“I have nothing to add.” – Charles T. Munger
[pullquote align=”full” cite=”” link=”” color=”#21608D” class=”” size=”15″]Birth name: CHARLES THOMAS MUNGER
Occupation: Businessman, Lawyer, Investor, Philanthropist and Thinker.
Birthplace: Omaha, Nebraska, USA
Date of Birth: January 1, 1924 (90)
Education: Harvard Law School[/pullquote]
BIOGRAPHY: Partner of Warren Buffett, he is the vice-chairman of Berkshire Hathaway Corporation, a diverse corporation chaired by Warren Buffett, one of the wealthiest individuals in the 21st Century. Served as Chairman of Wesco Financial Corporation. Worked in law, opened his own real estate attorney practice, then met Warren Buffett, and started concentrating on managing investments.
PERSONAL STRUGGLES: In his 30s, his first wife left him, leaving him bankrupt. His 9-year-old son died of cancer (leukemia). Later in life, he had a cataract surgery that went horribly wrong and left him blind in one eye, the pain was bad enough that he had his left eye removed. Yet, today, he is one of the most respected business thinkers in all of history. He’s one of the richest people in the world, and has achieved his dream of having a big house, with a big family and a huge library.
INTERESTS: reading, bridge, fishing, teaching, mentoring, investing, law, golf, philanthropy, philosophy, thinking, knowledge, cognitive biases and human misjudgments, psychology, finance, economics, decision-making, humor, multi-disciplinary thinking, mental models.
ADJECTIVES: opinionated, absentminded, clear thinker, special and unique in his thinking and personality, wise gentleman, inspiring, original & creative mind, childlike curiosity, moral philosopher and scholar, witty, a prodigy, swift decision-maker, more tactician than strategist, opportunistic, massive vocabulary, focused, smart, autodidactic, the utter absent-minded professor.
PHILOSOPHY & EMULATION:
Hero. Benjamin Franklin.
Biography Nut & Invisible Counselors. Learn about people’s lives for inspiration. To breath life into abstract concepts, it helps to study the people that came up with these concepts. People are made up of the stories they tell themselves. Storytelling is one of the cornerstones of life. “I am a biography nut myself. And I think when you’re trying to teach the great concepts that work; it helps to tie them into the lives and personalities of the people who developed them. I think you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among ‘the eminent dead,’ but if you go through life making friends with the eminent dead who had the right ideas, I think you will work better for you in life and work better in education. It’s way better than just giving the basic concepts.” & “I frequently like the eminent dead better than the live teachers.”
Charity. Serves in many companies board of directors, has devoted his efforts to charity. “To the extent that all I’ve done is pick stocks that have gone up and sat on my [behind] as my family got richer, I haven’t left much contribution to society. I guess it’s a lot like Wall Street. The difference is, I feel ashamed of it. I try to make up for it with philanthropy and meetings like this one today. This meeting is not out of kindness. This is atonement.”
Checklist. Powerful thinking tool. “Checklist routines avoid a lot of errors. You should have all of this elementary wisdom, and you should go through a mental checklist in order to use it. There is no other procedure that will work as well.”
Circle of Competence. Stays within his circle of competence (his expertise), he says he’s not entitled to have an opinion on a subject unless he could state the arguments against his position better than the people who support the arguments against his position. If you cannot respond legitimately to the next question, you lack true mastery and are likely outside your circle of competence. “Real knowledge is to know the extent of one’s ignorance.”
Confidence. “Think about it a little more and you will agree with me because you’re smart and I’m right.”
Curiosity & Life-long Learning. Highly curious and thirsty for knowledge and wisdom. Interested in all fields, advocates an interdisciplinary education and has a diverse set of interests. Life-long learning should be a moral obligation. He always keeps an open-mind. His breath of knowledge is truly impressive. The most powerful investment is the one you spend on yourself, you’ll never know when you’re going to find a golden nugget, until you do, keep on learning. Be a learning-machine. “You can progress only when you learn the method of learning.” & “Intense interest in any subject is indispensable if you’re really going to excel in it.” & “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…” He was willing to go into many different businesses. He was constantly going right into another fellow’s business and doing better than the other fellow did. The reason this was possible is because of self-education, developing mental discipline and combine it with big ideas that really work.
Discipline. Strict with himself. It’s a moral requirement to learn discipline and overcome the innate weakness of human nature. “Spend each day trying to be a little wise 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. At the end of the day – if you live long enough – most people get what they deserve.”
Family man. He has 8 children, including his stepchildren from his second marriage. Host yearly get-togethers to spend time with the people that matter most in his life. He is extremely generous with the people he loves.
