How do Munger and Buffett discuss their investment mistakes, and what are their reflection processes?

How do Munger and Buffett discuss investment mistakes? What methods do they use for reflection?

Hey, you're asking how Munger and Buffett handle poor investment decisions—great question. Having invested myself and studied their approach, I find their methods incredibly practical. Simply put, they don’t hide their mistakes but openly discuss them, using smart techniques to reflect and avoid repeating errors. Let me break it down step by step, conversation-style, so it’s easy to follow.

How do they talk about investment mistakes?

This legendary duo often addresses their investment blunders head-on during Berkshire Hathaway’s annual meetings or in shareholder letters—not to complain, but to share lessons. For example:

Buffett publicly admits errors: He’s written in annual reports about buying the wrong stocks, like Dexter Shoe Company in the 1990s, which lost money due to fierce competition. He’d say: "This was my mistake—I failed to see the long-term risks." This isn’t self-flagellation; it shows even investing giants err, but the key is to learn.
Munger favors inversion: Munger (now nearly 100) always says "invert," meaning don’t just think about success—focus on how to fail. In their conversations, he’d ask: "Why were we wrong? What did we overlook?" Their discussions feel like old friends venting, yet they always dig deep. For instance, Munger criticized Buffett’s early textile mill investment as a "dumb mistake," but they used it to remind themselves: don’t be fooled by short-term temptations.

They treat mistakes not as shameful but as "tuition paid." Buffett once said: "Mistakes are part of investing, but don’t repeat the same one." When these two chat, the focus is "why it went wrong," not "who’s to blame."

What reflection techniques do they use?

Reflection is their core weapon—not casual thinking, but a structured process. I’ve tried these methods myself to review investments. Here are their go-to approaches, super practical:

Post-Mortem Analysis: After a bad investment, they sit down to dissect it. Key questions: What assumptions did I make? Which proved wrong? How did external factors (e.g., market shifts) impact it? For example, Buffett reflected on his IBM stock mistake, admitting he underestimated tech’s rapid evolution. This helps identify blind spots and avoid repeats.
Mental Models & Cognitive Bias Checks: Munger champions this. He collects "mental models" from economics, psychology, etc., to scrutinize decisions. For common errors like "confirmation bias" (seeking only supporting evidence), they ask: "Was I too optimistic, ignoring risks?" Buffett uses this too, emphasizing "margin of safety"—never overpay, so errors have a buffer.
Long-Term Perspective & Learning Loops: They play the long game, treating mistakes as part of continuous learning. Munger says: "Smart people learn from others’ mistakes; fools learn from their own." But these two go further—learning from both. At annual meetings, they review past decisions to adjust strategy. For instance, after losing money in textiles early on, they pivoted to consumer goods and insurance because they’d internalized those lessons.

Ultimately, these two make reflection central to their investing philosophy—no flashy theories, just honest admission, root-cause analysis, and breaking bad habits. If you invest, try their methods: When you lose money, don’t rage—write down why you were wrong and avoid it next time. Over time, your decisions will sharpen. Got specific examples? I’m happy to dive deeper!