Poor Charlie's Almanack
Charlie Munger  

Summary

Timeless advice from one of the best investors the past century

Rating: 5/5

Notes

Look for someone smarter and wiser than you

‘If you skillfully follow the multidisciplinary path, you will never wish to come back.’

As you pat yourself on the back for behaving well, you will improve your future conduct

Pythagoras argued there are 3 kinds of  men: lovers of wisdom, lovers of honour and lovers of personal gain

Find out what you’re best at and keep pounding away at it

‘Life is just one damn relatedness after another.’ - Julian Hoxley

Preparation, patience, discipline and objectivity among the best guiding principles

‘The big money is not in the buying and selling, it’s in the waiting.’

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 the right circumstances appear

‘It’s kind of fun to sit there and outthink people who are way smarter than you are because you’ve trained yourself to be more objective and multi-disciplinary.’

‘A great business at a fair price is superior to a fair business at a great price’

‘When all a man’s info is confined to the field in which he is working, the work is never as good as it ought to be. A man has to get perspective and he can get it from books and other people - preferably both.’ - Harvey Firestone

Checklist:

• Risk
• Independent thinking
• Preparation
• Intellectual humility
• Analytical rigor
• Allocation
• Patience
• Decisiveness
• Change
• Focus

The only way to win is work, work, work and hope to have a few insights

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

‘Ability will get you to the top, but it takes character to stay there.’

‘If you tell the truth, you won’t have to remember the lies.’

One guarantee for Berkshire is the future will be a lot worse than the past in terms of compounding

Discipline, hard work and practice. It’s like playing golf, you have to work at it

Avoid evil, particularly if they’re attractive members of the opposite sex

Other people will get rich faster than you, that’s ok

Invest, always invert

Reliability is essential for progress in life

Think in elementary probability and combinations

In communicating with other people about everything, you want to include why, why, why. Even if it’s obvious, it’s wise to stick in the why

The psychology of misjudgement is very important to understand

Social proof: humans love what other people are buying

The big people don’t always win, as you get big, you get the bureaucracy

Competitive destruction: when a new technology completely wipes out an old one (cars to horse buggies)

If you play games where other people have the aptitude and you don’t, you will lose

You will only make money investing in high quality businesses

Only pay taxes at the end, just sit on your ass

Spend less than you make, always save something, put it into a tax deferred account

Have low expectations, a sense of humour and surround yourself with love

Get through the necessary models in life and think through it forwards and backwards

Heavy ideology is one of the most extreme distortions of human cognition

Figure out where your talent lies and stick to it

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

Good literature makes the reader reach for a little understanding, not a lot

To get a man to do what you want, appeal to his interests

‘I believe in the discipline of mastering what other people have already figured out.’ - Munger

A brand acts as a stimuli and the purchase of the product will be the desired response

You need interdisciplinary synthesis - learn models across disciplines 

To a man only with a hammer, every problem tends to look like a nail

Smart people aren’t excepted from professional disasters of over-confidence

Pay attention to the standard accounting treatment of stock options to boost earnings

‘Pleasure is the greatest incentive to evil’ - Plato

If you would persuade, appeal to interest and not to reason - Ben Franklin

Incentives are superpowers

If a thing can’t go on forever, it will eventually stop

Extreme success is caused by the combo of a few factors

• Extreme maximization/minimization of one or two variables
• Adding success factors so big that a bigger contribution drives non-linear success as reminded by compounding and critical mass in physics
• Extreme of good performance over many factors
• Catching and riding some sort of wave

People don’t account for the 2nd and 3rd order consequences of lying and cheating

‘It’s not bringing in ideas that’s so hard, it’s getting rid of old ones - Keynes

You want to deliver to the world what you would buy if you were on the other end

Problems frequently get easier to solve through inversion

Do not drift into self pity

Cognition is usually situationally dependent so that different situations cause different conclusions, even when the same person is thinking in the same area

Always think about the power of incentives - incentives are superpowers

Bad behaviour is intensely habit forming when it is rewarded

‘Granny’s rule’: children must eat their carrots before they get dessert

Liking/loving tendency: we like and love being liked and loved so much that it often distorts our visions of reality

Dislike/hating tendency: we use it to distort facts and facilitate hatred

‘An ounce of prevention is worth a pound of cure’ - Ben Franklin

It’s easier to prevent a habit than change it

People tend to accumulate large mental holdings of fixed conclusions that are not changed even when there is plenty of evidence they are wrong

You can get someone to like you more by asking them for a favour

The envy/jealousy tendency: we want what others have that we don’t

It is not good that drives the world but envy

The tendency to reciprocate favour for favour is very intense

Keep your eyes wide open, before marriage and half shut after - Ben Franklin

Always find out the bad news first

Influence from association tendency: hot girls modeling a brand

Pain avoiding - psychological denial

Excessive self-regard tendency: endowment effect. You think you’re better than you are

Losing hurts more than the gain helps = deprival superreaction tendency

Social proof tendency: triggering occurs from puzzlement or stress or both

Learn how to ignore examples from others when they are wrong

Contrast misreaction tendency: a small leak will sink a great ship - Ben Franklin

Stress influence tendency: anyone can be broken down

Availability misweighing tendency: things around you can be misunderstood because they’re so available to you

Use it or lose it tendency: practice skills over time otherwise you will lose it

Authority misinfluence tendency: don’t blindly follow the leader

Lollapalooza tendency: extreme consequences from confluence of psychological tendencies acting in favour of a particular outcome

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