Charlie Munger: The Complete Investor (Columbia Business School Publishing)

by Tren Griffin

Investors have a tendency to make decisions based on what they can easily recall. The more vivid and memorable the event, fact, or phenomenon may be, the more likely it will be used by the investor in making a decision—even if what is being recalled is not the best data on which to make a decision. For example, if stocks have recently dramatically fallen in a market crash, investors tend to be afraid to buy, even though it may be the very best time to buy. The year 2002 was an excellent time to buy stocks, but the memory of the crash of the stock market after the collapse of the Internet bubble was so vivid that only people who, like Munger, had trained themselves to overcome this tendency were able to use that opportunity to reap big investing rewards.