@davidflanks: Day 38 of the Flank Challenge. One of Charlie Munger's most famous mental models is the pari-mutuel system. In 1994 Munger gave a talk at USC that ended up in Poor Charlie's Almanack, and the model he opens with is the pari-mutuel system. Pari-mutuel is French for betting among ourselves. Nobody sets the odds. The odds move as the money moves. That is exactly what a share price is. Here is why that makes the market so hard to beat: ➡️ The track takes 17% off the top, so you have to out-pick everyone else by more than 17% before a single dollar of yours goes to work ➡️ A shrewd horseplayer's entire edge usually just cuts his season loss from 17% down to about 10%. He is still losing ➡️ Munger's stock version: IBM at 6 times book against a beaten-up railroad at one-third of book. Any damn fool could see IBM was the better business. Put the price into the formula and it stops being obvious which one is the better bet But a handful of people do beat it, and they all do the same one thing: ➡️ The president of Santa Anita told Munger there were 2 or 3 bettors clearing the full handle, net ➡️ The one thing every winning pari-mutuel player in history had in common: they bet very seldom ➡️ Buffett's version is a punch card with 20 slots for your entire life. 20 investments and then you are done ➡️ Munger's read on Berkshire: the top 10 insights account for most of the accumulated billions My take: the edge is not being smarter, it is being rarer. Work, work, work, work, wait for the mispriced bet, then load up. That is also the hardest part of this, because doing nothing looks exactly like failing. I put Munger's full 1994 talk on Flank with my notes on it. It's free. Come read it. Link in bio. How many stocks do you own right now? Drop the number, I actually want to see it. #charliemunger #valueinvesting #stocks #investing #warrenbuffett #flankinvesting

David Flanks

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Monday 31 August 2026 17:31:40 GMT