Three Men, Three Lessons, 300 Years

Over the last six months, the finance and investment world has lost three giants: Charlie Munger, Daniel Kahneman, and Jim Simons. With nearly 300 combined years on earth, each has left an indelible mark on society and the investment world. In this blog post, we will look at each man’s career and evaluate wisdom from these men based on one of their most famous quotes.

Jim Simons (April 25, 1938 – May 10, 2024)

Jim Simons worked as a code breaker for the National Security Agency (NSA) during the Cold War, helping to crack codes used by the Soviet Union. His experience at the NSA substantially impacted his career in finance. At his hedge fund, Renaissance Technologies, Simons pioneered the use of quantitative models and algorithms for trading strategies. His approach relied heavily on data analysis and mathematical models rather than human judgment. Its flagship Medallion Fund averaged an astonishing 66% annual return before fees from 1988 to 2018, making Renaissance arguably the best-performing hedge fund in history.

“In this business, it’s easy to confuse luck with brains.” – Jim Simons

Even someone as successful as Simons recognizes that luck plays a significant role in achieving impressive results. His quote serves as a humorous reminder that every missed investment opportunity doesn’t make someone a bad investor, just as every positive outcome doesn’t make someone a genius.

Daniel Kahneman (March 5, 1934 – March 27, 2024)

Daniel Kahneman was best known for his pioneering work in behavioral economics and his research on cognitive biases and heuristics that influence human judgment and decision-making, especially in economics. He was skeptical of active investing and stock-picking, believing the market is very difficult to predict. He is perhaps most famous for developing Prospect Theory with Amos Tversky in 1979 as a model to describe how people make decisions involving risk and uncertainty, challenging the traditional economic theory of expected utility maximization. Utility maximization refers to the concept that individuals and companies seek to achieve the highest level of satisfaction from their economic decisions. Within Prospect Theory, investors are probably most familiar with the principle of loss aversion, which is a cognitive bias that suggests investors prefer avoiding losses over receiving an equivalent gain. Loss aversion can lead to portfolios that are too conservative, which may limit an investor’s growth potential.

“The idea that the future is unpredictable is undermined every day by the ease with which the past is explained.” – Daniel Kahneman

This quote from Kahneman is an important reminder that the future is indeed unpredictable. How many investors anticipated a global pandemic, banking crisis, or extreme spike in AI-related stocks? It is easy to fall into the trap of believing we can predict future market movements because we feel past occurrences have been easily explained. Market commentators continually reinforce this thinking as they tout their good market calls and explain how obvious it was that an event would take place. As investors, we can guard against the uncertainty of the future by not trying to predict it.

Charlie Munger (January 1, 1924 – November 28, 2023)

Charlie Munger was best known as the vice chairman of Berkshire Hathaway, working closely with Warren Buffett for over six decades. Munger graduated from Harvard Law School and practiced law for several years before leaving to focus on investing. He advocated a buy-and-hold approach focused on exceptional businesses at fair prices. He believed great investment opportunities are rare and supported concentrating investments in a few great ideas rather than overdiversifying. His strategic input influenced some of Berkshire’s most successful investments, such as Coca-Cola, See’s Candies, and Apple.

“The big money is not in the buying and selling, but in the waiting.” – Charlie Munger

Charlie Munger was a proponent of sitting back and allowing compounding to work its magic. Munger’s quote reminds investors to keep their eyes on the prize and not let the daily news feed distract them from their goals. Although we avoid holding concentrated investment positions, we agree with Munger that investors should avoid overreacting to daily market fluctuations. Over the long term, we believe stock prices will march higher with continued innovation and productivity.

While we reflect on the loss of these three impactful individuals, we celebrate their lasting contributions and the legacies they leave behind. Their impact on finance and investing will continue for generations to come, and we know more great investment minds will emerge and continue to evolve the art of investing.