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

by Charles T. Munger

One also needs checklist routines. They prevent a lot of errors, and not just for pilots.

Another idea that I found important is that maximizing non-egality will often work wonders.

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.

intense interest in any subject is indispensable if you’re really going to excel in it.

If at all feasible, you want to maneuver yourself into doing something in which you have an intense interest.

have a lot of assiduity. I like that word because to me it means “Sit down on your ass until you do it.”

life is very likely to provide terrible blows, unfair blows. Some people recover and others don’t. There I think the attitude of Epictetus helps guide one to the right reaction. He thought that every mischance in life, however bad, created an opportunity to behave well. He believed 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.

“Here lies Epictetus, a slave, maimed in body, the ultimate in poverty, and favored by the gods.”

It reminds me of [A. E.] Housman’s little poem that went something like this: The thoughts of others Were light and fleeting, Of lovers’ meeting Or luck or fame. Mine were of trouble, And mine were steady, And I was ready When trouble came.

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.

your own life, what you want to maximize is a seamless web of deserved trust. And if your proposed marriage contract has 47 pages, my suggestion is that you not enter.

Well, that’s enough for one graduation. I hope these ruminations of an old man are useful to you. In the end, I’m speaking toward the only outcome feasible for old Valiant-for-Truth in Pilgrim’s Progress:95 “My sword I leave to him who can wield it.”

First, I had long looked for insight by inversion in the intense manner counseled by the great algebraist Jacobi: “Invert, always invert.” I sought good judgment mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes.

Second, I became so avid a collector of instances of bad judgment that I paid no attention to boundaries between professional territories.

If stimulus is kept below a certain level, it does not get through.

When one thus sees perception so easily fooled by mere contrast, where a simple temperature gauge would make no error, and realizes that cognition mimics perception in being misled by mere contrast, he is well on the way toward understanding not only how magicians fool one but also how life will fool one.

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.

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.” This maxim is a wise guide to a great and simple precaution in life: Never, ever, think about something else when you should be thinking about the power of incentives.

He demonstrated, again and again, a great recurring generalized behavioral algorithm in nature: “Repeat behavior that works.” He also demonstrated that prompt rewards worked much better than delayed rewards in changing and maintaining behavior.

always call the Johnny-one-note turn of mind that eventually so diminished Skinner’s reputation the man-with-a-hammer tendency, after the folk saying “To a man with only a hammer, every problem looks pretty much like a nail.”

Now, there are huge implications from the fact that the human mind is put together this way. One implication is that people who create things like cash registers, which make dishonest behavior hard to accomplish, are some of the effective saints of our civilization because, as Skinner so well knew, bad behavior is intensely habit-forming when it is rewarded. And so the cash register was a great moral instrument when it was created.

Employer-installed antidotes include tough internal audit systems and severe public punishment for identified miscreants, as well as misbehavior-preventing routines and such machines as cash registers.

Agench costs

For instance, a sales force living only on commissions will be much harder to keep moral than one under less pressure from the compensation arrangement. On the other hand, a purely commissioned sales force may well be more efficient per dollar spent. Therefore, difficult decisions involving trade-offs are common in creating compensation arrangements in the sales function.

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.

admonition: Dread, and avoid as much you can, rewarding people for what can be easily faked.

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.

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.

In a pattern obverse to liking/loving tendency, the newly arrived human is also born to dislike and hate, as triggered by normal and abnormal triggering forces in its life. It is the same with most apes and monkeys. As a result, the long history of man contains almost continuous war.

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.

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.

Few people can list a lot of bad habits that they have eliminated, and some people cannot identify even one of these. Instead, practically everyone has a great many bad habits he has long maintained despite their being known as bad.

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 rare life that is wisely lived has in it many good habits maintained and many bad habits avoided or cured. 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.” What Franklin is here indicating, in part, is that inconsistency-avoidance tendency makes it much easier to prevent a habit than to change it.

It is easy to see that a quickly reached conclusion, triggered by doubt-avoidance tendency, when combined with a tendency to resist any change in that conclusion, will naturally cause a lot of errors in cognition for modern man.

