Author: Charlie Munger, edited by Peter D. Kaufman

Release year: 2005, 2023

Publisher: Stripe Press

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My review

(p. 31) Physics-like problem-solving was to become a passion for Charlie and is a skill he considers helpful in framing the problems of life. He has often stated that anyone who wants to be successful should study physics because its concepts and formulas so beautifully demonstrate the powers of sound theory.
(p. 88) [Carl Braun’s] rule for all the Braun Company’s communications was called the five Ws: You had to tell who was going to do what, where, when, and why. And if you wrote a letter of directive in the Braun Company telling somebody to do something and you didn’t tell him why, you could get fired. In fact, you would get fired if you did it twice.
(p. 106) On incentives: (At the FedEx night shift) “Somebody got the idea to pay all these people not so much an hour but so much a shift, and when it’s all done, they can all go home. Well, their problems cleared up overnight.
(p. 125) [The fact] that contract bridge is so out of vogue in your generation is a tragedy. (Written in 1996)
(p. 134) Argumentation It’s very, very important to create human systems that are hard to cheat. Otherwise, you’re ruining your civilization, because these big incentives will create incentive-caused bias plus social proof. Not only that but […] if enough people are profiting in a general social climate of doing wrong, then they’ll turn on you and become dangerous enemies if you try and blow the whistle.
(p. 157) “I hope what I’m saying will help you be more effective and better human beings. And if you don’t get rich, that won’t bother me. But I’m always asked this question: ‘Spoon-feed me what you know.’ And, of course, what they’re often saying is ‘Teach me how to get rich with soft white hands faster. And not only let me get rich faster, but teach me faster, too.’ […] But one talk like this is not the right way to do it. The right way to do it would be in a book.”
(p. 242) “The third weakness that I find in economics is what I call physics envy. And, of course, that term has been borrowed from ‘penis envy,’ as described by one of the world’s great idiots, Sigmund Freud.”
(p. 278) You want to provide a lot of playing time to your best players. (heroes?)
(p. 306) 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. Given this situation, it is not too much in many cases to appraise early-formed habits as destiny. (chancing your habits changes your destiny?)
(p. 312) “When did any of you last engage in any large group discussion of some issue wherein adult envy/jealousy was identified as the cause of someone’s argument? There seems to be a general taboo against any such claim.

What is the book about as a whole?

What is being said in detail, and how?

Is the book true, in whole or part?

What did I learn?

How can I use this?

Why must I use this?

When will I use this?

Félix rating:
👍👍

Integrative framework

📚 Vocabulary

(p. 49) fillip: A flick
(p. 200) Leverage buyout (LBO): The use of a target company’s asset value to finance the debt incurred in acquiring the company.
(p. 251) Apocryphal: Of questionable authorship or authenticity. Erroneous; fictitious.

💡 New ideas

(p. 256) Comparative advantage

In economy, it is not advantageous to produce everything yourself, because we all have different talents and resources. If we remove economic barriers and we adopt free trade, each group can focus its production around their specialty and import goods for others’ surpluses. In the end, this will not make everyone more equal, but it will make everyone richer than they were before putting free trade in place.

⭐ Star Quotes

(p. 5) “Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group… then to hell with them.”

Foreword: Collison on Munger, by John B. Collison (link)

(p. 14) “There is no better teacher than history in determining the future. There are answers worth billions of dollars in a $30 history book.” –Charlie

Foreword: Buffett on Munger, by Warren E. Buffett (link)

Rebuttal: Munger on Buffett, by Charles T. Munger (link)

Introduction by Peter D. Kaufman (link)

Chapter 1: A Portrait of Charles T Munger (link

(p. 35) Choose clients as you would friends.
(p. 37) “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 it will work better for you in life and work better in education.”

Chapter 2: Remembering: The Children on Charlie (link)

(p. 42) “[You made] a terrible mistake, and we don’t want you ever to make another one like it. But people make mistakes, and we can forgive that. You did the right thing, which was to admit your mistake. If you had tried to hide the mistake, or cover it up for even a short time, you would be out of this company. As it is, we’d like you to stay.”

