#295 I had dinner with Charlie Munger

In this episode, the host reflects on the profound insights gained from conversations with founders, both living and deceased, emphasizing the journey to find one's life's work often involves starting multiple companies. Charlie Munger's own path to his life's work in his 40s is highlighted as a common narrative. The host also discusses the business model of episode sponsor Tiny, founded by Andrew Wilkinson and Chris Sparling, which specializes in acquiring businesses and offers a straightforward, no-nonsense approach to transactions. Additionally, the host shares a personal experience of meeting Charlie Munger, expressing deep admiration for Munger's wisdom and approach to life's challenges, including his focus on surrounding oneself with quality businesses and people to reduce problems. The episode also touches on Munger's investment strategies, his reading habits, and his views on learning from history, envy, self-pity, and the importance of specializing and loving what you do for success.

• Speaker A (Charlie Munger) enjoys speaking with founders, both deceased (through their biographies) and alive, who are building companies today.
• A common theme is the search for one's life's work, which often involves starting multiple companies.
• Charlie Munger himself found his life's work in his 40s.
• The sponsor, Tiny, buys businesses and caters to entrepreneurs who may want to sell their businesses now or in the future.
• Tiny offers a quick and straightforward process for founders looking to sell.

"And a recurring theme that pop up again and again in these conversations is that a large part of your life is actually searching for your life's work."

This quote highlights the idea that finding one's true calling is a significant and often lengthy part of life, which may involve several ventures.

• Speaker A notes Charlie Munger's general disdain for venture capitalists but acknowledges his respect for Sequoia due to their impressive record.
• Doug Leone from Sequoia has been featured on the "Invest Like the Best" podcast, sharing the company's growth from a $150 million partnership to an $85 billion global investment company.
• The podcast episode with Doug Leone is recommended for its insights into founder mentality.

"And one of the things I got to ask Charlie was, you're known for not really liking VCs, and that's putting it really politely, yet you publicly praise Sequoia. Like, what's the deal with that? And his response was very simple. And he's like, it's because of their record."

This quote captures Speaker A's curiosity about Charlie Munger's selective praise for Sequoia, which is due to their successful track record in venture capital.

• Speaker A describes the HBO documentary "The Defiant Ones," focusing on the partnership between Jimmy Iovine and Dr. Dre, as a story about entrepreneurship and chasing dreams.
• Eminem's meeting with Dr. Dre is highlighted as a significant moment in the documentary, mirroring Speaker A's own experience meeting Charlie Munger.

"It's a documentary about entrepreneurship. It's documentary about chasing and running down a dream."

This quote summarizes the core message of "The Defiant Ones," emphasizing its focus on the pursuit of entrepreneurial dreams.

• Speaker A expresses deep admiration for Charlie Munger, considering him a grandfatherly figure and mentor from afar.
• The experience of meeting and dining with Munger was surreal for Speaker A, surpassing expectations.
• Speaker A thanks Andrew Wilkinson and Chris Sparling for arranging the meeting with Munger.
• Speaker A's podcast episode will include insights from reading "The Tao of Charlie Munger" and additional commentary from the dinner conversation.

"Never in a million years would I think because I sit in a room by myself for half a decade, reading biography after biography after biography every day for hours, and then record what I learn and put it out into the world, would I possibly... There's no possible way I could think that leads me to being able to meet him."

This quote reflects Speaker A's disbelief at the opportunity to meet Charlie Munger, which was a result of his dedication to learning from biographies and sharing that knowledge through his podcast.

• Charlie Munger's background includes working in Warren Buffett's grandfather's grocery store, studying meteorology, and attending Harvard Law School.
• Munger's early life was marked by a strong work ethic and a desire to become wealthy, leading him to invest time in his own real estate projects while practicing law.
• Munger realized he would not become rich as a lawyer and turned to investing full time at the age of 41.
• The meeting between Charlie Munger and Warren Buffett in 1959 was pivotal, leading to a long and profitable partnership.
• Munger's investment strategies included taking on debt for arbitrage opportunities and focusing on businesses with float (unused capital).

"Charlie spent much of his youth reading, and that is where he discovered a larger world than the neighborhood of Dundee, where Warren Buffett's family also lived."

This quote provides context for Charlie Munger's early influences and his connection to Warren Buffett's family, which would later become significant in his career.

