#329 Charlie Munger the NEW Poor Charlies Almanack

In this episode, the host delves into the profound impact of Charlie Munger's wisdom, particularly through his conversation with John Collison and the updated version of "Poor Charlie's Almanack." Munger's multidisciplinary approach, emphasizing the importance of learning from others' experiences and thinking across disciplines, is highlighted as a testament to his intellectual breadth and the power of compounding knowledge. The episode also touches on Munger's personal journey, from overcoming personal tragedies to building financial independence through relentless learning and strategic investment. The host urges listeners to embrace Munger's lessons on curiosity, generosity, and virtue, underscoring their potential to compound and benefit successive generations of entrepreneurial readers. Munger's partnership with Warren Buffett, his approach to hiring, and his emphasis on trust as a crucial economic force are also explored, offering a comprehensive look at his enduring legacy and the value of his teachings.

• Charlie Munger had a conversation with John Collison, co-founder of Stripe.
• The conversation is available on the "Invest Like the Best" podcast feed.
• The host has listened to the conversation four times and read the transcript.
• A link to the episode and the podcast is provided for listeners.
• The host suggests listening to this conversation before the current podcast episode.

"There is a very, very special conversation with Charlie Munger that has been released for the very first time today."

The quote indicates the release of a previously unpublished conversation with Charlie Munger, highlighting its significance.

• An updated version of "Poor Charlie's Almanack" by Charlie Munger has been released by Stripe Press.
• The host found the book to be a refreshing rebuttal of conventional financial wisdom.
• The book provides insights into investing, finance, and broader world understanding.
• Charlie Munger's meeting with the host at his home is described as intellectually stimulating.
• The book is not only about investing but also a guide to interdisciplinary thinking.

"Poor Charlie's Almanack is a testament to the power of thinking across disciplines."

The quote summarizes the essence of the book, emphasizing its interdisciplinary approach to thinking and problem-solving.

• The book's practical wisdom is expected to compound over generations.
• Charlie Munger's quotes and essays are recommended for lifelong insights.
• The host emphasizes the value of learning from history as highlighted by Munger.

"The practical wisdom of poor Charlie's Almanack... will similarly compound as successive generations of entrepreneurial readers extend his lessons to their own circumstances."

This quote captures the enduring nature of the wisdom contained in the book and its potential impact on future readers.

• Stripe Press has been working with Charlie Munger on the updated version of the book.
• Charlie Munger passed away recently.
• A new website by Stripe Press features the updated and abridged version of the book.
• The digital version of the book and an interview with Charlie Munger are available for free.
• The host encourages ordering the hard copy and listening to the interview.

"I'm going to leave the link down below, but you have to check out the new website that Stripe Press made for this updated and abridged version of Poor Charlie's Almanack."

The quote serves as a call to action for the audience to explore the resources made available by Stripe Press.

• Warren Buffett wrote a forward for the book, comparing Munger to Benjamin Franklin.
• Buffett highlights Munger's virtues, including thrift, duty, hard work, and simplicity.
• The host shares insights from the forward about choosing a business partner and the importance of trust.

"Look first for someone both smarter and wiser than you are... join with someone who will constantly add to the fun as you travel a long road together."

Buffett's quote provides advice on selecting a business partner and emphasizes the importance of companionship and shared wisdom.

• The book includes a biographical outline of Charlie Munger's life.
• Munger's grandfather's influence is highlighted, particularly during the Great Depression.
• The host reflects on Munger's personal hardships and his commitment to family and work.
• Munger's transition from law to investing is detailed, and his partnership with Warren Buffett is described.
• The host notes Munger's focus on life decisions over investment decisions, emphasizing the goal of independence.

"I wanted to be rich so I could be independent."

This quote from Munger reveals his underlying motivation for accumulating wealth, which was to achieve personal independence.

• Charlie Munger encourages learning from historical figures and biographies.
• The host admires Munger's extensive knowledge and ability to recall information from his readings.
• Munger's approach to learning and storytelling is praised for its effectiveness in imparting lessons.

"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 develop them."

Munger's quote underscores the value of connecting ideas to the stories of those who created them, enhancing the learning experience.

• The host discusses Munger's work ethic and ability to focus.
• Munger's children provide anecdotes about his dedication and unconventional thinking.
• The host lists five key traits Munger consistently applies, including lifelong learning and intellectual curiosity.

"Father's ability to wall off the most intrusive distractions from whatever mental task he was engaged in accounts as much as anything else for his success."

The quote from one of Munger's sons illustrates the intense focus and discipline that contributed to Munger's success.