Chapter 3: The Munger Approach to Life, Learning and Decision-Making (link)

(p. 57) “All I want to know is where I’m going to die, so I’ll never go there.”
(p. 58) “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.”
(p. 59) “We have three baskets for investing: yes, no, and too tough to understand.”
(p. 61) A great business at a fair price is superior to a fair business at a great price.
(p. 62) [Score yourself not so much on whether you won but rather on how well you played.]
(p. 64) Only in fairy tales are emperors told they are naked.
(p. 64) 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.
(p. 64) If you want to get smart, the question you have to keep asking is “why, why, why?”
(p. 64) Acknowledging what you don’t know is the dawning of wisdom.
(p. 65) Determine value apart from price, progress apart from activity, wealth apart from size.
(p. 65) It is better to remember the obvious than to grasp the esoteric.
(p. 65) Opportunity cost: The highest and best use [of capital] is always measured by the next best use.
(p. 65) Be fearful when others are greedy and greedy when others are fearful.
(p. 66) Reputation and integrity are your most valuable assets, and can be lost in a heartbeat.
(p. 66) Face your big troubles, don’t sweep them under the rug.

Chapter 4: Eleven Talks

Talk One: Harvard School Commencement Speech (link)

(p. 76) While susceptibility varies, addiction can happen to any of us through a subtle process where the bonds of degradation are too light to be felt until they are too strong to be broken.
(p. 79) Many hard problems are best solved only when they are addressed backward.
(p. 79) If you interpret being true to yourself as requiring that you retain every notion of your youth, you will be safely underway, not only toward maximizing ignorance but also toward whatever misery can be obtained through unpleasant experiences in business.

Talk Two: A Lesson on Elementary, Worldly Wisdom as It Relates to Investment Management and Business (link)

(p. 85) You’ve got to have multiple models—because if you have just one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least you’ll think it does.
(p. 88) 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.
(p. 89) Just as a man working with a tool has to know its limitations, a man working with his cognitive apparatus has to know its limitations.
(p. 90) Roughly half of the army of Adolf Hitler was composed of believing Catholics. Given enough clever psychological manipulation, what human beings will do is quite interesting.
(p. 93) Occasionally, scaling down and intensifying gives you the big advantage. Bigger is not always better.
(p. 94) If people tell you what you really don’t want to hear, what’s unpleasant, there’s an almost automatic reaction of antipathy. You have to train yourself out of it. It isn’t foredestined that you have to be this way. But you will tend to be this way if you don’t think about it.
(p. 98) The great lesson in microeconomics is to discriminate between when technology is going to help you and when it’s going to kill you.
(p. 99) 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.
(p. 102) The iron rule of life is that only 20% of the people can be in the top fifth. That’s just the way it is.
(p. 108) Some days Mr. Market says, “I’ll sell you some of my interest for way less then you think it’s worth.” And other days, he comes by and says, “I’ll buy your interest at a price that’s way higher than you think it’s worth.” And you get the option of deciding whether you want to buy more, sell part of what you already have, or do nothing at all.
(p. 110) Load up on the very few good insights you have instead of pretending to know everything about everything at all times. You’re much more likely to do well if you start out to do something feasible instead of something that isn’t feasible.
(p. 111) If you have to choose one, bet on the business momentum, not the brilliance of the manager.
(p. 112) “Trying to minimize taxes too much is one of the great standard causes of really dumb mistakes. I see terrible mistakes from people being overly motivated by tax considerations.”
(p. 117) It is quite counterintuitive to decrease that part of one’s activity that has recently worked best, but this is often a good idea. And so also with reducing one’s perception of one’s needs instead of increasing risks in an attempt to satisfy perceived needs.
(p. 119) Three basic rules a young person should try to follow when looking for a career:
- Don’t sell anything you wouldn’t buy yourself
- Don’t work for anyone you don’t respect and admire
- Work only with people you enjoy
(p. 119) “Life and its various passages can be hard, brutally hard. The three things I have found helpful in coping with its challenges are: - Have low expectations - Have a sense of humor - Surround yourself with the love of friends and family. Above all, live with change and adapt to it.”

Talk Three: A Lesson on Elementary, Worldly Wisdom as It Relates to Investment Management and Business Revisited (link)