• Charlie Munger's approach to investing evolved from looking for fair businesses at wonderful prices to seeking wonderful businesses at fair prices.
• The concept of using float from one business to invest in other profitable businesses was a key strategy for Munger and Buffett.
• Munger and Buffett's partnership led to the acquisition and management of several companies, including Blue Chip Stamps and Wesco.
• Munger's investment partnership achieved an average annual return of almost 25% before he closed it to focus on Berkshire Hathaway.
• Munger's philosophy on diversification is that it is unnecessary for those who know what they are doing, as evidenced by concentrated investments in his fund.

"Forget what you know about buying fair businesses at wonderful prices and instead buy wonderful businesses at fair prices."

This quote encapsulates Charlie Munger's investment philosophy that guided the development of Berkshire Hathaway, emphasizing the importance of investing in high-quality businesses.

• Charlie Munger became Berkshire Hathaway's first vice chairman in 1979.
• He played a crucial role in Berkshire Hathaway's growth from $148 million net income in 1984 to $24 billion in 2016.
• Warren Buffett credits Charlie Munger for shifting his investment strategy from Ben Graham's focus on bargains to considering businesses with long-term value.

"Charlie shoved me in the direction of not just buying bargains as Ben Graham had taught me. This was the real impact that he had on me. It took a powerful force to move me on from Graham's limiting view. It was the power of Charlie's mind."

The quote underscores Charlie Munger's significant influence on Warren Buffett's investment philosophy, moving away from solely buying undervalued stocks to investing in quality businesses with potential for long-term growth.

• "The Tao of Charlie Munger" is a compilation of Charlie Munger's quotes on life, business, and wealth, compiled by David Clark.
• The book is structured in short chapters with quotes and context, making it suitable for intermittent reading.
• The author of the podcast highly recommends the book, having read it multiple times in various formats.

"The Tao of Charlie Munger, a compilation of quotes from Berkshire Hathaway's vice chairman on life, business, and the pursuit of wealth."

This quote explains the content and purpose of the book, highlighting its focus on Charlie Munger's wisdom and its practical format for readers.

• Life is compared to a poker game where one must know when to quit, even with a much-loved hand.
• Munger emphasizes learning from mistakes and adapting to new facts that change the odds.
• Berkshire Hathaway's sale of Freddie Mac shares before its downfall is cited as an example of Munger's approach.

"Life is like a poker game wherein you have to learn to quit. Sometimes when holding a much loved hand, you must learn to handle mistakes and new facts that change the odds."

This quote highlights the importance of being adaptable and willing to let go of investments when circumstances change, as exemplified by the Freddie Mac sale.

• Entrepreneurs often seek to build unfair (but legal) advantages in business.
• Munger and Buffett realized the value of investing in exceptional businesses, even if they did not align with Graham's principles.
• The investment in Coca-Cola is used as an example of this evolved thinking, showcasing the benefits of long-term value investment.

"My idea of shooting a fish in a barrel is draining the barrel first."

Munger uses this metaphor to describe creating conditions that greatly increase the likelihood of success, akin to building an unfair advantage in business.

• Charlie Munger values patience and the ability to hold onto exceptional businesses for many years.
• Time is seen as an ally to businesses with strong economics, as it allows intrinsic value to grow.
• Munger criticizes the common practice of excessive diversification, advocating for concentration in truly great businesses.

"One truly great business will make your unborn grandchildren wealthy."

This quote encapsulates Munger's belief in the power of investing in a single, outstanding business for generational wealth creation.

• Munger and Buffett trust their own judgment and do not follow the herd.
• They emphasize rationality and avoiding the influence of extraneous factors or other people's opinions.
• Munger's internal motivation and "inner clock" are highlighted as key to his success.

"Mimicking the herd invites regression to the mean."

Munger warns against following the crowd, as it often leads to average results rather than exceptional ones.

• Munger and Buffett view financial crises as opportunities rather than setbacks.
• They prepare for market downturns by holding cash and investing when others are fearful.
• Munger's temperament and discipline are credited for his financial success, rather than just intelligence.

"It was not brains that made him so rich. It was temperaments."

The quote emphasizes the importance of having the right temperament, particularly discipline and patience, in achieving financial success.

• Charlie Munger's long-term success is attributed to his patience and focused attention span.
• He advises against multitasking and emphasizes deep thinking.
• Munger's patience is exemplified by his profitable use of information from Baron's magazine over 50 years.

"I succeeded because I have a long attention span."

This quote underscores the importance of focus and patience as key factors in Munger's success.

• Munger warns against the dangers of overconfidence, even among smart individuals.
• He stresses the importance of enduring problems and acting immediately to resolve them.
• The concept of "wisdom in prevention" is discussed, advocating for avoiding problems rather than solving them.

