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

by Charles T. Munger

Just as multiple factors shape almost every system, multiple models from a variety of disciplines, applied with fluency, are needed to understand that system.

Especially important examples of these models include the redundancy and backup system models from engineering; the compound interest model from mathematics; the breakpoint, tipping moment, and autocatalysis models from physics and chemistry; the modern Darwinian synthesis model from biology; and cognitive misjudgment models from psychology.

“What I’m against is 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 is interacting with everything else.”

What I say is that McDonald’s is one of our most admirable institutions. Then, as signs of shock come to surrounding faces, I explain that 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. Then I usually go on to say that if the elite campuses were as successful as McDonald’s in teaching sensibly, we would have a better world.

If you don’t get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one legged man in an ass kicking contest.

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.

Spend each day trying to be a little wiser than you were when you woke up.

Good literature makes the reader reach a little for understanding. Then it works better. You hold it better. It’s the commitment and consistency tendency. If you’ve reached for it, the idea’s pounded in better.

I like the Navy system. If you’re a captain in the Navy and you’ve been up for 24 hours straight and have to go to sleep, and you turn the ship over to a competent first mate in tough conditions and he takes the ship aground, clearly through no fault of yours, they don’t court-martial you, but your naval career is over. You can say, “That’s too tough. That’s not law school. That’s not due process.” Well, the Navy model is better in its context than would be the law school model. The Navy model really forces people to pay attention when conditions are tough, because they know that there’s no excuse.

If you want it totally easy and totally laid out, maybe you should join some cult that claims to provide all the answers.

Hard science and engineering tend to be pretty reliably done. But the minute you get outside of those areas, a certain amount of inanity seems to creep into academia—even academia involving people with very high IQs.

I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.

academia, by and large, continues in its balkanized way to tolerate psychology professors who misteach psychology, non-psychology professors who fail to consider psychological effects obviously crucial in their subject matter, and professional schools that carefully preserve psychological ignorance coming in with each entering class and are proud of their inadequacies.

I particularly included psychology, about which I wanted to demonstrate that there is much lamentable ignorance, even among highly educated people, some of whom teach psychology.

If a man has a vast set of skills over multiple disciplines, he, by definition, carries multiple tools and therefore will limit bad cognitive effects

Thus it follows, as the night the day, that in our most elite broadscale education, wherein we are trying to make silk purses out of silk, we need for best results to have multidisciplinary coverage of immense amplitude, with all needed skills raised to an ever-maintained practice-based fluency, including considerable power of synthesis at boundaries between disciplines, with the highest fluency levels being achieved where they are most needed, with forward and reverse thinking techniques being employed in a manner reminding one of inversion in algebra, and with checklist routines being a permanent part of the knowledge system. There can be no other way, no easier way, to broadscale worldly wisdom.

as Dr. [Samuel] Johnson so wisely observed, truth is hard to assimilate in any mind when opposed by interest.

Even when nothing but unleveraged stock picking is involved, the total cost of all the investment management, plus the frictional costs of fairly often getting in and out of many large investment positions, can easily reach 3 percent of foundation net worth per annum if foundations, urged on by consultants, add new activity year after year. This full cost doesn’t show up in conventional accounting. But that is because accounting has limitations and not because the full cost isn’t present.

Charlie coins the term “febezzlement”—the functional equivalent of embezzlement—to explain how wealth is stripped away by layers of unnecessary investment managers and consultants.

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.

The ethical rule is from Samuel Johnson, who believed that maintenance of easily removable ignorance by a responsible officeholder was treacherous malfeasance in meeting moral obligation.

my personal education history is interesting because its deficiencies and my peculiarities eventually created advantages. For some odd reason, I had an early and extreme multidisciplinary cast of mind. I couldn’t stand reaching for a small idea in my own discipline when there was a big idea right over the fence in somebody else’s discipline. So I just grabbed in all directions for the big ideas that would really work. Nobody taught me to do that; I was just born with that yen.

The ethos of hard science is so strong in favor of reductionism to the more fundamental body of knowledge that you can wash the discoverer right out of history when somebody else handles his discovery in a more fundamental way.

The best answer I ever got on that subject—in three tries—was from George Shultz. He said, “Charlie, the way I figure it is if we stop trading with China, the other advanced nations will do it anyway. We wouldn’t stop the ascent of China compared to us, and we’d lose the Ricardo-diagnosed advantages of trade.” Which is obviously correct. I said, “Well, George, you’ve just invented a new form of the tragedy of the commons. You’re locked in this system, and you can’t fix it. You’re going to go to a tragic hell in a handbasket, if going to hell involves being once the great leader of the world and finally going to the shallows in terms of leadership.” And he said, “Charlie, I do not want to think about this.” I think he’s wise.

We should also heed the general lesson implicit in the injunction of Ben Franklin in Poor Richard’s Almanack: “If you would persuade, appeal to interest and not to reason.”

my early education involved a surgeon who, over the years, sent bushel baskets full of normal gallbladders down to the pathology lab in the leading hospital in Lincoln, Nebraska, my grandfather’s town. And, with that permissive quality control for which community hospitals are famous, many years after this surgeon should’ve been removed from the medical staff, he was. One of the doctors who participated in the removal was a family friend, and I asked him, “Did this surgeon think, ‘Here’s a way for me to exercise my talents’”—this guy was very skilled technically—“‘and make a high living by doing a few maimings and murders every year in the course of routine fraud?’” And my friend answered, “Hell no, Charlie. He thought that the gallbladder was the source of all medical evil, and if you really loved your patients, you couldn’t get that organ out rapidly enough.”

There are large social policy implications in the amazingly good consequences that ordinarily come from people likely to trigger extremes of love and admiration boosting each other in a feedback mode. For instance, it is obviously desirable to attract a lot of lovable, admirable people into the teaching profession.

the power of teaching to influence the cognition of the teacher is not always a benefit to society. When such power flows into political and cult evangelism, there are often bad consequences.

Daily interchange in marriage is also assisted by reciprocation tendency, without which marriage would lose much of its allure.

Sam Walton agreed with this idea of absolute prohibition. He wouldn’t let purchasing agents accept so much as a hot dog from a vendor. Given the subconscious level at which much reciprocation tendency operates, this policy of Walton’s was profoundly correct. If I controlled the Defense Department, its policies would mimic Walton’s.

“Pride” is another word generally left out of psychology textbooks, and this omission is not a good idea. It is also not a good idea to construe the Bible’s parable about the Pharisee and the publican97 as condemning all pride. Of all forms of useful pride, perhaps the most desirable is a justified pride in being trustworthy.