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

by Charles T. Munger

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.

lifelong learning, intellectual curiosity, sobriety, avoidance of envy and resentment, reliability, learning from the mistakes of others, perseverance, objectivity, willingness to test one’s own beliefs, and many more.

Independence is the end that wealth serves for Charlie, not the other way around.

However, he never forgot the sound principles taught by his grandfather: to concentrate on the task immediately in front of him and to control spending.

My dad often used the forum of the family dinner table to try to educate his children. His favorite educational tools were the Morality Tale, in which someone faced an ethical problem and chose the correct path, and the Downward Spiral Tale, in which someone made the wrong choice and suffered an inevitable series of catastrophic personal and professional losses.

Like Franklin, Charlie has made himself into a grandmaster of preparation, patience, discipline, and objectivity. He has parlayed these attributes into great success in both his personal and business endeavors, especially in his investing.

Charlie counts preparation, patience, discipline, and objectivity among his most fundamental guiding principles. He will not deviate from these principles, regardless of group dynamics, emotional itches, or popular wisdom that “this time around it’s different.”

“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.”

“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.”

“a great business at a fair price is superior to a fair business at a great price.”

Charlie scores himself not so much on whether he won the hand but rather on how well he played 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.

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.

Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.

Enjoy the process along with the proceeds, because the process is where you live.

Recognize reality even when you don’t like it—especially when you don’t like it.

Remember that reputation and integrity are your most valuable assets—and can be lost in a heartbeat.

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. You’re giving a huge advantage to everybody else.

five Ws: You had to tell who was going to do what, where, when, and why.

That’s such an obvious concept—that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that’s still going to be lousy. The money still won’t come to you. All of the advantages from great improvements are going to flow through to the customers. Conversely, if you own the only newspaper in Oshkosh and they were to invent more efficient ways of composing the whole newspaper, then when you got rid of the old technology and got new, fancy computers and so forth, all of the savings would come right through to the bottom line.

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.

only 20 percent of the people can be in the top fifth.

“I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches, representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all.”

They got to thinking that, because they were making a lot of money, they knew everything. And they suffered huge losses. All they had to do was to cut out all the folly and go back to the perfectly wonderful business that was lying there.

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.

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.

If ideology can screw up the head of Chomsky, imagine what it does to people like you and me.

We just look for no-brainer decisions. As Buffett and I say over and over again, we don’t leap 7-foot fences. Instead, we look for 1-foot fences with big rewards on the other side.

When you don’t know and you don’t have any special competence, don’t be afraid to say so.

Yeah, I’m passionate about wisdom. I’m passionate about accuracy and some kinds of curiosity. Perhaps I have some streak of generosity in my nature and a desire to serve values that transcend my brief life. But maybe I’m just here to show off. Who knows? 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.

If a foundation or other investor wastes 3 percent of assets per year in unnecessary, nonproductive investment costs in managing a strongly rising stock portfolio, it still feels richer, despite the waste, while the people getting the wasted 3 percent, febezzlers though they are, think they are virtuously earning income.

One of the big British pension funds once bought a lot of ancient art, planning to sell it 10 years later, which it did, at a modest profit. Suppose all pension funds purchased ancient art, and only ancient art, with all their assets. Wouldn’t we eventually have a terrible mess on our hands, with great and undesirable macroeconomic consequences?

Shakespeare’s Henry VI said, “The first thing we do, let’s kill all the lawyers.” Charlie, an attorney, might reject that idea, but accountants? Well …

There has been some good news since Talk Eight was delivered. The accounting profession now requires that some provision for stock option cost be charged against earnings.

Consider Warren Buffett again. If you watched him with a time clock, you’d find that about half of his waking time is spent reading.

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? Some answers are easy. For example, sloth and unreliability will fail.

I think 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. If you want the very highest reaches of human achievement, that’s where you have to go.

Like Epictetus, I’ve had a favored life. It didn’t make me unhappy to anticipate trouble all the time and be ready to perform adequately if trouble came. It didn’t hurt me at all. In fact, it helped me.

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.

“If you would persuade, appeal to interest and not to reason.”

Granny’s rule, to be specific, is the requirement that children eat their carrots before they get dessert.

The brain of man conserves programming space by being reluctant to change, which is a form of inconsistency avoidance.

trend does not always correctly predict destiny,

underweigh face-to-face impressions and overweigh the applicant’s past record.

Learn how to ignore the examples from others when they are wrong, because few skills are more worth having.

An idea or a fact is not worth more merely because it is easily available to you.

Be careful whom you appoint to power, because a dominant authority figure will often be hard to remove, aided as he will be by authority-misinfluence tendency.