"Wise people step on big and growing troubles early."

Munger advises addressing problems early on to prevent them from escalating, illustrating his proactive approach to challenges.

• Munger believes in recognizing and seizing opportunities with wonderful businesses and managers.
• He emphasizes the continuous earning potential of exceptional businesses.
• Learning from history and leveraging past experiences are key to making informed decisions.

"You do get an occasional opportunity to get into a wonderful business that's being run by a wonderful manager. And of course, that's hog heaven day."

This quote reflects Munger's enthusiasm for finding and investing in high-quality businesses with strong leadership, highlighting the rarity and value of such opportunities.

• Many successful entrepreneurs were doubted by others but proved them wrong.
• Patience and contrary action to human nature are important for success.
• Entrepreneurs like Sam Walton, Steve Jobs, and Jeff Bezos used economic downturns to their advantage.
• Charlie Munger emphasizes the importance of having cash to move fast in business opportunities.

"Sam Walton, Steve Jobs, Jeff Bezos, Rockefeller... And if we went to every single episode or biography read so far, for founders, the list would be a lot longer than that."

This quote lists several entrepreneurs who succeeded despite skepticism, illustrating the theme of perseverance and contrary action to common expectations.

• Human nature tends to be impatient and prone to quitting, which should be resisted.
• The importance of waiting for the right opportunity at the right price is stressed.
• Charlie Munger's investment approach is highlighted as being patient and opportunistic, particularly during economic downturns.

"You have to be very patient. You have to wait until something comes along, which at the price you're paying, is easy."

This quote emphasizes the virtue of patience in investment and business, suggesting that waiting for the right opportunity is key to success.

• Munger and the host share a passion for reading biographies.
• Reading about the history of businesses helps in understanding their successes and failures.
• Munger's personal library and dedication to learning are highlighted as impressive and influential.

"The book goes into something that obviously Charlie and I share, the fact that we're both biography nuts."

This quote connects the theme of lifelong learning to success in business, showing that Munger values the insights gained from reading biographies.

• Opportunities often come unexpectedly and do not last long.
• Being prepared to act quickly on opportunities is crucial.
• Mark Andreessen's advice on career planning and seizing opportunities is quoted.

"The idea is like, we just made a lot of money because we had cash and we could move fast."

This quote underscores the theme of readiness and agility in business, suggesting that having resources and the ability to act swiftly are advantages.

• Immigrants and those from less privileged backgrounds often work harder.
• The rise of Korea in the auto industry is used as an example of extraordinary work ethic leading to success.
• Sam Hinkie's notes on Robert Caro's writing about Lyndon Johnson and Robert Moses reflect the idea that extreme dedication is often necessary for extraordinary achievement.

"Are you surprised when you lose to people like that? Only if you're a total idiot."

This quote highlights the theme of work ethic and competitive edge, implying that losing to those who work significantly harder should not be surprising.

• A great brand can have a magical, monopolistic effect on consumers.
• Learning from bad business experiences helps in identifying good businesses with competitive advantages.
• Munger's experience with See's Candies taught him the power of a good brand.

"When we bought See's Candies, we didn't know the power of a good brand."

This quote ties to the theme of understanding the intrinsic value of a brand, which can lead to the ability to raise prices without losing customers.

• Betting on the quality of a business is usually better than betting on management.
• Exceptional managers, like Mrs. B of Nebraska Furniture Mart, can be worth following into less promising businesses.
• The story of Mrs. B illustrates the impact an extraordinary manager can have on a business.

"But very rarely you find a manager who is so good that you're wise to follow him into what looks like a mediocre business."

This quote discusses the balance between the quality of a business and the quality of its management, suggesting that exceptional managers can be an exception to the general rule.

• Berkshire Hathaway has never had a master plan, preferring to be opportunity-driven and adaptable.
• Mrs. B's simple business plan of "sell cheap and tell the truth" is highlighted as effective.
• The importance of adapting to new information and circumstances is emphasized.

"We'd rather keep things simple and improvise as we go along."

This quote encapsulates the theme of flexibility and improvisation in business strategy, suggesting that rigid planning can be less effective than a dynamic approach.

• Knowing when to stretch for great opportunities is key.
• Iscar's acquisition by Berkshire is an example of stretching for the right people and business.
• Size and market domination can create a durable competitive advantage.

"We didn't know when we were young which things to stretch for, but by the time we reached Iscar... we knew to stretch for the right people."

