"Poor Charlie's Almanack" is a compilation of wisdom and insights from Charles T. Munger, the vice chairman of Berkshire Hathaway. The book encompasses a series of talks and the philosophies Munger has lived by, primarily focusing on investment strategies, decision-making processes, and the importance of lifelong learning. Munger emphasizes rational thinking, multidisciplinary approaches, and ethical standards as the cornerstones of personal and professional success.
Munger's Principles
1. Multidisciplinary Approach to Learning
Charles Munger is a staunch advocate for developing a "latticework of mental models." He believes that wisdom comes from understanding the core principles from multiple disciplines, including psychology, economics, physics, and biology. This approach enables individuals to draw upon a broad spectrum of knowledge to make better decisions and solve complex problems. For instance, understanding basic principles of psychology can prevent financial decisions clouded by cognitive biases.
2. Rational Decision-Making and Mental Models
Munger emphasizes the need for objective and rational thinking in decision-making processes. He discourages making decisions based on emotions or external pressures and instead advocates for a systematic approach using checklists and mental models. These models serve as frameworks for thinking that can be applied across various situations, helping to analyze information systematically and predict outcomes with greater accuracy.
3. The Significance of Patience in Investments
Munger's philosophy of "sit-on-your-ass investing" in the investment world highlights patience. He criticizes the high-frequency trading that dominates much of today's financial markets and instead promotes a long-term perspective. By investing in companies with solid fundamentals and holding these investments for an extended period, investors can benefit from compound interest and avoid excessive transaction costs and taxes.
4. Ethics and Integrity
Munger often points out that maintaining high ethical standards is morally right and practical for long-term success. He argues that a reputation for integrity attracts better partners, employees, and customers. Munger’s approach involves avoiding any behavior that could damage one's reputation or the reputation of one's business, emphasizing that the long-term benefits of maintaining integrity far outweigh any short-term gains from unethical practices.
5. Learning from Mistakes
An essential part of Munger’s philosophy is continuously reflecting on past decisions, identifying mistakes, and learning from them. This process involves brutal honesty with oneself and the courage to admit errors. Munger believes that organizations should foster cultures where mistakes are openly discussed and analyzed without fear of blame, as this transparency leads to better organizational learning and improvement.
6. The Power of Incentives
Munger has often expressed that he believes in the power of incentives. He notes that incentives are a powerful factor in shaping behavior, and if they are aligned incorrectly, they can lead to unintended and undesirable outcomes. Understanding what motivates people—whether in business, personal relationships, or self-management—is crucial for creating environments that encourage desired behaviors.
7. Importance of Contrarian Thinking
Munger often goes against the grain, advocating for contrarian thinking. He believes that following the herd can lead to mediocre results at best. By maintaining an independent perspective and not being swayed by popular opinion, investors and individuals can capitalize on opportunities others might overlook and avoid common pitfalls that trap the masses.
8. Adaptability to Change
Despite his advocacy for a disciplined approach, Munger also emphasizes the importance of adaptability. The ability to pivot when confronted with new information or when circumstances change is crucial. This adaptability should be informed by a deep understanding of the situation at hand rather than a superficial or reactionary response to change.
9. The Role of Simplicity in Strategy
Munger often points out that complexity is unnecessary when simple solutions can be more effective. This principle can be applied in various areas, including business strategy, investment decisions, and personal life. Simplicity leads to clarity, reduces the chances of error, and makes execution more manageable.
10. The Importance of Having the Right Partners
The selection of business partners and associates is crucial. Munger believes in partnering with people who are not only skilled but also ethical and reliable. This synergy enhances business operations and builds a supportive network that can offer critical advice and assistance during challenging times.
Key Quotes
"Without numerical fluency, you are like a one-legged man in an ass-kicking contest."
"There is no better teacher than history in determining the future."
"The big money is not in the buying and the selling, but in the waiting."
"Knowing what you don’t know is more useful than being brilliant."
"Remember that reputation and integrity are your most valuable assets—and can be lost in a heartbeat."
"It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent."
"A great business at a fair price is superior to a fair business at a great price."
"The human mind is a lot like the human egg, and the human egg has a shut-off device. When one sperm gets in, it shuts down so the next one can’t get in."
"If you don’t get the incentives right, nothing else matters."
"It’s not supposed to be easy. Anyone who finds it easy is stupid."
