#221 Charlie Munger

Summary Notes


In this episode, the host and guest delve into the life and wisdom of Charlie Munger, Berkshire Hathaway's Vice Chairman, as described by Warren Buffett and author Janet Lowe. Buffett's foreword for Lowe's book, "Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger," highlights Munger's exceptional character, his rational approach to life, and his inner scorecard philosophy. Munger's unique blend of patience and decisiveness in investing, his preference for quality over diversification, and his belief in learning from the eminent dead are discussed. Despite differing views on social issues, Buffett and Munger's partnership thrives without conflict, emphasizing the value of shared intellects and objectives. Munger's journey from a lawyer to a successful investor is explored, including his first million made through real estate and his significant contribution to Berkshire Hathaway. The conversation also touches on Munger's teaching mindset, his strategies for enduring failure, and his commitment to building robust businesses capable of weathering economic storms.

Summary Notes

Introduction to Charlie Munger

  • Warren Buffett first met Charlie Munger in 1959 and continues to discover unique qualities in him.
  • Charlie is known for his behavioral style, but Buffett values his character and integrity.
  • Munger does not seek to take advantage of others and often takes more blame and less credit than due.
  • He has a strong inner scorecard and does not seek external approval.
  • Buffett and Munger have had a long friendship without arguments, valuing rationality over ego.
  • Munger applies rational thinking even to topics like sin, considering envy the silliest sin due to its lack of pleasure.
  • Buffett sees Munger as a teacher who has significantly influenced both his thinking and Berkshire Hathaway's success.

"Charlie truly is one of a kind. I recognized that in 1959 when I first met him, and I've been discovering unique qualities in him ever since."

This quote highlights Buffett's long-standing admiration for Munger's unique qualities since their first meeting.

"In 41 years, I've never seen Charlie try to take advantage of anyone, nor have I seen him claim the least bit of credit for anything that he didn't do."

Buffett emphasizes Munger's integrity and humility in his interactions and business dealings.

"He is generous in the deepest sense and never lets ego interfere with rationality."

Buffett admires Munger's generosity and rational approach to life, free from ego-driven decisions.

"Unlike most individuals who hunger for the world's approval, Charlie judges himself entirely by an inner scorecard. And he's a tough grader."

Munger's inner scorecard is his personal metric for success, independent of external validation.

Introduction to the Book "Damn Right!"

  • The book "Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger" was written by Janet Lowe.
  • Warren Buffett's foreword for the book indicates its significance in understanding Munger.
  • Buffett's description of Munger as a teacher reflects his influence on Buffett's thinking.
  • The book is the fourth that the speaker has read about Munger, following other works that delve into Munger's philosophy and business acumen.
  • Munger serves as a historical mentor through biographies, similar to how Elon Musk found mentorship through historical figures.

"Is damn right behind the scenes with Berkshire Hathaway billionaire Charlie Munger. And it was written by Janet Lowe."

This quote introduces the book "Damn Right!" which provides insight into Charlie Munger's life and work.

"So this is now the fourth book that I've read on Charlie and the fourth podcast that I've done on him."

The speaker has extensively researched Munger, indicating the depth of interest and the importance of Munger's ideas.

Munger's Approach to Life

  • Munger strives to maximize his talents and financial situation.
  • He lectures on big ideas that can change lives but does not provide detailed instructions.
  • Munger offers a map to wisdom, requiring individuals to interpret and follow the instructions to find success.
  • The book aims to share Munger's life lessons, hoping readers will learn from his errors and successes.

"Munger constantly strove to maximize his talents and his financial situation. He often lectures on big ideas that can change your life."

Munger is portrayed as a person who seeks self-improvement and shares transformative ideas with others.

"He hands his listeners a map with which they can find the treasure of wisdom."

Munger provides guidance but believes in the individual's responsibility to decipher and apply the knowledge to their own lives.

