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Charlie Munger on the Correct Type of Knowledge

Charlie Munger ( Trades , Portfolio ), during one of his talks to the USC Gould School of Law, provided a quick comment on the two types of knowledge and the best way to not only identify them but to get the most out of the relevant information.

"I frequently tell the apocryphal story about how Max Planck, after he won the Noble Prize, went around Germany giving a same standard lecture on the new quantum mechanics," he said. "Over time, his chauffeur memorized the lecture and said, 'Would you mind, Professor Planck, because it's so boring to stay in our routine, if I gave the lecture in Munich and you just sat in front wearing my chauffer's hat?' Planck said, 'Why not?' And the chauffeur got up and gave this long lecture on quantum mechanics. After which a physics professor stood up and asked a perfectly ghastly question. The speaker said, 'Well, I'm surprised that in an advanced city like Munich I get such an elementary question. I'm going to ask my chauffeur to reply.'

"Well, the reason I tell that story is not to celebrate the quick wittedness of the protagonist. In this world I think we have two kinds of knowledge. One is Planck knowledge, that of the people who really know. They've paid the dues. They have the aptitude. Then we've got the chauffeur knowledge. They have learned to prattle the talk. They may have a big head of hair. They often have a fine timbre in their voices. They make a big impression. But in the end what they've got is chauffeur knowledge masquerading as real knowledge. You're going to have the problem in your life of getting as much responsibility as you can into the people with the Planck knowledge and away from the people who have the chauffeur knowledge. And there are huge forces working against you."

With his comments, Munger provided us with useful filters to distinguish between useful information and small talk. Generally, TV hosts seem to know a lot because they are the carriers or messengers of the information. However, as Munger mentions, it is rare when they know about the subjects in great depth. This happens also in specialized media, such as Bloomberg TV, CNBC and others. A good example I can think of is Jim Cramer. While he generally advises the audience about stocks and he is presented as an expert in finance, his ideas lack a complete understanding of the force driving individual businesses.

For us as investors, to correctly assess the differences between useful information and chatter is critical. Munger and Warren Buffett have generally mentioned that they do not read research reports, as they prefer to get the facts and then proceed to create their own opinion. With knowledge being cumulative, we can certainly reap the benefits of reading through a lot of things that can help our decision making. The more we avoid others' opinions and distinguish between useful information and "chaffeur knowledge," as Munger

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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