Key Concepts
1. Rationality Over Emotion
Munger's emphasis on rationality is derived from his critique of human cognitive biases. He believes decisions should be made based on sound reasoning rather than emotional responses. This concept is rooted in behavioral economics, which studies how psychological, cognitive, emotional, cultural, and social factors affect economic decisions.
Real-Life Example: A company might feel pressured to follow trends and invest in a new technology simply because competitors are doing so. However, a rational approach would involve a thorough analysis of the company's actual needs, the potential ROI of the technology, and whether it aligns with long-term strategic goals.
2. Checklist Discipline
Munger advocates using checklists to avoid critical errors and ensure that all necessary steps in a decision-making process are followed. This approach is widely used in fields where precision is crucial, such as aviation and medicine.
Real-Life Example: Surgeons use surgical safety checklists to ensure that every step, from sanitization to the correct identification of the surgical site, has been verified before they begin an operation. This practice has significantly reduced surgical errors and improved patient outcomes.
3. Inversion Thinking
One of Munger’s favored approaches is inversion thinking, which involves looking at problems backward. Instead of thinking about how to achieve success, one should consider all the ways something could fail and avoid those scenarios.
Real-Life Example: A software development team might use inversion thinking by conducting a "premortem" on a new project—identifying potential reasons for the project's failure before starting. This could lead to insights on better resource allocation, risk management, and contingency planning.
4. Economic Moats
Munger and Warren Buffett often speak about the importance of investing in businesses with strong economic moats—unique advantages that protect the business from competition, much like water surrounds a castle.
Real-Life Example: Google's dominance in search engines acts as an economic moat because of its sophisticated algorithm, brand recognition, and the massive data it collects, which continually improves its service and hinders competitors.
5. Compound Interest
Munger highlights the power of compound interest not just in finance but as a principle of life. He suggests that knowledge and good habits can compound over time, leading to exponential growth in personal development.
Real-Life Example: Regular investment in an index fund is a financial application of compound interest. In personal growth, daily reading and learning can compound, leading to significant knowledge accumulation over the years.
6. Avoiding Misjudgment
Munger’s famous talk, "The Psychology of Human Misjudgment," outlines various psychological biases that lead to poor decision-making. Understanding these biases can help individuals make more objective decisions.
Real-Life Example: An investor might fall prey to confirmation bias by only acknowledging information that supports their preconceived beliefs about a stock. Awareness of this bias can help the investor seek out and consider conflicting information, leading to better-informed investment decisions.
7. Synergy in Business
Munger believes in the synergy that can result from combining different skills and perspectives within a business. This can lead to innovative solutions and a more robust business model.
Real-Life Example: Apple’s success with the iPhone resulted from synergizing hardware engineering, software design, user interface aesthetics, and effective supply chain management, creating a product that dramatically altered the market landscape.
8. Simplicity in Complexity
In a complex world, Munger advises maintaining simplicity wherever possible. Simplifying processes and decisions can lead to clarity and more effective outcomes.
Real-Life Example: Southwest Airlines simplified its operations by using only one airplane model (Boeing 737). This decision simplified training, maintenance, and operations, contributing to its industry-leading profitability.
Other Quotes
“Without numerical fluency … you are like a one-legged man in an ass-kicking contest”
“There is no better teacher than history in determining the future. There are answers worth billions of dollars in a $ 30 history book.”
“Advice on the Choice of a Partner.” Pay attention.
Look first for someone both smarter and wiser than you are.
After locating him (or her), ask him not to flaunt his superiority so that you may enjoy acclaim for the many accomplishments that sprang from his thoughts and advice.
Seek a partner who will never second-guess you nor sulk when you make expensive mistakes.
Look also for a generous soul who will put up his own money and work for peanuts.
Finally, join with someone who will constantly add to the fun as you travel a long road together.
“You don’t need to take the last dollar” and “Choose clients as you would friends.”
“When you’re trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed them.”
“When you borrow a man’s car, you always return it with a full gas tank.”
“When we try to pick out anything by itself, we find it hitched to everything else in the universe.” - John Muir.
“Preparation, patience, discipline, and objectivity are the most fundamental guiding principles.”
Charlie generally focuses first on what to avoid—that is, what not to do—before considering the affirmative steps he will take in a given situation. “All I want to know is where I’m going to die, so I’ll never go there.”
“A scientific theory should be as simple as possible, but no simpler.” - Albert Einstein.
“I’m against being very confident and feeling that you know, for sure, that your particular action will do more good than harm. You’re dealing with highly complex systems wherein everything interacts with everything else.”
