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

by Charles T. Munger

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....