Key takeaways from Poor Charlie’s Almanack
Couple of important quotes I wanted to post here from "Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger (English Edition)" by Charles T. Munger, Peter D. Kaufman, John Collison, Warren Buffett
Philosophy and life advise
- Ideologies: "Therefore, in a system of multiple models across multiple disciplines, I should add as an extra rule that you should be very wary of heavy ideology. You can have heavy ideology in favor of accuracy, diligence, and objectivity. But a heavy ideology that makes you absolutely sure that the minimum wage should be raised or that it shouldn’t, and it’s kind of a holy construct where you know you’re right, makes you a bit nuts. This is a very complicated system. And life is one damn relatedness after another. It’s all right to think that, on balance, you suspect that civilization is better if it lowers the minimum wage or raises it. Either position is okay. But being totally sure on issues like that with a strong, violent ideology, in my opinion, turns you into a lousy thinker. So beware of ideology-based mental misfunctions."
- Values: "Focus Keep things simple and remember what you set out to do. Remember that reputation and integrity are your most valuable assets—and can be lost in a heartbeat. Guard against the effects of hubris and boredom. Don’t overlook the obvious by drowning in minutiae. Be careful to exclude unneeded information or slop: “A small leak can sink a great ship.” Face your big troubles, don’t sweep them under the rug."
- Polymath "Of course, when I urge a multidisciplinary approach—that you’ve got to have the main models from a broad array of disciplines, and you’ve got to use them all—I’m really asking you to ignore jurisdictional boundaries. And the world isn’t organized that way. It discourages the jumping of jurisdictional boundaries. Big bureaucratic businesses discourage it. And, of course, academia itself discourages it. All I can say there is that, in that respect, academia is horribly wrong and dysfunctional. Some of the worst dysfunctions in businesses come from the fact that they balkanize reality into little individual departments, with territoriality and turf protection and so forth. So if you want to be a good thinker, you must develop a mind that can jump the jurisdictional boundaries. You don’t have to know it all. Just take in the best big ideas from all these disciplines. And it’s not that hard to do. I"
- Happiness: "Life and its various passages can be hard, brutally hard. The three things I have found helpful in coping with its challenges are: Have low expectations. Have a sense of humor. Surround yourself with the love of friends and family. Above all, live with change and adapt to it. If the world didn’t change, I’d still have a 12 handicap."
- Career Advice: "What should a young person look for in a career? I have three basic rules—meeting all three is nearly impossible, but you should try anyway: Don’t sell anything you wouldn’t buy yourself. Don’t work for anyone you don’t respect and admire. Work only with people you enjoy. I have been incredibly fortunate in my life: With Warren I had all three."
- Multidisciplinary "Large educational implications exist, if my answer to Glotz’s problem is roughly right and if you make one more assumption I believe true—that most PhD educators, even psychology professors and business school deans, would not have given the same simple answer I did. And if I am right in these two ways, this would indicate that our civilization now keeps in place a great many educators who can’t satisfactorily explain Coca-Cola, even in retrospect, and even after watching it closely all their lives. This is not a satisfactory state of affairs."
- When to speak "I have what I call an iron prescription that helps me keep sane when I drift toward preferring one intense ideology over another. I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I’ve reached that state."
- Self pity "Well, you can say that’s waggery, but I suggest it can be mental hygiene. Every time you find you’re drifting into self-pity, whatever the cause, even if your child is dying of cancer, self-pity is not going to help. Just give yourself one of my friend’s cards. Self-pity is always counterproductive. It’s the wrong way to think. And when you avoid it you get a great advantage over everybody else, or almost everybody else, because self-pity is a standard response. And you can train yourself out of it. Of course, you also want to get self-serving bias out of your mental routines. Thinking that what’s good for you is good for the wider civilization and rationalizing foolish or evil conduct based on your subconscious tendency to serve yourself is a terrible way to think. You want to drive that out of yourself because you want to be wise, not foolish, and good, not evil."
On companies and investments
- “great defect of scale, of course, which makes the game interesting, so that the big people don’t always win, is that as you get big, you get the bureaucracy. And with the bureaucracy comes the territoriality—which is again grounded in human nature. And the incentives are perverse. For example, if you worked for AT & T in my day, it was a great bureaucracy. Who in the hell was really thinking about the shareholder or anything else? And in a bureaucracy, you think the work is done when it goes out of your in basket into somebody else’s in basket. But, of course, it isn’t. It’s not done until AT & T delivers what it’s supposed to deliver. So you get big, fat, dumb, unmotivated bureaucracies. They also tend to become somewhat corrupt. In other words, if I’ve got a department and you’ve got a department and we kind of share power running this thing, there’s sort of an unwritten rule: “If you won’t bother me, I won’t bother you, and we’re both happy.” So you get layers of management and associated costs that nobody needs.”
- “How do you and Warren evaluate an acquisition candidate? We’re light on financial yardsticks. We apply lots of subjective criteria: Can we trust management? Can it harm our reputation? What can go wrong? Do we understand the business? Does it require capital infusions to keep it going? What is the expected cash flow? We don’t expect linear growth; cyclicality is fine with us as long as the price is appropriate”
- Practicing law "My father said, “Grant McFayden treats his employees right, his customers right, and his problems right. And if he gets involved with a psychotic, he quickly walks over to where the psychotic is and works out an exit as fast as he can. Therefore, Grant McFayden doesn’t have enough remunerative law business to keep you in Coca-Cola. But Mr. X is a walking minefield of wonderful legal business.” This case demonstrates one of the troubles with practicing law. To a considerable extent, you’re going to be dealing with grossly defective people. They create an enormous amount of the remunerative law business. And even when your own client is a paragon of virtue, you’ll often be dealing with gross defectives on the other side or even on the bench. That’s partly what drove me out of the profession."
