Charlie Munger on Bitcoin and Second-Order Thinking


Charlie Munger turned 94 this year. He grew up in Omaha, Nebraska during the Great Depression. Through hard work, continuous learning, persistence, and generally avoiding stupidity, Munger has become one of the wealthiest individuals on the planet. Warren Buffett looks to Munger for advice. He’s literally seen it all.

So I find it fascinating that people are clamoring for his opinion on Bitcoin. In a recent interview he offered this response:

I think it’s perfectly asinine to even pause to think about them!

You know it’s one thing to think that gold has some marvelous store value because man has no way of inventing more gold or getting it very easily. So it has the advantage of rarity.

Believe me, man is capable of somehow creating more Bitcoin. They tell you they’re not going to do it but they mean they’re not gonna do it unless they want to. That’s what they mean when they say they’re not going to do it.

If they tell you there are rules that they can’t do it, don’t believe them. When there’s enough incentive bad things will happen.

It’s bad people, crazy bubble, bad idea, luring people into the concept of easy wealth without much insider work. That’s the last thing on Earth you should think about.

If it worked it would be bad for you cause you’d try to do it again. It’s totally insane!

And by the way, I’ve just laid out a wonderful life lesson for you. Give a whole lot of things a wide berth. They don’t exist! You know, crooks, crazies, egomaniacs, people full of resentment, people full of self-pity, people who feel like victims. There’s a whole lot of things that aren’t gonna work for you. Figure out what they are and avoid them like the plague, and one of them is Bitcoin!

And the worst thing would happen if you won because then you’d try to do it again. It’s total insanity!

This response illuminates two great Munger traits; his ability to immediately identify the crux of a problem, and his ability to recognize Second-Order and Third-Order effects.

Munger has the ability to see a problem and distill its essence. When it comes to breaking down a problem and finding a solution, Warren Buffett places Munger in a category all to himself: “Charlie can’t encounter a problem without thinking of an answer. He has the best thirty-second mind I’ve ever seen. I’ll call him up, and within thirty seconds, he’ll grasp it. He just sees things immediately.”

Regarding Bitcoin, Munger recognizes the problem immediately. Bitcoin as a store of wealth is entirely dependent on the total number of Bitcoin being fixed, forever. This is an assumption most bitcoin investors take on faith, but Munger has been around enough to know the power of incentives. If the incentive to make more Bitcoin is strong enough, “man is capable of somehow creating more Bitcoin.”

And then there is Munger’s insight into the Second-Order effects of investing in Bitcoin. For most people, when encountering a problem, the analysis ends after evaluating the First-Order effects. Munger always looks beyond that by asking, “and then what?” Okay, you invest in Bitcoin and it’s successful…then what? Even if you invest in Bitcoin and become fabulously wealthy overnight, you’ll be ruined in the long term because you’ll do it again. Winning at Bitcoin will only create bad habits and incentives that will eventually lead to your financial ruin.

For Munger, Bitcoin is a no-win proposition.

Sean P. Murray is an author, speaker and consultant in the areas of leadership development and talent management.  Learn more at RealTime Performance.

Twitter: @seanpmurray111

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