Charlie Munger spent decades studying human behavior, and he came to one powerful conclusion. The people most likely to lead you astray are not always the ones who seem dishonest on the surface. They are the ones whose psychology, incentives, or ego make reliable behavior nearly impossible.
Munger did not build his framework on gut feelings. He built it on pattern recognition, behavioral economics, and a lifetime of observing how people act when money, status, or self-interest are on the line. Here are five types of people he consistently warned about.
1. People With Perverse Incentives
Munger believed that incentives are the single most powerful force shaping human behavior. He said, “Show me the incentive, and I will show you the outcome.” This was not a casual observation. It was the foundation of how he evaluated whether someone could be trusted to give honest advice or act in your best interest.
When someone’s paycheck, commission, or career advancement depends on convincing you to take a specific action, their guidance is compromised from the start. It does not matter how polished or credentialed they appear. A financial advisor earning commissions on products they sell has a fundamentally different motivation than one who only profits when your portfolio grows.
Munger saw this pattern everywhere, from Wall Street to corporate boardrooms to politics. The person sitting across from you may genuinely believe they are being helpful. But misaligned incentives warp judgment in ways that even well-meaning people can’t entirely resist. Before trusting anyone’s recommendation, look at how they get paid. That will tell you more than anything they say.
2. Know-It-Alls Who Ignore Their Own Ignorance
Munger had far more respect for someone who could say “I don’t know” than for someone who had a confident answer for everything. He put it plainly: “Knowing what you don’t know is more useful than being brilliant.” Intellectual humility was not an admirable personality trait in his view. It was a requirement for sound judgment.
People who operate outside their circle of competence without acknowledging it are dangerous precisely because they sound so sure of themselves. They project authority, and that authority can be persuasive. But confidence without self-awareness is just a well-dressed form of recklessness.
Munger and Buffett both made it a discipline to stay within what they truly understood. They passed on countless deals simply because they did not feel they had enough knowledge to evaluate them properly. The people you should be most cautious around are the ones who never seem to pass on anything, who always have an opinion, and who treat uncertainty as weakness rather than wisdom.
3. Promoters Using Accounting Gimmicks and Narratives
Few things irritated Munger more than financial promoters who dressed up mediocre results with creative metrics and compelling stories. He was famously blunt about the practice, saying, “I think that, every time you see the word EBITDA, you should substitute the word ‘b*llshit earnings.‘” That level of directness was rare in the business world, and it reflected how seriously he took the issue of financial transparency.
Promoters who rely on adjusted earnings, pro forma numbers, or selective data presentation are not just bending the truth; they are distorting it. They are constructing an alternate reality designed to keep you invested, literally and emotionally. The narrative replaces the numbers, and by the time the real picture emerges, the damage is already done.
Munger’s advice was straightforward. Look at the actual cash flow. Look at real earnings. If someone has to invent a new way to measure success to make their results look good, that tells you everything you need to know about whether they deserve your trust or your capital.
4. Habitual Liars or People With Flexible Integrity
Munger was a pragmatist about honesty. He did not frame truth-telling as a lofty moral ideal. He treated it as a practical tool for living a better life. His advice was simple: “Just tell the truth, and you don’t have to keep track of what you said.” That practical wisdom captures why habitual dishonesty is such a reliable red flag.
People who constantly reshape their stories, exaggerate outcomes, or shade the truth create a fog around everything they touch. You can’t build a sound decision on unreliable information, and you can’t maintain a productive relationship with someone whose version of events shifts depending on the audience or the stakes.
Munger did not expect perfection from anyone. But he drew a hard line at patterns of dishonesty. One mistake or exaggeration is human. A consistent pattern of bending the truth reveals something more profound about how a person operates. If someone’s integrity is flexable depending on what is convenient, they will eventually be flexable at your expense.
5. People Driven by Envy or Status Competition
Of all the destructive human emotions, Munger singled out envy as the most pointless. He said, “Envy is a foolish sin because it’s the only one you could never possibly have any fun at.” Behind the humor was a severe warning about the kind of decision-making envy produces.
People who are primarily motivated to keep up with or surpass others in visible ways tend to make short-sighted, emotionally driven choices that are disconnected from any rational strategy. They buy things they can’t afford, take risks they don’t understand, and offer advice that reflects their own insecurities rather than your best interests.
Envy also makes people unreliable partners and advisors because their frame of reference is always external. They are not evaluating situations based on merit or long-term value. They are measuring everything against what someone else has or has achieved. That kind of mental framework leads to decisions that serve ego rather than outcomes. Munger avoided envy in his own life and urged others to steer clear of people who let it drive theirs.
Conclusion
Charlie Munger’s approach to trust was not based on charm, credentials, or first impressions. It was built on a clear-eyed assessment of incentives, self-awareness, transparency, honesty, and emotional discipline. These five behavioral patterns are the ones he returned to again and again across decades of investing, speaking, and advising.
The lesson is not to become cynical or assume the worst about everyone. It is to develop better filters. When you evaluate the people around you based on how they are incentivized, how they handle what they don’t know, how they present information, how consistently they tell the truth, and what emotions drive their decisions, you make far better choices about who deserves your trust, your time, and your money.