“Usually, Mr. Market is a temperate and reasonable fellow, but some days he is gripped by irrational fear or greed.”
Two-track analysis.
First, what are the factors that really govern the interests involved, rationally considered?
second, what are the subconscious influences where the brain, at a subconscious level, is automatically doing these things—which, by and large, are useful but which often misfunction? One approach is rationality, the way you’d work out a bridge problem: by evaluating the real interests, the real probabilities, and so forth. And the other is to evaluate the psychological factors that cause subconscious conclusions, many of which are wrong.
“Quickly eliminate the big universe of what not to do; follow up with a fluent, multidisciplinary attack on what remains; then act decisively when, and only when, the right circumstances appear.”
“It’s kind of fun to sit there and outthink people who are way smarter than you are because you’ve trained yourself to be more objective and more multidisciplinary.”
“I’m no genius. I’m smart in spots, and I stay around those spots.” - Thomas Watson Sr.
“Hard work is an essential element in tracking down and perfecting a strategy, or in executing it.”
“While poor outcomes are excusable in the Munger–Buffett world—given the fact that some outcomes are outside of their control—sloppy preparation and decision-making are never excusable because they are controllable.”
Risk
All investment evaluations should begin by measuring risk, especially reputational.
Incorporate an appropriate margin of safety.
Avoid dealing with people of questionable character.
Insist upon proper compensation for risk assumed.
Always beware of inflation and interest rate exposures.
Avoid big mistakes; shun permanent capital loss.”
Independence:
“Only in fairy tales are emperors told they are naked.”
Objectivity and rationality require independence of thought. Remember that just because other people agree or disagree with you doesn’t make you right or wrong—the only thing that matters is the correctness of your analysis and judgment.
Mimicking the herd invites regression to the mean (merely average performance).
Preparation:
“The only way to win is to work, work, work, work, and hope to have a few insights.”
Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.
More important than the will to win is the will to prepare.
Develop fluency in mental models from the major academic disciplines.
If you want to get smart, the question you have to keep asking is “Why, why, why?”
Intellectual humility:
Acknowledging what you don’t know is the dawning of wisdom.
Stay within a well-defined circle of competence.
Identify and reconcile disconfirming evidence.
Resist the craving for false precision, false certainties, etc.
Above all, never fool yourself, and remember that you are the easiest person to fool.
Analytic rigor:
The use of the scientific method and effective checklists minimizes errors and omissions.
Determine value apart from price, progress apart from activity, and wealth apart from size.
It is better to remember the obvious than to grasp the esoteric.
Be a business analyst, not a market, macroeconomic, or security analyst.
Consider the totality of risk and effect; look always at potential second-order and higher-level impacts.
Think forward and backward: Invert, always invert.
Allocation:
Proper allocation of capital is an investor’s number one job.
Remember that the highest and best use is always measured by the next best use (opportunity cost).
Good ideas are rare—when the odds are greatly in your favor, bet (allocate) heavily.
Don’t fall in love with an investment—be situation-dependent and opportunity-driven.
Patience:
Resist the natural human bias to act.
“Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily.
Avoid unnecessary transactional taxes and frictional costs;
Never take action for its own sake.
Be alert for the arrival of luck.
Enjoy the process along with the proceeds because the process is where you live.
Decisiveness:
When proper circumstances present themselves, act with decisiveness and conviction.
Be fearful when others are greedy and greedy when others are fearful. Opportunity doesn’t come often, so seize it when it does.
Opportunity meeting the prepared mind—that’s the game.
Change:
Live with change and accept unremovable complexity.
Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you.
Continually challenge and willingly amend your best-loved ideas.
Recognize reality even when you don’t like it—especially when you don’t like it.
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.
“Constantly search for better methods of thought and be willing to “prepay” through rigorous preparation.”
“We’re partial to putting out large amounts of money where we won’t have to make another decision. If you buy something because it’s undervalued, then you have to think about selling it when it approaches your calculation of its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.”
Carson’s prescription for sure misery included:
Ingesting chemicals to alter mood or perception
Envy
Resentment
“Life is hard enough to swallow without squeezing in the bitter rind of resentment.”
“No man’s life should be accounted a happy one until it is over.”
“If you don’t succeed at first, well, so much for hang gliding.”
Here are four more prescriptions from Munger:
First, be unreliable. Do not faithfully do what you have engaged to do. If you will only master this one habit, you will more than counterbalance the combined effect of all your virtues, howsoever great.
