At the Daily Journal Corp.’s 2019 annual meeting, renowned billionaire investors Warren Buffett and Charlie Munger engaged in a discussion about their hiring preferences, highlighting their risk-averse approach.
Munger, 99, vice president of Buffett’s Berkshire Hathaway Inc. holding company, made a playful remark about Tesla Inc. CEO Elon Musk, pointing out that Musk would not be his ideal candidate. Munger, who has a reported net worth of $2.5 billion, was answering a shareholder’s question about his preference for people who accurately assess their abilities.
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Munger’s Hiring Preference
The shareholder inquired about Munger’s Principle, which asserts a preference for working with people who have an IQ of 130 but believe it is 120, rather than those with an IQ of 150 who perceive it erroneously as 170. In response, Munger said, “You must be thinking Elon Musk.”
While Munger acknowledged Musk’s propensity for setting seemingly impossible goals, he expressed a preference for hiring people who have a realistic understanding of their limitations. Munger believes that overestimating your abilities can lead to excessive risk without commensurate rewards. He alluded to Musk when discussing his preference for working with people who possess a modest self-assessment.
“Of course I want the guy who understands his limitations rather than the guy who doesn’t,” Munger told his shareholders.
Munger’s position aligns with his longstanding investment strategy, which prioritizes stable, long-term investments over high-risk companies. He and Buffett amassed significant wealth through this approach, unlike Musk’s bolder efforts, such as challenging established automakers with Tesla Inc. and founding SpaceX for space exploration.
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Different investment approaches
Although the two legendary billionaires have different wealth-building strategies, it’s hard to say either is incorrect. Buffett and Munger traditionally target proven, profitable companies at compressed valuations.
While Musk engages in high-risk, high-reward ventures like building startups. Investing in startups is usually a holistic approach, as investors’ money is tied up for years with no way to sell until the IPO. Startups are volatile and usually unprofitable, so they have a high failure rate. But those who succeed in an IPO or acquisition result in substantial gains for early investors. This method has gained popularity in recent years thanks to platforms like StartEngine and Wefunder, which allow anyone to invest in startups.
Update on the 2023 General Assembly
At the 2023 shareholder meeting, Buffett and Munger were asked to revisit Munger’s previous comment about Musk. The Toronto shareholder specifically asked about Musk and asked if Munger still felt Musk overestimated himself, given the success of his companies like Tesla, SpaceX and Starlink.
Munger didn’t shy away from his previous stance, responding, “Yeah, I think Elon Musk overestimates himself, but he’s very talented, so he’s overestimating someone who doesn’t need to overestimate to be very talented. ” Munger acknowledged Musk’s exceptional abilities but maintained his belief that Musk tended to overestimate himself.
Buffett also chimed in, acknowledging Musk’s genius. He added: “Elon is a brilliant, brilliant guy, and I would say he could score over 170 [in IQ]but he dreams of things, and his dreams have a foundation.”
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This article Billionaire investor Charlie Munger playfully pokes at Elon Musk’s overrated IQ, deeming him unsuitable for ideal job candidate, originally appeared on Benzinga.com
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