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. As Lord Keynes pointed out about his exalted intellectual group at one of the greatest universities in the world, it was not the intrinsic difficulty of new ideas that prevented their acceptance. Instead, the new ideas were not accepted because they were inconsistent with old ideas in place.

One of the most successful users of an antidote to first-conclusion bias was Charles Darwin. He trained himself, early, to intensively consider any evidence tending to disconfirm any hypothesis of his, more so if he thought his hypothesis was a particularly good one. The opposite of what Darwin did is now called confirmation bias, a term of opprobrium.

One corollary of inconsistency-avoidance tendency is that a person making big sacrifices in the course of assuming a new identity will intensify his devotion to the new identity. After all, it would be quite inconsistent behavior to make a large sacrifice for something that was no good. Thus civilization has invented many tough and solemn initiation ceremonies, often public in nature, that intensify new commitments made.

Moreover, the tendency will often make man a patsy of manipulative compliance practitioners, who gain advantage from triggering his subconscious inconsistency-avoidance tendency. Few people demonstrated this process better than Ben Franklin. As he was rising from obscurity in Philadelphia and wanted the approval of some important man, Franklin would often maneuver that man into doing Franklin some unimportant favor, like lending Franklin a book. Thereafter, the man would admire and trust Franklin more because a non-admired and non-trusted Franklin would be inconsistent with the appraisal implicit in lending Franklin the book.

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.”

As my smart friend Tom Murphy so frequently says, “You can always tell the man off tomorrow, if it is such a good idea.”

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.

In a famous psychology experiment, Cialdini brilliantly demonstrated the power of compliance practitioners to mislead people by triggering their subconscious reciprocation tendency. Carrying out this experiment, Cialdini caused his compliance practitioners to wander around his campus and ask strangers to supervise a bunch of juvenile delinquents on a trip to a zoo. Because this happened on a campus, one person in six out of a large sample actually agreed to do this. After accumulating this 1-in-6 statistic, Cialdini changed his procedure. His practitioners next wandered around the campus asking strangers to devote a big chunk of time every week for two years to the supervision of juvenile delinquents. This ridiculous request got him a 100 percent rejection rate. But the practitioner had a follow-up question: “Will you at least spend one afternoon taking juvenile delinquents to a zoo?” This raised Cialdini’s former acceptance rate of 1 in 6 to 1 in 2—a tripling. What Cialdini’s compliance practitioners had done was make a small concession, which was reciprocated by a small concession from the other side. This subconscious reciprocation of a concession by Cialdini’s experimental subjects actually caused a much-increased percentage of them to end up irrationally agreeing to go to a zoo with juvenile delinquents. Now, a professor who can invent an experiment like that, which so powerfully demonstrates something so important, deserves much recognition in the wider world, which ...

There is a charming Irish Catholic priest in my neighborhood who, with rough accuracy, often says, “The old Jews may have invented guilt, but we Catholics perfected it.” And if you, like me and this priest, believe that, averaged out, feelings of guilt do more good than harm, you may join in my special gratitude for reciprocate-favor tendency, no matter how unpleasant you find feelings of guilt.

In Poor Richard’s Almanack, Franklin counseled, “Keep your eyes wide open before marriage and half shut thereafter.” Perhaps this eyes-half-shut solution is about right, but I favor a tougher prescription: “See it like it is and love anyway.”

At Berkshire, there is a common injunction: “Always tell us the bad news promptly. It is only the good news that can wait.”

According to Tolstoy, 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. The second half of the Tolstoy effect, wherein the man makes excuses for his fixable poor performance instead of providing the fix, is enormously important. Because a majority of mankind will try to get along by making way too many unreasonable excuses for fixable poor performance, it is very important to have personal and institutional antidotes limiting the ravages of such folly.

On the personal level, a man should try to face the two simple facts: 1) Fixable but unfixed bad performance is bad character and tends to create more of itself, causing more damage to the excuse-giver with each tolerated instance; and 2) in demanding places, like athletic teams and General Electric, you are almost sure to be discarded in due course if you keep giving excuses instead of behaving as you should.

The main institutional antidotes to this part of the Tolstoy effect are 1) a fair, meritocratic, demanding culture, plus personnel handling methods that build up mor...