(p. 124) If you want to be a good thinker, you must develop a mind that can jump […] jurisdictional boundaries.
(p. 129) “Being totally sure on issues […] with a strong, violent ideology, in my opinion, turns you into a lousy thinker.”
(p. 132) If something is very important but can’t be perfectly and precisely demonstrated because of ethical constraints, you can’t just treat it like it doesn’t exist. You have to do the best you can with it, with such evidence as is available.
(p. 135) If what you want to do is to ruin your civilization, just go to the legislature an pass laws that create systems wherein people can easily cheat. It will work perfectly.
(p. 135) It’s much better to let some things go uncompensated—to let life be hard—than to create systems that are easy to cheat.
(p. 137) “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. So we’ve succeeded by making the world easy for ourselves, not by solving hard problems.”
(p. 139) “Each of you will have to figure out where your talents lie. And you’ll have to use your advantages. But if you try to succeed in what you’re worst at, you’re going to have a very lousy career. I can almost guarantee it.
(p. 140) “You can learn to make fewer mistakes than other people—and how to fix your mistakes faster when you do make them. But there’s no way that you can live an adequate life without making many mistakes.”
(p. 140) “Part of what you must learn is how to handle mistakes and new facts that change the odds. Life, in part, is like a poker game, wherein you have to learn to quit sometimes when holding a much-loved hand.”
(p. 147) One of the troubles with practicing law [is that], to a considerable extent, you’re going to be dealing with grossly defective people. They create an enormous amount of remunerative law business.
(p. 147) ⭐ “It’s hard for an empty sack to stand upright.” –Benjamin Franklin
(p. 152) You receive what you reward: “If I were running the civilization, compensation for stress in workers’ comp would be zero—not because there’s no work-caused stress, but because I think the net social damage of allowing stress to be compensated at all is worse than what would happen if a few people who had real work-caused stress injuries went uncompensated.”
(p. 160) “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 myself. Nobody’s that smart.”
(p. 160) The people who rewarded cheating on a massive scale leave a trail of super-ruin in their wake, since the bad conduce spreads by example so is very hard to reverse.

Talk Four: Practical Thought about Practical Thought? (link)

(p. 165) Without numerical fluency, in the part of life most of us inhabit, you are like a one-legged man in an ass-kicking contest.
(p. 165) It is not enough to think problems through forward. You must also think in reverse, much like the rustic who wanted to know where he was going to die, so that he’s never go there.
(p. 169) A competing product, if it is never tried, can’t act as a reward creating a conflicting habit. Every spouse knows that.
(p. 172) The best way to avoid envy, as recognized by Aristotle, is to plainly deserve the success we get.
(p. 176) “The company that needs a new […] tool and hasn’t bought it is already paying for it.” –Warner and Swasey

Talk Five: The Need for More Multidisciplinary Skills From Professionals: Educational Implications (link)

(p. 191) ⭐ There is an old two-part rule that often works wonders in business, science and elsewhere: 1) Take a simple, basic idea and 2) Take it very seriously.
(p. 192) As Dr. [Samuel] Johnson so wisely observed, truth is hard to assimilate in any mind when opposed by interest. And if institutional incentives cause the problem, then a remedy is feasible, because incentives can be changed.

Talk Six: Investment Practices of Leading Charitable Foundations (link)

(p. 198) All the equity investors, in total, will surely bear a performance disadvantage per annum equal to the total croupier’s costs they have jointly elected to bear. This is an inescapable fact of life.
(p. 199) An excess of what seems like professionalism will often hurt you horrible, precisely because the careful procedures themselves often lead to overconfidence in their outcome.
(p. 199) Smart, hardworking people aren’t exempted from professional disasters from overconfidence. Often, they just go around in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.
(p. 199) “The first principle is that you must not fool yourself, and you’re the easiest person to fool.” –Richard Feynman

Talk Seven: Breakfast Meeting of the Philanthropy Roundtable (link)

(p. 213) “I […] think that one should recognize reality even when one doesn’t like it—indeed, especially when one doesn’t like it. Also, I think one should cheerfully endure paradox that one can’t remove by good thinking.
(p. 216) If you don’t have the right thinking tools, you and the people you seek to help are already suffering from your easily removable ignorance.

Talk Eight: The Great Financial Scandal of 2003 (link)

Talk Nine: Academic Economics: Strengths and Faults after Considering Interdisciplinary Needs (link)

(p. 236) “If you would persuade, appeal to interest and not to reason.”
(p. 236) ⭐ Appeal to interest and not to reason if you want to change conclusions.
(p. 248) “I don’t think it’s necessary to spend your life selling what you would never buy. Even though it’s legal, I don’t think it’s a good idea. But you shouldn’t accept all my notions, because you’ll risk becoming unemployable. You shouldn’t take my notions unless you’re willing to risk being unemployable by all but a few.”
(p. 252) “[Samuel Johnson] said, in substance, that if an academic maintains in place an ignorance that can be easily removed with a little work, the conduct of the academic amounts to treachery. That was his word, ’treachery.’”
(p. 253) You have a duty if you’re an academic to be as little of a klutz as you can possibly be, and therefore you have got to keep grinding out of your system as much removable ignorance as you can remove.
(p. 254) In the course of gaming the system, people learn to be crooked. IS this good for civilization^ Is it good for economic performance^ Hell no. The people who design easily gameable systems belong in the lowest circle of hell.
(p. 259) Some systems should be made deliberately unfair to individuals because they’ll be fairer on average for all of us. Thus, there can be virtue in apparent non-fairness.
(p. 262) “It’s not bringing in new ideas that’s so hard. It’s getting rid of the old ones.” —Keynes
(p. 262) Einstein [attributes] his mental success to “curiosity, concentration, perseverance, and self-criticism.” By self-criticism, he meant becoming good at destroying your own best-loved and hardest-won ideas. If you can get really good at destroying your own wrong ideas, that is a great gift.
(p. 262) “Better roughly right than precisely wrong.” —Keynes