The Partnership of Buffett and Munger

  • The book discusses the partnership between Warren Buffett and Charlie Munger.
  • Munger's personality and approach to life are detailed, highlighting who would benefit from his advice.
  • The relationship between Buffett and Munger began in 1957 and has been based on mutual respect and shared values.
  • Both Munger and Buffett had a passion for getting rich, not for material possessions, but for the independence it provided.
  • Munger aimed to be wealthy yet anonymous, preferring to stay out of the limelight.
  • The partnership was built on shared intellectual pursuits, honesty, and a commitment to lifelong learning.

"By the time JFK was elected US president, Buffett and Munger had become mental partners, a relationship that involved no contractor titles, at least in the beginning."

This quote indicates the informal yet profound intellectual partnership between Buffett and Munger that began early in their careers.

"Like Warren, I had a considerable passion to get rich... I wanted the independence. I desperately wanted it."

Munger's motivation for wealth is framed as a desire for independence rather than material luxury.

Munger's Philosophy and Influence

  • Munger's philosophy includes maintaining high personal standards and low expectations of others to avoid disappointment.
  • He values honesty, realism, curiosity, and unconventional thinking.
  • Munger's approach to life and business has been influential to Buffett and others.
  • The book contains "Mungerisms" – concise aphorisms that capture Munger's wisdom.
  • Munger's wide range of interests and extensive reading habits are highlighted as a contrast to Buffett's singular focus on investing.

"Everybody engaged in complicated work needs colleagues. Just the discipline of having to put your thoughts in order with somebody else is a very useful thing."

Munger stresses the importance of collaboration and the clarity that comes from articulating thoughts to others.

"To finish first, you must first finish. Don't get in a position where you go back to go."

This Mungerism encapsulates the idea of perseverance and avoiding setbacks in the pursuit of success.

Importance of Accessibility and Visibility of Learning Materials

  • Keeping learning materials like books in plain sight encourages frequent engagement and review.
  • Accessibility can lead to more consistent learning and reflection.

"our thinking for that day, and you can put it back down. It's just like a book. Vaporisms. And there's some expansion by the author, the person that collected it, I think his name's David Clark, if I remember. But it's just fantastic. And again, the reason I say leave it out is because if it's on a bookshelf, it kind of gets lost with all the other books you own. But if it's out, it's like, okay."

The quote emphasizes the idea that having books and learning materials within easy reach can prompt daily engagement and thought, as opposed to them being overlooked on a shelf.

Value of Aphorisms and Wisdom from Influential Figures

  • Aphorisms provide succinct, memorable wisdom that can influence daily thinking and decision-making.
  • Books on aphorisms, such as those by D. Hawk and Charlie Munger, are treasured for their distilled insights.

"And I have a bunch of books on aphorisms. D. Hawk, the founder of Visa, his autobiography of a restless mind. I leave out and I constantly pick up."

This quote highlights the speaker's appreciation for aphoristic wisdom, particularly from notable individuals like D. Hawk, suggesting that their thoughts have enduring value.

The Power of Incentives

  • Incentives are fundamental drivers of behavior and decision-making.
  • Understanding incentives is crucial for predicting outcomes in various scenarios.

"Never think of anything else when you should be thinking of incentives. Like incentives rule everything around you."

The quote encapsulates Munger's belief in the overarching influence of incentives on human behavior, indicating their importance in strategic thinking.

Lessons from Charlie Munger's Life

  • Munger's life offers a range of lessons, from the value of hard work to the importance of forming quality relationships.
  • His experiences during formative years, such as the Great Depression, shaped his values and approach to life.

"He firmly believes that work is the best way to keep young."

The quote reflects Munger's belief in the value of work ethic, which is a recurring theme in his life lessons and advice.

Munger's Philosophy on Success and Relationships

  • Success is not solely measured by wealth but by achieving personal goals and forming meaningful relationships.
  • Munger values the concept of finding and associating with "one in 10,000" types of people, suggesting a focus on quality over quantity in personal and professional relationships.

"Munger said Charlie was one of the happiest men who ever lived and achieved exactly what he wished to achieve, no more or less."

