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Author: Ken Shubin Stein

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Is Berkshire Hathaway Really a Psychology Experiment?

Warren Buffett and Charlie Munger are known for many things, yet one important aspect of their success is often overlooked: they are conducting Corporate America’s longest running applied psychology experiment.

Buffett and Munger have often discussed the importance of understanding oneself and others in making decisions, but their methods have, strangely, not been copied widely, despite their long-term and outsized success.  This is largely because it is simple to hear and understand the principles they teach, but it goes against human nature – human psychology – to apply them.

So most of us construct logical reasons why applying their ideas are not practical, or because their situation is different, or for any number of other reasons.  Ultimately, most of these arguments are justifications for not doing things that run counter to our own psychological tendencies.  Investors, as a group, largely validate the saying that “man is a rational animal, he can rationalize anything.”

In areas ranging from corporate governance to conducting research and making investment decisions, they do things differently, and better, than 99% of corporate America.

Here are a few examples and some of the psychology behind them: Read More