Talk Ten: USC Gould School of Law Commencement Address (link)

(p. 269) The safest way to try to get what you want is to try to deserve what you want.
(p. 269) You want to deliver to the world what you would buy if you were on the other end.
(p. 269) Occasionally you will find a perfect rogue of a person who dies rich and widely known. But mostly these people are fully understood as despicable by the surrounding civilization. If the cathedral is full of people at the funeral ceremony, most of them are to celebrate the fact that the person is dead.
(p. 270) The acquisition of wisdom is a moral duty. It’s not something you do just to advance in life.
(p. 270) You are not going to get very far in life based on what you already know. You’re going to advance in life by what you learn after you leave here.
(p. 270) “I constantly see people rise in life who are not the smartest, sometimes not even the most diligent. But they are learning machines. They go to bed every night a little wiser than they were that morning. And boy, does that habit help, particularly when you have a long run ahead of you.
(p. 271) A legal mind is a mind that considers it feasible and useful, when two things are all twisted up together and interacting, to try and think about one thing without considering the other.
(p. 272) “You can cause enormous offense by being right in a way that causes somebody else to lose face in his own discipline or hierarchy. I never found the perfect way to avoid harm from this serious problem.”
(p. 272) Your duty is to behave in such a way that the client thinks he’s the smartest person in the room. If you have any energy or insight available after that, use it to make your senior partner look like the second-smartest person in the room. And only after you’ve satisfied those two obligations do you want your light to shine at all.
(p. 273) “A man who doesn’t know what happened before he’s born goes through life like a child.” —Marcus Tullius Cicero
(p. 273) If you turn problems around into reverse, you often think better. 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.
(p. 274) “I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in the opposition. I think I am qualified to speak only when I’ve reached that state.”
(p. 275) “It’s not necessary to hope in order to persevere.” —William the Silent of Orange, as attributed by Dean Acheson
(p. 275) Self-pity is always counterproductive. It’s the wrong way to think. And when you avoid it you get a great advantage over everybody else, or almost everybody else, because self-pity is a standard response. And you can train yourself out of it.
(p. 276) Most people are not going to be very successful at removing bias, the human condition being what it is. If you don’t allow for self-serving bias in the conduct of others, you are a fool.
(p. 276) You should often appeal to interest, not to reason, even when your motives are lofty.
(p. 279) [Epictetus] 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.
(p. 280) ⭐ 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.
(p. 281) In your own life, what you want to maximize is a seamless web of deserved trust.

Talk Eleven: The Psychology of Human Misjudgment (link)

(p. 286) “Of what use is a philosopher who never offends anybody?” —Diogenes
(p. 288) “I became so avid a collector of instances of bad judgment that I paid no attention to boundaries between professional territories. After all, why should I search for some tiny, unimportant, hard-to-find new stupidity in my own field when some large, important, easy-to-find stupidity was just over the fence in the other fellow’s professional territory?”
(p. 295) ⭐ Perhaps the most important rule in management is “Get the incentives right.”
(p. 298) Bad behavior is intensely habit-forming when it is rewarded.
(p. 301) Dread, and avoid as much as you can, rewarding people for what can be easily faked.
(p. 305) “A major difference between rich and poor people is that the rich people can spend their lives suing their relatives.” —Warren Buffett
(p. 306) “An ounce of prevention is worth a pound of cure.” —Ben Franklin
(p. 307) 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.
(p. 307) “It is not the intrinsic difficulty of new ideas that prevent their acceptance. Instead, the new ideas are not accepted because they are inconsistent with old ideas in place.” —Lord Keynes (paraphrased)
(p. 312) “If is not greed that drives the world but envy.” —Warren Buffett
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Appendix

(Read 132) Poor Charlie’s Almanack