The second prescription for misery is to learn everything you possibly can from your own experience, minimizing what you learn vicariously from the good and bad experiences of others, living and dead. This prescription is a sure-shot producer of misery and second-rate achievement.
The third prescription to you for misery is to go down and stay down when you get your first, second, or third severe reverse in the battle of lif
The final prescription to you for a life of fuzzy thinking and infelicity is to ignore a story they told me when I was very young about a rustic who said, “I wish I knew where I was going to die, and then I’d never go there.”
“The other aspect of avoiding vicarious wisdom is the rule of not learning from the best work done before yours.”
“If I have seen a little farther than other men, it is because I stood on the shoulders of giants.” - Newton
“It is in the nature of things, as Jacobi knew, that many hard problems are best solved only when they are addressed backward.”
“Darwin’s result was due in large measure to his working method, which violated all my rules for misery and particularly emphasized a backward twist in that he always gave priority attention to evidence tending to disconfirm whatever cherished and hard-won theory he already had. In contrast, most people early achieve and later intensify a tendency to process new and disconfirming information so that any original conclusion remains intact.”
“You couldn’t squeeze a dime between what they already know and what they will never learn.” - Philip Wylie
Einstein said that his successful theories came from “curiosity, concentration, perseverance, and self-criticism.” And by self-criticism, he meant the testing and destruction of his own well-loved ideas.
“McDonald’s, providing first jobs to millions of teenagers, many troubled, over the years, has successfully taught most of them the one lesson they most need: to show up reliably for responsible work.”
“You can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.”
“Braun Company’s communications was called the five Ws: You had to tell who was going to do what, where, when, and why. if you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply. Even if they don’t understand your reason, they’ll be more likely to comply.”
“The models that come from hard science and engineering are the most reliable models on this earth.”
“The mind of man at one and the same time is both the glory and the shame of the universe.” - Pascal
“We are all influenced—subconsciously and, to some extent, consciously—by what we see others do and approve. Therefore, if everybody’s buying something, we think it’s better. We don’t like to be the one guy who’s out of step.”
“The 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. They also tend to become somewhat corrupt. So you get layers of management and associated costs that nobody needs. While people are justifying all these layers, it takes forever to get anything done. They’re too slow to make decisions, and nimbler people run circles around them. As things get very powerful and very big, you can get some really dysfunctional behavior.”
“If people tell you what you really don’t want to hear, what’s unpleasant, there’s an almost automatic reaction of antipathy. You have to train yourself out of it.”
“The great lesson in microeconomics is to discriminate between when technology is going to help you and when it’s going to kill you. And most people do not get this straight in their heads.”
“Every person is going to have a circle of competence. And it’s going to be very hard to enlarge that circle. So you have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence.”
I asked the guy who sold fishing tackle. “My god, they’re purple and green. Do fish really take these lures?” And he said, “Mister, I don’t sell to fish.”
“Getting the incentives right is a very, very important lesson.”
What should a young person look for in a career?
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.
What overall life advice do you have for young people?
Spend each day trying to be a little wiser than you were when you woke up.
Discharge your duties faithfully and well.
Step-by-step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts.
Slug it out one inch at a time, day by day, and at the end of the day—if you live long enough—like most people, you will get out of life what you deserve.
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.
“Human language ability is not just learned—it’s deeply buried, to a considerable extent, in the genome.”
“You can have heavy ideology in favor of accuracy, diligence, and objectivity. Being sure on issues like that with a strong, violent ideology, in my opinion, turns you into a lousy thinker.”
“What a man wishes, that also will he believe.” - "Demosthenes
“In Captain [James] Cook’s days, he took these long voyages. At the time, scurvy was the dread of the long voyage. In scurvy, your living gums putrefy in your mouth, after which the disease gets unpleasant and kills you. And being on a primitive sailing ship with a bunch of dying sailors is a very awkward business. So everybody was terribly interested in scurvy, but they didn’t know about vitamin C. Well, Captain Cook, being a smart man with a multiple-models kind of approach, noticed that Dutch ships had less scurvy than English ships on long voyages. So he said, “What are the Dutch doing that’s different?” And he noticed they had all these barrels of sauerkraut. So he thought, “I’m going on these long voyages, and it’s very dangerous. Sauerkraut may help.” So he laid in all this sauerkraut, which, incidentally, happens to contain a trace of vitamin C. But English sailors were a tough, cranky, and dangerous bunch in that day. They hated “krauts.” And they were used to their standard food and booze.
