Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger

by Charles T. Munger

Keynes said, “It’s not bringing in the new ideas that’s so hard. It’s getting rid of the old ones.” And Einstein said it better, attributing his mental success to “curiosity, concentration, perseverance, and self-criticism.” By self-criticism, he meant becoming good at destroying your own best-loved and hardest-won ideas. If you can get really good at destroying your own wrong ideas, that is a great gift.

My inspiration again is Keynes: Better roughly right than precisely wrong.

Professor Friedman supplies a marvelous quotation on this subject from Rabbi Eleazar ben Azariah: “Where there is no bread, there is no law; where there is no law, there is no bread.”

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.

the acquisition of wisdom is a moral duty.

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.

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.

You should often appeal to interest, not to reason, even when your motives are lofty.

In this world, I think we have two kinds of knowledge. One is Planck 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.

You’re going to have the problem in your life of getting as much responsibility as you can to the people with the Planck knowledge and away from the people who have the chauffeur knowledge. And there are huge forces working against you.

the attitude of Diogenes when he asked, “Of what use is a philosopher who never offends anybody?”

Here are the tendencies: Reward- and punishment-superresponse tendency Liking / loving tendency Disliking / hating tendency Doubt-avoidance tendency Inconsistency-avoidance tendency Curiosity tendency Kantian fairness tendency Envy / jealousy tendency Reciprocation tendency Influence-from-mere-association tendency Simple, pain-avoiding psychological denial Excessive self-regard tendency Overoptimism tendency Deprival-superreaction tendency Social-proof tendency Contrast-misreaction tendency Stress-influence tendency Availability-misweighing tendency Use-it-or-lose-it tendency Drug-misinfluence tendency Senescence-misinfluence tendency Authority-misinfluence tendency Twaddle tendency Reason-respecting tendency Lollapalooza tendency—the tendency to get extreme consequences from confluences of psychological tendencies acting in favor of a particular outcome

Perhaps the most important rule in management is “Get the incentives right.”

He demonstrated, again and again, a great recurring generalized behavioral algorithm in nature: “Repeat behavior that works.”

B. F. Skinner

Widespread incentive-caused bias requires that 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.

Another generalized consequence of incentive-caused bias is that man tends to game all human systems, often displaying great ingenuity in wrongly serving himself at the expense of others. Anti-gaming features, therefore, constitute a huge and necessary part of almost all system design.

Granny’s rule, to be specific, is the requirement that children eat their carrots before they get dessert. The business version requires that executives force themselves daily to first do their unpleasant and necessary tasks before rewarding themselves by proceeding to their pleasant tasks. Given reward superpower, this practice is wise and sound. Moreover, the rule can also be used in the non-business part of life.

One very practical consequence of liking/loving tendency is that it acts as a conditioning device that makes the liker or lover tend to 1) ignore the faults of, and comply with the wishes of, the object of his affection; 2) favor people, products, and actions merely associated with the object of his affection, as we shall see when we get to influence-from-mere-association tendency; and 3) distort other facts to facilitate love.

Disliking / hating tendency also acts as a conditioning device that makes the disliker / hater tend to 1) ignore virtues in the object of dislike; 2) dislike people, products, and actions merely associated with the object of his dislike; and 3) distort other facts to facilitate hatred.

When Marley’s miserable ghost [in A Christmas Carol] says, “I wear the chains I forged in life,” he is talking about the chains of habit that were too light to be felt before they became too strong to be broken.

The great rule that helps here is again from Franklin’s Poor Richard’s Almanack: “An ounce of prevention is worth a pound of cure.”

As I have shared the observation of life with Warren Buffett over decades, I have heard him wisely say on several occasions, “It is not greed that drives the world but envy.”

The proper antidotes to being made such a patsy by past success are 1) to carefully examine each past success, looking for accidental, non-causative factors associated with such success that will tend to mislead as one appraises the odds implicit in a proposed new undertaking; and 2) to look for dangerous aspects of the new undertaking that were not present when past success occurred.

Another common bad effect from the mere association of a person and a hated outcome is displayed in Persian messenger syndrome. Ancient Persians actually killed some messengers whose sole fault was that they brought home truthful bad news, say, of a battle lost. It was actually safer for the messenger to run away and hide instead of doing his job as a wiser boss would have wanted it done.

At Berkshire, there is a common injunction: “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.

There is a name in psychology for this over-appraise-your-own-possessions phenomenon: the endowment effect. All man’s decisions are suddenly regarded by him as better than would have been the case just before he made them.

In social proof, it is not only action by others that misleads but also their inaction. In the presence of doubt, inaction by others becomes social proof that inaction is the right course.

Cognition, misled by tiny changes involving low contrast, will often miss a trend that is destiny.

But not many scientists would have done what Pavlov next did—which was to spend the rest of his long life giving stress-induced nervous breakdowns to dogs, after which he would try to reverse the breakdowns, all the while keeping careful experimental records. He found that 1) he could classify dogs so as to predict how easily a particular dog would break down, 2) the dogs hardest to break down were also the hardest to return to their pre-breakdown state, 3) any dog could be broken down, and 4) he couldn’t reverse a breakdown except by reimposing stress.

The pianist [Ignacy Jan] Paderewski once said that if he failed to practice for a single day, he could notice his performance deterioration, and that after a week’s gap in practice, the audience could notice it as well.

A rightly famous Caltech engineering professor, exhibiting more insight than tact, once expressed his version of this idea as follows: “The principal job of an academic administration is to keep the people who don’t matter from interfering with the work of the people who do.”

And with that, I have nothing more to add.