Forecasts are impossible. Distrusts master plans or long-term strategy, no one can really know the future; he’s a tactician, not a strategist. Exploits current opportunities. “People have always had this craving to have someone tell them the future. Long ago, kings would hire people to read sheep guts. There’s always been a market for people who pretend to know the future. Listening to today’s forecasters is just as crazy as when the king hired the guy to look at the sheep guts.”
Frugality. Does not spend money on expensive luxury items. Munger has said that accumulating the first $100,000 from a standing start, with no seed money is the most difficult part of building wealth. Making the first million was the next big hurdle. To do that a person must consistently underspend his income. Getting wealthy is like rolling a snowball. It helps to start on the top of a long hill – start early – and try to roll the snowball for a very long time. It helps to live a long life. “Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer.”
Honesty & Integrity. Liars need good memories. Louis Vincenti once said, “If you tell the truth, you don’t have to remember the lies.” You ought to have an internal compass. There are all kinds of things you won’t do even though they’re perfectly legal. “Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat.” & “How you behave in one place will help in surprising ways later.” & “I learned to make money. Hard work & Honesty, if you keep at it, will get you almost anything.”
Human psychological misjudgments, biases and mental traps. Studies notable failures in each and every type of person, business, government or academic research. Fond of catastrophic error caused by human misjudgments and biases. Arranges these causes into a checklist to avoid making these same errors. “If you don’t allow for self-serving bias in the conduct of others, you are, again, a fool.” & “There is nothing more counterproductive than envy. Someone in the world will always be better than you. Of all the sins, envy is easily the worst, because you can’t even have any fun with it. It’s a total net loss.” & “Never, ever, think about something else when you should be thinking about the power of incentives.”
Independent Thinker. Bewary of conventional wisdom and the crowd. “Some economic distortions come from the masses believing that other people are right. Others come from the need to make a living through behavior that may be less than socially desirable. I’ve always been skeptical of conventional wisdom. You have to be able to keep your head on when everyone else is losing theirs.” & “Mimicking the herd invites regression to the mean.”
Inversion. “Invert, always Invert” – Jacobi.To understand how to be happy in life, he studies how to be miserable in life. Then he avoids the ways to become miserable in order to become happy. “All I want to know is where I’m going to die so I’ll never go there.” & “A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.”
Know Thyself. “Just as a man working with his tools should know its limitations, a man working with his cognitive apparatus must know its limitations.” & “The ethos of not fooling yourself is one of the best you could possibly have. It’s powerful because it’s so rare.” & “Above all, never fool yourself, and remember that you are the easiest person to fool.” & “Acknowledging what you don’t know is the dawning of wisdom.”
Lollapalooza Effect. Multiple biases, tendencies and mental models acting at the same time in the same direction. The critical mass obtained via a combination of concentration, curiosity, perseverance and self-criticism applied through a prism of multidisciplinary mental models.
Long-term. Adopt a long-term view of everything. Advocate of Value Investing, investing in a business for the long-term, buy and hold. Seeks financial independence, not money for wealth’s sake. “It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities.”
Multidisciplinary Mental models & Elementary Worldly Wisdom. Build a latticework of mental models that aid in problem solving and decision-making. His thinking is never restrained by rigid rules or doctrines. Use mental models to understand the world. “You must know the big ideas in the big disciplines, and use them routinely – all of them, not just a few. Most people are trained in one model – economics, for example – and try to solve all problems in one way. You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.” & “You need a different checklist and mental models for different companies. I can never make it easy by saying, ‘Here are three things.’ You have to derive it yourself to ingrain it in your head for the rest of your life.” Munger is not impressed by the notion that the scope of knowledge has become so massive that few people can become truly multidisciplinary and still have enough time in life for a career. “You don’t have to know everything. A few really big ideas carry most of the freight.” Munger claims that most people would be better off if they were trained for their professions the way pilots are taught to fly, “They learn everything that is useful in piloting, and then, must retrain continuously so that they can cope promptly with practically any eventuality.”
Mistakes. You cannot go through life without making mistakes; the trick is to minimize the chances of making big mistakes. Sometimes our greatest mistakes are not the things we did, but the things that we didn’t do.
Moats. Great businesses have large moats, a high ability to keep its width and impossibility of being crossed. Tell their managers that they want the moat to increase in width every year. A company’s competitive advantage is its moat: the virtual physical barrier it presents against incursions. Superior companies have deep moats that are continuously widened to provide enduring protection.
Never stop. At 90 years old, continues to live life to its fullest extent. Actively involved in many charities and businesses.