This quote relates to the theme of recognizing and seizing exceptional opportunities, illustrating the strategic growth of Berkshire Hathaway.

• Charlie Munger admires individuals like Ben Franklin and Lee Kuan Yew for their wisdom and leadership.
• The concentration of decision-making in a single wise person can be beneficial.
• The discussion includes reflections on the importance of strong leadership and control in business, as seen in the examples of Lee Kuan Yew and Steve Jobs.

"In a democracy, everyone takes turns, but if you really want a lot of wisdom, it's better to concentrate decisions and process in one person."

This quote speaks to the theme of wisdom and leadership, suggesting that concentrated decision-making can lead to better outcomes than a more democratic approach.

• Munger's self-education regime is highlighted as a key to his success.
• Knowledge, like money, can compound and increase awareness of the world.
• The importance of continual learning and self-improvement is emphasized.

"There's a compounding effect to knowledge in Charlie's own life."

This quote connects to the theme of lifelong learning and self-improvement, suggesting that consistent and dedicated learning can have a multiplying effect on success.

• Charlie Munger emphasizes the importance of learning from mistakes.
• The fear of making mistakes is seen as the enemy of development.
• Munger believes in the power of admitting one's errors and learning from them.
• He also highlights the importance of being passionately interested in one's work for success.

"There's no way you can live an adequate life without many mistakes. In fact, one trick in life is to get so you can handle mistakes."

This quote underlines the inevitability of making mistakes in life and the importance of learning to manage them effectively.

"Only those who are asleep make no mistakes. Making mistakes is the privilege of the active."

Mistakes are a natural part of being engaged and active in life; avoiding them completely is not realistic.

"I like people admitting that they were complete stupid horse's asses. I know I'll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn."

Admitting to and reflecting on mistakes can lead to personal improvement and better performance in the future.

"I have never succeeded very much in anything in which I was not very interested."

Success is often tied to one's level of interest and passion in the subject or activity.

• Specialization can protect against competition by creating a barrier to entry.
• Excelling in a specialized field can set one apart from others.
• Specialization is not just beneficial in business but also in nature.

"Specialization is the key to survival in any species, and that is the key to success in any business."

This quote explains that specialization is crucial both in the natural world and in the business environment.

"It is specialists who make the big bucks."

Specialists can command higher fees and achieve greater success due to their focused expertise.

• Surrounding oneself with great people and engaging in great businesses can prevent many problems.
• An intense interest in a subject is critical for excelling in it.
• Trust and avoiding negative people, referred to as "rat poison," are essential for success.

"Problems are inevitable. But if you surround yourself with great people and get into great businesses, it eliminates most of the problems that you're going to have in life that are under your control."

Building a supportive network can significantly reduce life's challenges.

"Wise people want to avoid other people who are just Total Rat poison, and there are a lot of them."

It's crucial to steer clear of negative influences to maintain a positive and productive environment.

• Studying company histories and biographies provides valuable lessons.
• Observing others' successes and failures can be as beneficial as direct experience.
• Charlie Munger and Warren Buffett are examples of individuals who continuously learn and improve.

"I would take 100 studies of company history and just talk about what they did correctly and what they did incorrectly."

Learning from the past actions of companies can provide practical insights for future decisions.

"Reading personal biographies allows one to experience multiple lives and successes and failures."

Biographies offer the opportunity to learn from a wide range of experiences without having to live them.

• Munger criticizes the modern tendency to multitask.
• He advocates for reading and learning as continuous processes.
• Focusing on one task at a time can lead to greater success.

"Look at this generation with all of its electronic devices and multitasking. I will confidently predict less success than Warren, who just focused on reading."

Concentrating on a single activity, like reading, is more beneficial than trying to do multiple things at once.

• Trust is fundamental to successful relationships and business.
• Envy and self-pity are seen as useless emotions that should be overcome.
• A well-lived life is the best preparation for old age.

"The highest form that civilization can reach is a seamless web of deserved trust."

Trust is the pinnacle of civilization and should be cultivated in personal and business relationships.

"It's not greed that drives the world, but envy."

Overcoming envy is crucial for a fulfilling life.

• Charlie Munger values continuous learning and self-improvement.
• He believes that being a "learning machine" can compensate for a lack of natural intelligence or diligence.

"In my whole life, I have known no wise people who didn't read all the time. None. Zero."

Munger attributes wisdom to the habit of constant reading and learning.

"You'd be amazed at how much Warren reads and how much I read."

Both Munger and Buffett attribute their success to their voracious reading habits.