This quote illustrates Munger's perspective on success, emphasizing personal fulfillment and the achievement of one's own goals as the true measure of success.

Early Life and Education

  • Munger's early life, including his time during the Roaring Twenties and the Great Depression, provided a backdrop for his development and values.
  • His education and military service introduced him to important concepts and ways of thinking that influenced his later career.

"Charlie was a star student, but he was also one of the most challenging to deal with. He was too independent minded to bow down, to meet certain teachers' expectations."

The quote highlights Munger's independent nature and non-conformity during his education, which would later be reflected in his approach to business and investing.

The Role of Adversity and Resilience

  • Adversity, such as the death of a child or the challenges of the Great Depression, can shape a person's character and priorities.
  • Resilience and the ability to support others during tough times are highly valued traits.

"It must have been very hard for grandfather Munger to cure family financial distress. That wouldn't have happened if the suffering family members had been more like the judge."

This quote shows the admiration Munger has for his grandfather's resilience during the Great Depression, suggesting that such strength and reliability are commendable and influential.

Munger's Professional Journey and Philosophy

  • Munger's career path was not linear; he pursued law, military service, and eventually found his calling in investing.
  • His philosophy emphasizes the importance of aligning one's career with natural abilities and interests.

"To go into a calling where he would not be exceptional was not in Charlie's thinking."

The quote underscores Munger's belief in pursuing areas where one can excel, rather than settling for mediocrity.

Personal Development and Self-Education

  • Munger is a proponent of self-education and building one's own curriculum based on personal interests and goals.
  • He values learning from historical figures and incorporating their wisdom into one's life.

"I hurried through school, said Munger. I don't think I'm a fair example of an ideal education, and I don't think you are either, Warren. I learn better, sort of plowing through written material by myself."

This quote reflects Munger's preference for self-directed learning and his belief that traditional education may not be the most effective path for everyone.

Overcoming Personal Tragedy

  • Personal tragedies, such as the loss of a child, can have profound effects on an individual's life and worldview.
  • Munger's experience with personal loss is a testament to his resilience and ability to move forward despite adversity.

"I can't imagine any experience in life worse than losing a child inch by inch."

The quote conveys the depth of Munger's grief and the impact of such a tragic event on his life, highlighting the human capacity for endurance and recovery.

Transition from Law to Investing

  • Munger's transition from practicing law to becoming an investor was driven by his realization of where his talents and interests lay.
  • He learned valuable lessons from his early business ventures, including the importance of investing in high-quality businesses.

"The difference between a good business and a bad business is that good businesses throw up one easy decision after another. The bad businesses throw up painful decisions time after time."

This quote captures Munger's insight into the nature of business and the importance of making strategic choices based on the quality of the opportunity.

Desire for Wealth and Career Change

  • Warren Buffett and Janet Lowe discuss the motivation behind pursuing wealth.
  • Buffett uses a metaphor about a rabbit and a fox to illustrate the drive for survival versus comfort.
  • Lowe transitions into discussing Charlie Munger's journey to his first million dollars.

"The rabbit runs faster than the fox because the rabbit is running for his life while the fox is only running for his dinner."

This metaphor highlights the intensity of motivation when one's livelihood or survival is at stake, compared to when one is merely seeking to satisfy a need or desire, such as hunger.

Early Business Connections and Real Estate Investments

  • Charlie Munger's path to wealth began with his legal career and connections made through his law practice.
  • Munger met Otis Booth, a future business partner, while working at a law firm.
  • Lowe and Buffett discuss the importance of recognizing "intelligent fanatics" in business.

"Charlie and Warren talk about the fact that you should identify intelligent fanatics, right? These people that are really smart and really obsessed with their businesses."

This quote emphasizes the strategy of identifying highly driven and intelligent individuals who are deeply invested in their businesses as potential partners or investment opportunities.

Munger's Investment Philosophy and Reinvestment Strategy

  • Munger's approach to wealth accumulation involved constant reinvestment in new projects.
  • He practiced law while also engaging in real estate development with Booth, which led to his first million.
  • Buffett and Lowe discuss Munger's philosophy of living below one's means to grow investable assets.