Opportunity Costs. Resource allocation (time, energy, money, people) comes down to opportunity costs. “Opportunity cost is a huge filter in life. If you’ve got two suitors who are really eager to have you and one is way the hell better than the other, you do not have to spend much time with the other. And that’s the way we filter our buying opportunities.” & “Intelligent people make decisions based on opportunity costs.”
Perseverance. Despite the death of his son, becoming nearly bankrupt, failing at his first marriage and losing his left eye, he persevered and overcame his struggles. “Assume life will be really tough, and then ask if you can handle it. If the answer is yes, you’ve won.” & “I think you should all just say “so what?” There are good times and there are bad times. And we know from the example of other people that if you constantly stand well by your generation, and cope with competency and grace with whatever life deals you and just keep doing it, your share of the honors and emoluments of the civilization in due time are very likely to come.”
Preparation & Patience. Spends his days reading, thinking and writing. Allows him to make sound decisions when necessary, even in completely unfamiliar territory, with just one look he can see the essence of a subject. What Charlie finds interesting when thinking back about all this progress is how few big business decisions were involved in creating billions of dollars out of less than $40 million, fewer than one every three years. I think the record shows the advantage of a peculiar mindset – not seeking action for its own sake, but instead of a combining extreme patience with extreme decisiveness. “Neither Warren nor I are smart enough to make the decisions with no time to think. We make actual decision very rapidly, but that’s because we’ve spent so much time preparing ourselves by quietly sitting, reading and thinking.” & “Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits. A few major opportunities, clearly recognizable as such, will usually come to ne who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable using resources available as a result of prudence and patience in the past.” & “Most people are too fretful, they worry too much. Success means being very patient, but aggressive when it’s time.”
Rationality & Objectivity. Adept at realistic thinking, he looks at the facts. Breaks down his own ideas if evidence points to its inaccuracies. Maintains objectivity and tries to eliminate his blind spots by understanding natural human biases & mental tendencies. “I think that one should recognize reality even when one doesn’t like it; indeed, especially when one doesn’t like it.” & “We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side. If you can’t state arguments against what you believe better than your detractors, you don’t know enough.”
Saying No. One of Warren’s strengths is that he is very good at saying no, but Charlie is better. Buffet has called Munger ‘The abominable no man.”
Simplification. Stay in your circle of competence; focus on a few things to reap huge rewards. Once again, less is more. A lot of the most powerful ideas are actually quite elementary. “Our ideas are so simple that people keep asking us for mysteries when all we have are the most elementary ideas.”
Teacher & Mentor. Patient, shares his wisdom patiently and tirelessly. “The best thing a human being can do is to help another human being know more.” & “There are always people who will be better at something than you are. You have to learn to be a follower before you become a leader.”
Voracious Reader. Always carries a book with him. Reads during downtimes. “As long as I have a book in my hand, I don’t feel like I’m wasting time.” & “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero.” & “Develop into a lifelong self-learner trough voracious reading; cultivate curiosity and strive to become a little wiser every day.”
SCHEDULE: Early riser. At 6:45 am he’s in his favorite reading chair, reading the day’s newspaper. Conducts any meetings at 7:30 am. Spends the bulk of his days reading and thinking.
“Forgetting your mistakes is a terrible error if you are trying to improve your cognition.”
“I don’t spend much time regretting the past once I’ve taken my lesson from it. I don’t dwell on it.”
“If you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply.”
“It’s a good habit to trumpet your failures and be quiet about your successes.”
“Now think about this. During World War II, Japan tortured our soldiers to death. They marched them around. The Germans put people in ovens. Just awful. And what did we do after the war? We gave them money to rebuild. We said, ‘Let bygones be bygones.’ The result was a magnificent global economic system and a win for human rights.”
“The best armor of old age is a well-spent life preceding it.”
“The best way to get what you want in life is to deserve what you want. How can it be otherwise? It’s not crazy enough so that the world is looking for a lot of undeserving people to reward.”
“The investment game always involves considering both quality and price, and the trick is to get more quality than you pay for in price. It’s just that simple.”
“The more hard lessons you can learn vicariously rather than through your own hard experience, the better.”
“Three rules for a career: 1) Don’t sell anything you wouldn’t buy yourself; 2) Don’t work for anyone you don’t respects and admire; and 3) Work only with people you enjoy.”
“When any guy offers you a chance to earn lots of money without risk, don’t listen to the rest of his sentence. Follow this, and you’ll save yourself a lot of misery.”
“Whenever you think something or some person is ruining your life, it’s you. A victimization mentality is so debilitating.”
“You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. But there are also causes where you have to recognize that you have no wisdom to add – and that your best course is to trust some expert.”
“The best thing a human being can do is to help another human being know more.”
– Charles T. Munger