So how do you get such English sailors to eat sauerkraut? Well, Cook didn’t want to tell ’em that he was doing it in the hope it would prevent scurvy—because they might mutiny and take over the ship if they thought that he was taking them on a voyage so long that scurvy was likely. So here’s what he did: Officers ate at one place where the men could observe them. And for a long time, he served sauerkraut to the officers but not to the men. And then, finally, Captain Cook said, “Well, the men can have it one day a week.” In due course, he had the whole crew eating sauerkraut.”
A very significant fraction of the people in the world will steal if
a) it’s very easy to do and
b) there’s practically no chance of being caught.
“It’s much better to let some things go uncompensated—to let life be hard—than to create systems that are easy to cheat.”
“When people get bad news, they hate the messenger.”
“You must stop slop early. It’s very hard to stop slop and moral failure if you let it run for a while.”
“There’s no way that you can live an adequate life without making many mistakes. Part of what you must learn is how to handle mistakes and new facts that change the odds. Life, in part, is like a poker game, wherein you have to learn to quit sometimes when holding a much-loved hand.”
“Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable—and some losses are inevitable—you might be wise to utilize a very conservative pattern of investment and saving all your life. So you have to adapt your strategy to your own nature and your own talents.”
“You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. There are also cases where you have to recognize that you have no wisdom to add and that your best course is to trust some expert. In effect, you’ve got to know what you know and what you don’t know.”
“When you don’t know and you don’t have any special competence, don’t be afraid to say so.”
“It’s hard for an empty sack to stand upright.” - Ben Franklin
“As you go through life, sell your services once in a while to an unreasonable blowhard if that’s what you must do to feed your family. But run your own life like Grant McFayden.”
“What works best in most cases is to appeal to a man’s interest.”
“People just get so that they think everybody does it and it’s all right to do.”
Problem-Solving:
The first helpful notion is that it is usually best to simplify problems by deciding big no-brainer questions first.
The second helpful notion mimics Galileo’s conclusion that scientific reality is often revealed only by math as if math was the language of God.
The third helpful notion is that it is not enough to think problems through forward. You must also think in reverse.
The fourth helpful notion is that the best and most practical wisdom is elementary academic wisdom. But there is one extremely important qualification: You must think in a multidisciplinary manner.
The fifth helpful notion is that really big effects, lollapalooza effects, will often come only from large combinations of factors.
“If you want it done, go. If not, send.” - Ben Franklin
“If, in your thinking, you rely entirely on others—often through purchase of professional advice—whenever outside a small territory of your own, you will suffer much calamity. And it is not just difficulties in complex coordination that will do you in. You will also suffer from the reality evoked by the Shavian character who said, “In the last analysis, every profession is a conspiracy against the laity.”
“It is not usually the conscious malfeasance of your narrow professional adviser that does you in. Instead, your troubles come from his subconscious bias. His cognition will often be impaired, for your purposes, by financial incentives different from yours.”
“The company that needs a new machine tool and hasn’t bought it is already paying for it.”
A pilot training has a six-element system:
His formal education is wide enough to cover practically everything useful in piloting.
His knowledge of practically everything needed by pilots is not taught just well enough to enable him to pass one test or two; instead, all his knowledge is raised to practice-based fluency, even in handling two or three intertwined hazards at once.
Like any good algebraist, he is made to think sometimes in a forward fashion and sometimes in reverse, and so he learns when to concentrate mostly on what he wants to happen and also when to concentrate mostly on avoiding what he does not want to happen.
His training time is allocated among subjects so as to minimize damage from his later malfunctions, and so what is most important in his performance gets the most training coverage and is raised to the highest fluency levels.
Checklist routines are always mandatory for him.
Even after original training, he is forced into a special knowledge maintenance routine: regular use of the aircraft simulator to prevent atrophy through long disuse of skills needed to cope with rare and important problems.
There is an old two-part rule that often works wonders in business, science, and elsewhere:
1) Take a simple, basic idea and
2) take it very seriously.
“Truth is hard to assimilate in any mind when opposed by interest.” - Dr. Samuel Johnson
“What a man wishes, he will believe.” - “Demosthenes
“Biological creatures ordinarily prefer effort minimization in routine activities and don’t like removals of long-enjoyed benefits.”
“Smart, hardworking people aren’t exempted from professional disasters from overconfidence. Often, they just go aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.”
“Extra care in thinking is not all good but also introduces extra error. But most good things have undesired side effects, and thinking is no exception.”