"He took no money out. Rather, he invested in one project after another."

This statement underscores Munger's disciplined approach to wealth building by continuously reinvesting earnings rather than taking profits, which ultimately contributed to his financial success.

Munger and Buffett's Partnership

  • The meeting between Munger and Buffett was pivotal, leading to a long-term partnership.
  • Their shared intellect and objectives created a synergy that drove their success.
  • Buffett encouraged Munger to become a professional investor, recognizing their complementary personalities.

"With my background, how could I fail to take to a man who preferred reading and thinking to delivering groceries and who had learned something from everything he ever read?"

Buffett's admiration for Munger's intellectual curiosity and preference for thoughtful pursuits over mundane tasks is evident in this quote, highlighting the alignment in their values and approaches to business.

Personal Traits and Business Acumen

  • Munger is described as a unique individual with an intense interest in a wide array of topics.
  • His advice to do things that others aren't doing reflects his innovative mindset.
  • Munger's early career moves included founding a law firm and an investment partnership, influenced by Buffett's advice.

"Charlie's the most unique person I've ever met. He wouldn't accept anything on face value."

This quote captures Munger's character as someone who challenges conventional wisdom and seeks to understand the underlying principles of various matters.

Transition to Full-Time Investing

  • By the age of 41, Munger had accumulated significant wealth and sought to emulate Benjamin Franklin by achieving financial freedom.
  • He transitioned to full-time investing, establishing the Wheeler, Munger and Company investment partnership.
  • Munger's disdain for the legal profession and his desire to make his own investment decisions are highlighted.

"I preferred making decisions and gambling my own money. I usually thought I knew better than the client anyway, so why should I have to do it his way?"

Munger's confidence in his own judgment and preference for autonomy in investment decisions are evident in this quote, explaining his move away from practicing law.

Berkshire Hathaway and Simplifying Business Structure

  • An SEC investigation into the complex ownership structure of Buffett and Munger's investments led to the simplification of their holdings under Berkshire Hathaway.
  • Munger officially joined Berkshire Hathaway as vice chairman, and the simplification improved the company's performance.
  • The importance of patience and decisiveness in business decisions is emphasized.

"Simplicity has a way of improving performance through enabling us better to understand what we're doing."

This quote reflects the philosophy that simplifying business operations can lead to better outcomes by allowing for a clearer understanding and focus on core activities.

Munger's Reflections on Success and Durability

  • Munger values durability in business and personal conduct, avoiding pitfalls that can lead to failure.
  • He emphasizes the importance of quality in products, services, and relationships, creating a "seamless web of trust."
  • Munger's financial growth from $40 million to billions is attributed to a few key business decisions and his unique mindset.

"I think the record shows the advantage of a peculiar mindset. Not seeking action for its own sake, but instead combining extreme patience with extreme decisiveness."

Munger acknowledges the role of his distinctive approach to business, which involves waiting patiently for the right opportunities and then acting decisively, as a factor in his and Berkshire Hathaway's success.

The Importance of Never Compromising Quality

  • Seas Candy maintained high quality during sugar rationing in World War II.
  • They produced only as much candy as their rationed ingredients allowed.
  • Customers appreciated the quality and lined up, enhancing the store's reputation.

"Rather than compromise quality with inferior ingredients or alter their recipe, Seas decided to produce as much high quality candy as possible with the ingredients that were allocated."

This quote emphasizes Seas Candy's commitment to quality even under restrictive conditions, which ultimately contributed to their brand's cachet and customer loyalty.

The Influence of Walt Disney's Principles

  • Walt Disney valued quality and refused to compromise, even on small details.
  • He reprimanded an employee for suggesting they skip minor details, asserting people appreciate quality.

"Don't you ever forget that. They will respond to it. They will appreciate it."

Walt Disney's quote underlines his belief in not underestimating the customer's ability to appreciate quality, which is a principle he applied rigorously to his creations.

