Adversity is frightening, but only through adversity can you succeed!

Munger: If someone smarter than you wants to deceive you, it's hard not to be fooled

Munger: While studying at Columbia University, whether in physics, mathematics, or music, literature, Ben Graham excelled in every subject. He could speak Greek and Latin fluently and wrote poetry in Latin. Graham was knowledgeable and exceptionally gifted.

Among Graham's students, some had very close relationships, and they regularly organized activities to bring everyone together. Once, they invited Graham to join them. At this gathering, Graham presented a small quiz he had prepared in advance to test everyone. The average IQ of the attendees must have been over 150.

The quiz Graham prepared was very simple, consisting of true or false questions that required just a check or a cross. Although it was all true or false questions, among all the attendees, including myself and Warren Buffett, only one person got more than half of the answers correct.

How could this happen? Because Graham was a very smart person. He deliberately set traps in the questions that ensnared all of us. The person who got the most answers right only truly knew three questions, while the others were largely guesses. Just by a mix of guessing and luck, they barely managed to get a little over half correct.

Graham never told us explicitly what lesson he wanted us to learn. I think he wanted us to understand: if someone significantly smarter than you wants to deceive you, no matter how you judge and analyze, it's hard not to be fooled.

Fortunately, Ben Graham was a genius, and among the people we met, very few were as smart as he was. Additionally, we are very aware of our shortcomings and understand that there are many things we cannot do, so we cautiously remain within our "circle of competence." The "circle of competence" is a concept introduced by Warren. Both Warren and I believe that our "circle of competence" is a very small circle.

When I was young, a friend said to me: "Munger only studies the little things in his business, and he knows nothing about matters unrelated to his business." We draw clear lines between our knowns and unknowns, and we only operate within the known circle.
Munger's wisdom: Adversity is frightening, but only adversity can lead you to success. It's worth reading multiple times!