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How I Think

🧩 Munger vs. Musk: A Different Game

Published over 1 year ago • 2 min read


Yo yo!

I'm currently sitting here clacking away on my Mac keyboard staring at a Jocko Willinck coffee mug that says one thing: "GET AFTER IT". If you don't know Jocko, the guy is an ex-Navy Seal commander and a certifiable badass (Jocko + Joe Rogan podcast here).

So I'm so fired up I can't contain the adrenaline.

But today, we're focusing on a concept known as expected value. And how it can unlock unfair advantages.

But literally no one (including me) wants to read a mathy definition and call it a day.

So let me explain the idea and apply it to you using an example from our buddies Elon Musk and Charlie Munger.

So if you didn't know, Charlie Munger is Warren Buffett's and business partner at Berkshire Hathaway for the past 50+ years.

This dude is one of the most brilliant thinkers and investors out there (side note: here's a link to an amazing Munger speech of his called "Psychology of Human Misjudgment")

But it's 2009. Elon is hangin out with Charlie at a lunch. Supposedly, there's a big group of ballers all talking shop and enjoying a meal.

At the time, Tesla was gearing up to go public. But it was still a fledging electric vehicle car company that barely survived the 2008 financial crisis.

The story goes that Charlie rips Tesla apart. And tells everyone all the reasons why Tesla would fail...

The funny part is... Charlie was right.

Expected Value = probability-weighted average of all possible values

In simple terms, this means that if Tesla is worth $1 million in 1 of 10 scenarios.

And worth $0 in 9 of 10 scenarios. Tesla's expected value is $1 million / 10 or $100K.

Now, why does this all matter?

1) Playing Different Games

If you know anything about Buffett and Munger, you know they have one famous rule:

"Don't lose money."

The dynamic duo focuses on safe, predictable cash flows.

Elon Musk and other moonshot seeking entrepreneurs play a different game.

Munger plays a game of low risk, predictable reward.

Musk plays a game of high risk, high reward.

Which brings us to expected value...

2) Beyond the Expected Value

In our expected value example, we figured that Tesla is worth $100,000.

But what if the chance of success for Elon was still 1 in 10 but the value of the prize was $1 TRILLION.

That means, the expected value for Tesla was $100 billion. Would you take that bet?

You are a failure 90% of the time but when you do win you build a $100 billion business.

This is what Elon means when he says "I agreed with all those reasons & that we would probably die, but it was worth trying anyway".

Throw in a $100 billion expected value and the chance to fundamentally alter the world's dependency on gas-powered vehicles?

You may just like those odds after all.

The Wrap Up

The key lesson from this piece is that Charlie and Elon are both right. They just play different games with different expected values.

When you do something as crazy (awesome) as start Tesla, you will probably fail! So Charlie is right.

But the risk is worth the size of the prize.

So Elon is right too!

I'll leave you with one parting thought.

On Elon, Munger recently said:

Very able, but he thinks he's even more able than he is and that's helped him. Never underestimate the man who overestimates himself ... Some of the extreme successes are going to come from people who try very extreme things because they're overconfident. And when they succeed, well, there you get Elon Musk.

Never underestimate the guy or gal with extreme confidence. They may just be crazy enough to pull it off.

See ya soon,

Chris Hlad

p.s. if you loved this, forward it to a friend. if you hated this, forward it to an enemy. And if you're new, hit the big blue button below...

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