and humor that I think is one of the reasons why-- why we've all been coming back year after year, and why-- why we're all happy to see-- to see Charlie back this year after being absent last year.