“The first principle is that you must not fool yourself, and you’re the easiest person to fool.” - Richard Feynman
“Indexing can’t work well forever if almost everybody turns to it. But it will work all right for a long time.”
“First, spending proclivity is influenced in an upward direction when stock prices go up, and in a downward direction when stock prices go down. Second, the proclivity to spend is terribly important in macroeconomics.”
“The superrich don’t consume in proportion to their wealth.”
“What was greater on the upside in the recent boom could also be greater on the downside at some time of future stock price decline.”
“A rough rule in life is that an organization foolish in one way in dealing with a complex system is all too likely to be foolish in another.”
“If you don’t have the right thinking tools, you and the people you seek to help are already suffering from your easily removable ignorance.”
“Whose bread I eat, his song I sing.”
Everybody
1) overweighs the stuff that can be numbered because it yields to the statistical techniques they’re taught in academia, and
2) doesn’t mix in the hard-to-measure stuff that may be more important.
“If a thing can’t go on forever, it will eventually stop.” - Herb Stein
Extreme success is likely to be caused by some combination of the following factors:
Extreme maximization or minimization of one or two variables. Example, Costco or our furniture and appliance store.
Adding success factors so that a bigger combination drives success, often in nonlinear fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often, results are not linear. You get a little bit more mass and you get a lollapalooza result. And, of course, I’ve been searching for lollapalooza results all my life, so I’m very interested in models that explain their occurrence. An extreme of good performance over many factors. Example, Toyota or Les Schwab. Catching and riding some sort of big wave.
“In England, lay magistrates staff the lower criminal courts, which can send you to prison for a year or fine you substantially. You’ve got three judges sitting up there, and they all get a pay of zero. Their expenses are reimbursed, but not too liberally. And they work about 40 half-days a year as volunteers. It’s worked beautifully for about 700 years. Able and honest people compete to become magistrates, to perform the duty and get the significance but no pay. This is the system Benjamin Franklin, near the end of his life, wanted for the US government. He didn’t want the high executives of government to be paid but to be like himself or the entirely unpaid, well-off ministers and rulers of the Mormon Church.”
“The craving for perfect fairness causes a lot of terrible problems in system function. Some systems should be made deliberately unfair to individuals because they’ll be fairer on average for all of us. Thus, there can be virtue in apparent non-fairness. Tolerating a little unfairness to some to get a greater fairness for all is a model I recommend to all of you.”
“It’s not bringing in the new ideas that’s so hard. It’s getting rid of the old ones.” - Keynes
“Better roughly right than precisely wrong.”
“Where there is no bread, there is no law; where there is no law, there is no bread.” - Rabbi Eleazar ben Azariah
“Acquisition of wisdom is a moral duty.”
“Ideas or values that are taught and duties that come naturally that should be passed onto the next generation.”
“The safest way to try to get what you want is to try to deserve what you want.”
“You want to deliver to the world what you would buy if you were on the other end.”
“Without lifetime learning, you people are not going to do very well. You are not going to get very far in life based on what you already know. You’re going to advance in life by what you learn after you leave here.”
“People rise in life who are not the smartest, sometimes not even the most diligent. But they are learning machines. They go to bed every night a little wiser than they were that morning. And boy, does that habit help, particularly when you have a long run ahead of you.”
“The rapid advance of civilization came only when man ‘invented the method of invention.’” - Alfred North Whitehead
“As civilization can progress only when it invents the method of invention, you can progress only when you learn the method of learning.”
“A man who doesn’t know what happened before he’s born goes through life like a child.” - Cicero
“The way complex adaptive systems work, and the way mental constructs work, problems frequently become easier to solve through inversion. If you turn problems around into reverse, you often think better. For instance, if you want to help India, the question you should consider asking is not “How can I help India?” Instead, you should ask, “How can I hurt India?” You find what will do the worst damage and then try to avoid it.”
“What will really fail in life? What do we want to avoid?”
“If you’re unreliable, it doesn’t matter what your virtues are, you’re going to crater immediately.”
“You are not entitled to have an opinion unless you can state the arguments against your position better than the people who are in opposition.”
“It’s not necessary to hope in order to persevere.” - William the Silent of Orange
“Self-pity is always counterproductive. It’s the wrong way to think. 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.”
“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 also have to allow, in your own cognition and conduct, for the self-serving bias of everybody else,”
“You should often appeal to interest, not to reason, even when your motives are lofty.”
