Poor Charlie's Almanack
Charlie Munger, Warren Buffett's investing partner at Berkshire Hathaway, is famous for his sharp wit and wisdom shared at annual shareholder meetings. "Poor Charlie's Almanack" compiles Munger's writings and speeches, packed with insights that have shaped his remarkable career. The book's eleven chapters, each highlighting a popular speech, are available for free from Stripe Press.
Favorite Ideas
Invert, Always Invert
Charlie loves pulling wisdom from various sciences, and one standout concept is inversion. Inspired by German mathematician Carl Gustav Jacob Jacobi's strategy of solving problems by thinking about what not to do, Charlie often suggests solving problems by doing the opposite of common errors. This idea pops up throughout his talks, first appearing in Chapter One: Harvard Commencement Speech.
Simplicity
Everything should be made as simple as possible, but no more simple. - Albert Einstein
Charlie frequently reminds his audience of this famous quote, warning against "physics envy"—trying to oversimplify complex systems into neat formulas. He advocates for reducing complexity to its most fundamental explanation, first mentioned in Chapter Three: The Munger Approach to Life, Learning, and Decision-Making.
Deservedness
...the safest way to try to get what you want is to try to deserve what you want.
This is Charlie’s golden rule. Rather than chasing milestones and desires, we should focus on developing our character, knowledge, and experience.
Latticework of Mental Models
"What you need is a latticework of mental models in your head. And you hang your actual experience and your vicarious experience on this latticework of powerful models. And, with that system, things gradually get to fit together in a way that enhances cognition."
Charlie emphasizes the importance of building a network of mental models from various academic fields to enhance understanding and decision-making, which he distills into checklists for practical use.
Career Advice
I have three basic rules—meeting all three is nearly impossible, but you should try anyway:
1) Don’t sell anything you wouldn’t buy yourself.
2) Don’t work for anyone you don’t respect and admire.
3) Work only with people you enjoy.
Learning
Charlie is a voracious learner. He highlights the importance of learning from the best in your field and avoiding others' mistakes. He often quotes Ben Franklin, saying, “It is hard for an empty sack to stand upright,” emphasizing the importance of acquiring knowledge through multidisciplinary learning. Notably, both he and Warren Buffett spend a significant amount of time reading to gain wisdom.
Consider Warren Buffett again. If you watched him with a time clock, you’d find that about half of his waking time is spent reading.
Favorite Stories
Coca-Cola
In "Talk Four: Practical Thought about Practical Thought," Charlie hypothetically pitches Coca-Cola, using many mental models to envision growing a $2 million investment into a $1 trillion company. His story focuses on creating a global, adaptable, and scalable product while building a well-protected brand that generates positive consumer sentiment.
Quant Tech
In "Talk Eight: The Great Financial Scandal of 2003," Charlie narrates the rise and fall of Quant Tech, highlighting lessons on ethical business practices. The company manipulated accounting practices to inflate growth numbers, misleading investors and ultimately collapsing. Charlie discusses the importance of integrity, transparency, due diligence, ethics, and corporate governance.
The 25 Tendencies of Human Misjudgement
Many of Charlie’s mental models focus on avoiding mistakes by being aware of tendencies that can lead to misjudgment. He explores these tendencies in the final talk, "Talk Eleven: The Psychology of Human Misjudgment." Here are the 25 tendencies:
Reward and Punishment Superresponse Tendency: People respond strongly to incentives and rewards, often leading to irrational behavior to attain them.
Liking/Loving Tendency: Our affection for people or things can cloud our judgment, causing us to overlook their flaws or make biased decisions.
Disliking/Hating Tendency: Negative feelings towards people or things can skew our perceptions, making us overly critical or dismissive.
Doubt-Avoidance Tendency: To reduce uncertainty, people often make quick decisions, avoiding the discomfort of doubt and ambiguity.
Inconsistency-Avoidance Tendency: We strive to maintain consistency in our thoughts and actions, often ignoring evidence that contradicts our beliefs.
Curiosity Tendency: Our innate curiosity drives us to seek new information and experiences, fueling learning and discovery.
Kantian Fairness Tendency: A desire for fairness and justice can influence our decisions, sometimes leading to impractical or irrational outcomes.
Envy/Jealousy Tendency: Comparisons with others can breed envy and jealousy, affecting our satisfaction and decision-making.
Reciprocity Tendency: The urge to reciprocate actions or favors can lead us to act in ways that are not in our best interest.
Influence-from-Mere-Association Tendency: Associating people or things with positive or negative traits can bias our perceptions and decisions.
Simple, Pain-Avoiding Psychological Denial: To avoid psychological discomfort, people often deny or downplay unpleasant realities.
Excessive Self-Regard Tendency: Overestimating our own abilities and qualities can lead to overconfidence and poor decision-making.
Over-Optimism Tendency: Unrealistic optimism can cause us to underestimate risks and overestimate the likelihood of positive outcomes.
Deprival-Superreaction Tendency: The fear of losing something can trigger irrational responses, often leading to overreaction or aggressive behavior.
Social-Proof Tendency: We tend to follow the actions and beliefs of others, often leading to herd behavior and conformity.
Contrast-Misreaction Tendency: The way we perceive differences and contrasts can distort our judgment and decision-making.
Stress-Influence Tendency: Stress can impair our cognitive functions, leading to poor decisions and reactions.
Availability-Misweighing Tendency: We give undue weight to information that is readily available or recent, ignoring more relevant but less accessible data.
Use-It-or-Lose-It Tendency: Skills and knowledge degrade if not regularly used or practiced, affecting our proficiency and decision-making ability.
Drug-Misinfluence Tendency: Substance use can impair judgment and cognitive function, leading to poor decisions.
Senescence-Misinfluence Tendency: Aging can affect our cognitive abilities and decision-making processes.
Authority-Misinfluence Tendency: We tend to comply with authority figures, sometimes against our better judgment or ethical standards.
Twaddle Tendency: People have a propensity to engage in trivial or meaningless talk, which can distract from important matters.
Reason-Respecting Tendency: We are more likely to comply with requests or suggestions when given a reason, even if the reason is not particularly compelling.
Lollapalooza Tendency: Multiple psychological tendencies can combine to produce extreme, often irrational, behaviors and decisions.