- Safe a company "For instance, consider the recent behavior of the economics department of the University of Chicago. Over the last decade, this department has enjoyed a near monopoly of the Nobel Prizes in economics, largely by getting good predictions out of free-market models postulating man’s rationality. And what is the reaction of this department after winning so steadily with its rational-man approach? Well, it has just invited into a precious slot amid its company of greats a wise and witty Cornell economist, Richard Thaler.55 And it has done this because Thaler pokes fun at much that is holy at the University of Chicago. Indeed, Thaler believes, with me, that people are often massively irrational in ways predicted by psychology that must be taken into account in microeconomics. In so behaving, the University of Chicago is imitating Darwin, who spent much of his long life thinking in reverse as he tried to disprove his own hardest-won and best-loved ideas. And so long as there are parts of academia that keep alive its best values by thinking in reverse like Darwin, we can confidently expect that silly educational practices will eventually be replaced by better ones, exactly as Carl Jacobi might have predicted."
- Opportunity costs "The situation reminds me of the old-time Warner & Swasey ad that was a favorite of mine: “The company that needs a new machine tool and hasn’t bought it is already paying for it.”
- Earn what you want "What are the core ideas that helped me? Well, luckily I had the idea at a very early age that the safest way to try to get what you want is to try to deserve what you want. It’s such a simple idea. It’s the golden rule. You want to deliver to the world what you would buy if you were on the other end. There is no ethos in my opinion that is better for any lawyer or any other person to have. By and large, the people who have had this ethos win in life, and they don’t win just money and honors. They win the respect, the deserved trust of the people they deal with. And there is huge pleasure in life to be obtained from getting deserved trust. Now, occasionally you will find a perfect rogue of a person who dies rich and widely known. But mostly these people are fully understood as despicable by the surrounding civilization. If the cathedral is full of people at the funeral ceremony, most of them are there to celebrate the fact that the person is dead."
- Inversion "Let me use a little inversion now. What will really fail in life? What do we want to avoid? Some answers are easy. For example, sloth and unreliability will fail. If you’re unreliable, it doesn’t matter what your virtues are, you’re going to crater immediately. So faithfully doing what you’ve engaged to do should be an automatic part of your conduct. Of course you want to avoid sloth and unreliability. Another thing to avoid is extremely intense ideology, because it cabbages up one’s mind. You see a lot of it in the worst of the TV preachers. They have different, intense, inconsistent ideas about technical theology, and a lot of them have minds reduced to cabbage. That can happen with political ideology. And if you’re young, it’s particularly easy to drift into intense and foolish political ideology and never get out. When you announce that you’re a loyal member of some cult-like group and you start shouting out the orthodox ideology, what you’re doing is pounding it in, pounding it in, pounding it in. You’re ruining your mind, sometimes with startling speed. So you want to be very careful with intense ideology. It presents a big danger for the only mind you’re ever going to have."
Learnings from psychology
- Checklists "How can smart people be so wrong? Well, the answer is that they don’t do what I’m telling you to do—which is to take all the main models from psychology and use them as a checklist in reviewing outcomes in complex systems. No pilot takes off without going through his checklist: A, B, C, D … And no bridge player who needs two extra tricks plays a hand without going down his checklist and figuring out how to do it. But these psychology professors think they’re so smart that they don’t need a checklist. But they aren’t that smart. Almost nobody is. Or maybe nobody is. If they used a checklist, they’d realize the Milgram experiment harnesses six psychological principles at least—not three."
- "Well, the single most publicized psychology experiment ever done is the Milgram experiment,38 where they asked people to apply what they had every reason to believe was heavy electrical torture on innocent fellow human beings. And they manipulated most of these decent volunteers into doing the torture. [Stanley] Milgram performed the experiment right after Hitler had gotten a bunch of believing Lutherans, Catholics, and so forth to perform unholy acts they should have known were wrong. Milgram was trying to find out how much authority could be used to manipulate high-grade people into doing things that were clearly and grossly wrong. And he got a very dramatic effect. He managed to get high-grade people to do many awful things. But for years, it was in the psychology books as a demonstration of authority—how authority could be used to persuade people to do awful things. Of course, that’s mere first-conclusion bias. That’s not the complete and correct explanation."
- appeal to interest not to reason if you want to persuade "First, he said Berkshire beat the market in common stock investing through one sigma of luck because nobody could beat the market except by luck. This hard-form version of efficient-market theory was taught in most schools of economics at the time. People were taught that nobody could beat the market. Next, the professor went to two sigmas, and three sigmas, and four sigmas, and when he finally got to six sigmas of luck, people were laughing so hard he stopped doing it. Then, he reversed the explanation 180 degrees. He said, “No, it was still six sigmas, but it was six sigmas of skill.” Well, this very sad history demonstrates the truth of Benjamin Franklin’s observation in Poor Richard’s Almanack: “If you would persuade, appeal to interest and not to reason.” The man changed his silly view when his incentives made him change it and not before."