“One also needs checklist routines. They prevent a lot of errors.”
“The game of competitive life often requires maximizing the experience of the people who have the most aptitude and the most determination as learning machines”
Max Planck, after he won the Nobel Prize, went around Germany giving the same standard lecture on the new quantum mechanics. Over time, his chauffeur memorized the lecture and said, “Would you mind, Professor Planck, because it’s so boring to stay in our routine, if I gave the lecture in Munich and you just sat in front wearing my chauffeur’s hat?”
Planck said, “Why not?” And the chauffeur got up and gave this long lecture on quantum mechanics, after which a physics professor stood up and asked a perfectly ghastly question. The speaker said, “Well, I’m surprised that in an advanced city like Munich I get such an elementary question. I’m going to ask my chauffeur to reply.” Two kinds of knowledge. One is Planck's knowledge, that of the people who really know. They’ve paid the dues, they have the aptitude. Then we’ve got chauffeur knowledge. They have learned to prattle the talk. They may have a big head of hair. They often have a fine timbre in their voices. They make a big impression. But in the end, what they’ve got is chauffeur knowledge masquerading as real knowledge.
“Intense interest in any subject is indispensable if you’re really going to excel in it. I could force myself to be fairly good in a lot of things, but I couldn’t excel in anything in which I didn’t have an intense interest.”
“Have a lot of assiduity (means “Sit down on your ass until you do it.”).”
“Every mischance provided an opportunity to learn something useful, and one’s duty was not to become immersed in self-pity but to utilize each terrible blow in a constructive fashion.”
“Complex bureaucratic procedure does not represent the highest form civilization can reach. One higher form is a seamless, non-bureaucratic web of deserved trust. Not much fancy procedure, just totally reliable people correctly trusting one another.”
“We are too soon old and too late smart.”
Harvard’s great E.O. Wilson performed one of the best psychology experiments ever done when he painted dead ant pheromone on a live ant. Quite naturally, the other ants dragged this useful live ant out of the hive even though it kicked and otherwise protested throughout the entire process.
“Cognition is ordinarily situation-dependent, so that different situations often cause different conclusions, even when the same person is thinking in the same general subject area.”
“Almost everyone thinks he fully recognizes how important incentives and disincentives are in changing cognition and behavior. But this is not often so.”
“Never, ever, think about something else when you should be thinking about the power of incentives.”
The most important rule in management is “Get the incentives right.”
“The extreme stupidity, in dealing with children or employees, of rewarding behavior one didn’t want more of. Bad behavior is intensely habit-forming when it is rewarded.”
“Prompt rewards worked much better than delayed rewards in changing and maintaining behavior.”
One should often distrust or take with a grain of salt the advice of one’s professional adviser, even if he is an engineer. The general antidotes here are:
1) Especially fear professional advice when it is especially good for the adviser,
2) learn and use the basic elements of your adviser’s trade as you deal with your adviser and
3) double-check, disbelieve, or replace much of what you’re told to the degree that seems appropriate after objective thought.
“Some people use money to buy status, and others use status to get money, while still others sort of do both things at the same time.”
“People also change their behavior and cognition for sex, friendship, companionship, advancement in status, and other nonmonetary items.”
“Executives force themselves daily to first do their unpleasant and necessary tasks before rewarding themselves by proceeding to their pleasant tasks.”
“Politics is the art of marshaling hatred.”
“A major difference between rich and poor people is that the rich people can spend their lives suing their relatives.” - Buffett
“The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision.”
“The brain of man conserves programming space by being reluctant to change, which is a form of inconsistency avoidance.”
“The rare life that is wisely lived has in it many good habits maintained and many bad habits avoided or cured.”
“An ounce of prevention is worth a pound of cure.” - Franklin’s Poor Richard’s Almanack
The anti-change mode was significantly caused by a combination of the following factors:
It facilitated faster decisions when speed of decision was an important contribution to the survival of nonhuman ancestors that were prey.
It facilitated the survival advantage that our ancestors gained by cooperating in groups, which would have been more difficult to do if everyone was always changing responses.
It was the best form of solution that evolution could get to in the limited number of generations between the start of literacy and today’s complex modern life.
“Proper education is one long exercise in the augmentation of high cognition so that our wisdom becomes strong enough to destroy wrong thinking maintained by resistance to change.”
“Progress is made by a new generation that comes along, less brain-blocked by its previous conclusions.” - Max Planck
“A man never forgets where he has buried the hatchet.”
