Becoming A Better Investor: The Drug-Misinfluence Tendency

Charlie Munger — renowned investor, Berkshire Hathaway’s vice-chairman, and Warren Buffett’s trusted partner — often emphasised how deeply human psychology affects our decision-making, especially in investing. He outlined 25 core psychological tendencies that, when recognised, can help investors sidestep costly mistakes and make more rational choices.

This week, we explore Tendency #20: The Drug-Misinfluence Tendency — and how it can skew investment behavior.

What is it?

This tendency is pretty self-explanatory: when we are under the influence of drugs, we tend to make irrational decisions in all aspects of life.

Munger minces no words. In his speech, he says:

“This tendency’s destructive power is so widely known to be intense, with frequent tragic consequences for cognition and the outcome of life, that it needs no discussion here to supplement that previously given under “‘Simple, Pain-Avoiding Psychological Denial.’”

Simply put, we make impaired decisions under the influence of drugs.

How does it play out in the world of investing?

The lesson here is clear: rational decision-making demands clarity of mind.

From an investing standpoint, this tendency is a reminder that clear thinking and sound judgment are fragile and that chemical influences can slowly and quietly erode both.

For Munger, the Drug Misinfluence Tendency is the distortion of cognition and decision-making under the influence of chemicals: narcotics, alcohol, stimulants, sedatives, or even medications that subtly alter our mood.

The markets can be volatile and unpredictable. Which is why we, as investors, need to consider mental clarity as a competitive advantage. Yet we often overlook how everyday lifestyle habits, like  poor sleep, self-medication with OTC drugs, excessive caffeine intake and alcohol consumption — impact our ability to make sound decisions at work or when we invest. In the world of investing, sharp thinking and clarity of thought are non-negotiables. A mind that is even slightly clouded is prone to grave errors, taking on irrational risks, and making emotional (rather than practical) decisions.

Munger's warning is simple: if your thinking is chemically compromised, so is your portfolio. It is important that we protect the most valuable asset of all, our mind. So we should build habits that support mental clarity and avoid substances and behaviours that impair our good judgement.

Staying sharp, both mentally and morally, means saying no to anything that could dull judgment, no matter how socially acceptable it might be. Because mental discipline, according to Munger, can safeguard us against making disastrous investment decisions.