Decision-Making in Business

  • Warren Buffett and Charlie Munger's quick decision-making when purchasing Seas Candy.
  • They recognized the value of paying for quality businesses.
  • Their experience with Seas Candy influenced their future investments, including Coca-Cola.

"Look how fast Warren and Charlie can make decisions."

This quote reflects on the decisiveness of Buffett and Munger when recognizing a valuable business opportunity, which is crucial in successful investing.

The Value of Learning from Others

  • Charlie Munger is an advocate for learning from biographies.
  • He believes understanding the lives of those who developed great concepts can enhance learning and decision-making.

"I think that you learn economics better if you make Adam Smith your friend."

Munger's quote suggests that personalizing the learning experience by relating to historical figures can deepen understanding and retention of concepts.

The Importance of Independent Thought

  • Munger values having an inner scorecard and being able to think independently.
  • He believes that one's own judgment should be the primary measure of their actions.

"Like Franklin, Munger has learned that his ideas about a good and proper society or good and proper life do not always coincide with the beliefs of others."

This quote highlights the necessity of maintaining personal standards and convictions, even when they diverge from popular opinion.

Betting Heavily on Good Ideas

  • Munger advises betting heavily on rare good ideas.
  • He emphasizes the importance of recognizing and seizing major opportunities.

"A few major opportunities, clearly recognizable as such, will usually come to one who continually searches and waits with a curious mind."

Munger's quote illustrates the concept that significant opportunities are infrequent but can be highly rewarding for those who are prepared and willing to act decisively.

The Singleton Approach

  • Henry Singleton's approach to business was flexible and opportunistic.
  • Buffett and Munger were influenced by Singleton's success and philosophy.

"Our rule is pure opportunism, said Charlie. We do not have a master plan."

This quote captures the essence of being adaptable and ready to seize opportunities without being constrained by a rigid plan.

Simplicity and Frugality

  • Munger and Buffett prioritize simplicity and low overhead in their business operations.
  • They believe that extravagance in business can lead to inefficiency and is hard to reverse.

"I don't know of anybody our size who has lower overhead than we do, Munger said."

The quote underscores the value they place on maintaining a lean operation, which they view as a competitive advantage.

The Role of Failure in Success

  • Munger believes that taking on difficult tasks with a high chance of failure is essential for growth.
  • He respects institutions that take on tough challenges, such as Good Samaritan Hospital.

"It is necessary to accommodate a lot of failure. And because no matter how able you are, you're going to have headwinds and troubles. Do not be discouraged by a few reverses."

This quote encourages perseverance and resilience in the face of challenges, as failure is an integral part of the path to success.

Continuous Learning

  • Munger compares professional training to pilot training, emphasizing continuous retraining.
  • He believes in the importance of specialization and staying updated in one's field.

"Retrain continuously. Retrain continuously."

The repetition in this quote stresses the ongoing nature of learning and skill development necessary to remain competent and successful.

Sharing Knowledge

  • Munger and Buffett view their work with Berkshire Hathaway as an educational exercise.
  • They aim to share their wisdom, particularly with young people who can apply their lessons.

"Spend a lot of time learning and then share everything that you learn."

This quote encapsulates Munger's philosophy of lifelong learning and the importance of passing on knowledge to others.

Guaranteeing Failure and Reading Effectively

  • Munger lists four practices that guarantee failure: unreliability, not learning from others, giving up easily, and fuzzy thinking.
  • He emphasizes the value of reading and understanding the underlying principles of what one reads.

"If you get into the mental habit of relating what you're reading to the basic structure of the underlying ideas being demonstrated, you gradually accumulate some wisdom about investing."

Munger's quote suggests that reading with the intent to connect information to foundational concepts can build investment wisdom over time.

Embracing Challenges

  • Munger discusses the necessity of facing difficulties and failures.
  • He believes it's essential to be durable and to accept that success is not easy.

"If it weren't a little difficult, everybody would be rich, Munger insisted."

This quote reinforces the idea that achieving wealth and success requires overcoming challenges that not everyone is willing or able to face.

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