In clinical medical education, the learner is forced to “see one, do one, then teach one.”
“The automatic tendency of humans to reciprocate both favors and disfavors has long been noticed as extreme, as it is in apes, monkeys, dogs, and many less cognitively gifted animals. The tendency clearly facilitates group cooperation for the benefit of members. In this respect, it mimics much genetic programming of the social insects.”
“Wise employers, therefore, try to oppose the reciprocate-favor tendencies of employees engaged in purchasing. The simplest antidote works best: Don’t let them accept any favors from vendors.”
“To avoid being misled by the mere association of some fact with past success, use this memory clue. Think of Napoleon and Hitler when they invaded Russia after using their armies with much success elsewhere.”
“Always tell us the bad news promptly. It is only the good news that can wait.”
“It also helps to be so wise and informed that people fear not telling you bad news because you are so likely to get it elsewhere.”
“One should stay far away from any conduct at all likely to drift into chemical dependency. Even a small chance of suffering so great a damage should be avoided.”
“All man’s decisions are suddenly regarded by him as better than would have been the case just before he made them.”
“Excesses of self-regard often cause bad hiring decisions because employers grossly over-appraise the worth of their own conclusions that rely on impressions in face-to-face contact. The correct antidote to this sort of folly is to underweigh face-to-face impressions and overweigh the applicant’s past record. Because man is likely to be overinfluenced by face-to-face impressions that, by definition, involve his active participation, a job candidate who is a marvelous presenter often causes great danger under modern executive search practice.”
The worst criminals don’t appraise themselves as all that bad. They come to believe either that
1) they didn’t commit their crimes or
2) considering the pressures and disadvantages of their lives, it is understandable and forgivable that they behaved as they did and became what they became.
“Never underestimate the man who overestimates himself.”
“A man ordinarily reacts with irrational intensity to even a small loss, or threatened loss, of property, love, friendship, dominated territory, opportunity, status, or any other valued thing.”
“It wise for parents to rely more on manipulating the quality of the peers than on exhortations to their own offspring.”
Because both bad and good behavior are made contagious by social-proof tendency, it is highly important that human societies
1) stop any bad behavior before it spreads and
2) foster and display all good behavior.
“Learn how to ignore the examples from others when they are wrong, because few skills are more worth having.”
“Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it. And the brain can’t use what it can’t remember or what it is blocked from recognizing because it is heavily influenced by one or more psychological tendencies bearing strongly on it,”
“Throughout his life, a wise man engages in practice of all his useful, rarely used skills, many of them outside his discipline, as a sort of duty to his better self. If he reduces the number of skills he practices, and therefore the number of skills he retains, he will naturally drift into error from man-with-a-hammer tendency. His learning capacity will also shrink as he creates gaps in the latticework of theory he needs as a framework for understanding new experience. It is also essential for a thinking man to assemble his skills into a checklist that he routinely uses. Any other mode of operation will cause him to miss much that is important.”
“Skills of a very high order can be maintained only with daily practice.”
If a skill is raised to fluency, instead of merely being crammed in briefly to enable one to pass some test, then the skill
1) will be lost more slowly and
2) will come back faster when refreshed with new learning.
“With advanced age, there comes a natural cognitive decay, differing among individuals in the earliness of its arrival and the speed of its progression. Practically no one is good at learning complex new skills when very old. But some people remain pretty good at maintaining intensely practiced old skills until late in life,”
“Continuous thinking and learning, done with joy, can somewhat help delay what is inevitable.”
“Living in dominance hierarchies as he does, like all his ancestors before him, man was born mostly to follow leaders, with only a few people doing the leading. And so, human society is formally organized into dominance hierarchies, with their culture augmenting the natural follow-the-leader tendency of man.”
“Be careful whom you appoint to power, because a dominant authority figure will often be hard to remove.”
Conclusion
Charles T. Munger’s philosophy, as outlined in "Poor Charlie’s Almanack," offers profound insights into effective thinking, decision-making, and ethical living. His multidisciplinary approach to learning and his emphasis on understanding the psychological influences on human behavior provide valuable lessons for anyone looking to improve their cognitive processes and succeed in both personal and professional arenas. Munger's principles underscore the importance of patience, simplicity, continuous learning, and ethical integrity, offering a blueprint for thoughtful living and wise investing. These lessons articulated through Munger’s candid reflections and witty aphorisms, serve as critical guides for anyone aspiring to make better decisions and lead a more fulfilling life.