• Charlie Munger integrates knowledge from various disciplines to form a comprehensive understanding of the world.
• He criticizes formal education for being too compartmentalized and encourages learning across multiple domains.
• Munger advocates for self-directed learning and has never taken formal courses in key subjects he is knowledgeable about.
• He emphasizes the importance of learning the big ideas from major disciplines and creating a personal curriculum.

"Charlie combines big ideas from multiple disciplines to build a more accurate understanding of the world." "Charlie once said, to this day, I have never taken any course anywhere in chemistry, economics, psychology, or business."

These quotes highlight Munger's belief in a holistic educational approach and his self-taught methodology, which he views as crucial for understanding complex problems.

• Success in entrepreneurship and investment relies heavily on trusting one's judgment.
• Munger is known for going against popular opinion and relying on his own analysis and beliefs.
• This independent thinking is seen as a key reason for his consistent outperformance in investments.

"You cannot be successful entrepreneur. You cannot be a successful investor if you cannot trust your own judgment." "Charlie is simply content to trust his own judgment when it runs counter to the wisdom of the herd."

These quotes underscore the importance Munger places on individual judgment and decision-making, rather than following the crowd.

• Munger uses inversion as a strategy to solve problems by looking at what to avoid.
• He believes that consistently avoiding stupidity can be more advantageous than trying to be extremely intelligent.
• Munger simplifies complex situations to their most basic elements, which he believes is a form of genius.

"Inversion. Get what you want by avoiding what you do not want." "Genius has the fewest moving parts."

The quotes illustrate Munger's inversion principle, where he focuses on avoiding negative outcomes to achieve positive results, and simplifies problems to their core components.

• Munger places a strong emphasis on understanding and assessing a company's competitive advantage.
• He uses the concept of a "moat" to describe the protective barrier a company has against competition.
• Munger believes that great businesses have strong and durable competitive advantages.

"Charlie refers to a company's competitive advantage as its moat." "Charlie only focuses on great businesses, and great businesses have moats."

These quotes reflect Munger's investment philosophy that focuses on companies with significant and enduring competitive advantages.

• In a 1986 commencement address, Munger used inversion to discuss how to achieve a miserable life, thereby implying how to live a good one.
• He emphasized the dangers of substance dependence, envy, and resentment.
• Munger added his own points on unreliability and the importance of learning from others' experiences.

"I'm going to make the opposite case by setting forth what you should do if you want to reach a state of misery." "Wisdom is prevention."

The quotes demonstrate Munger's use of inversion to teach life lessons and his belief in the preventative power of wisdom.

• Munger values vicarious learning and believes that understanding the experiences of others can prevent personal mistakes.
• He criticizes the tendency to seek originality in problem-solving when many solutions already exist through others' experiences.

"Wisdom is prevention." "Minimize what you learn vicariously from the good and bad experiences of others, living and dead."

These quotes emphasize the importance Munger places on learning from history and others to avoid repeating common mistakes.

• Munger discusses the significant benefits of scale in business, such as market dominance and brand recognition.
• He explains how scale can lead to a virtuous cycle of increased sales, distribution, and further advantages.
• However, Munger also acknowledges the disadvantages of scale, such as bureaucratic inefficiency.

"The advantages of scale are ungodly important." "Bigger is not always better."

These quotes capture Munger's nuanced understanding of scale, recognizing both its potential benefits and pitfalls.

• Munger believes that specialization can lead to economic benefits similar to those found in natural ecosystems.
• He discusses how businesses that focus on a niche can outcompete larger, less specialized firms.

"Just as animals flourish in niches, people who specialize in the business world and get very good because they specialize frequently find good economics that they wouldn't get any other way."

This quote highlights Munger's perspective on the power of specialization in business success.

• Munger uses the "surfing" analogy to describe businesses that capitalize on early opportunities and maintain their momentum.
• He cites historical examples of businesses that have successfully "surfed" their way to long-term dominance.

"There are huge advantages for the early birds." "Surfing is a very powerful model."

These quotes reflect Munger's belief in the importance of seizing early opportunities and maintaining a competitive edge for sustained success.

• Munger advises playing in domains where one has an edge and avoiding areas where one does not.
• He stresses the importance of recognizing one's strengths and weaknesses in competitive situations.

"If you play games where other people have the aptitudes and you don't, you're going to lose."

This quote encapsulates Munger's strategy of focusing on areas where one has a competitive advantage.

• Ed Thorpe is considered a blueprint for life by the speaker, having mastered life according to the studies in the podcast.
• Thorpe is notable for creating the first quantitative hedge fund, being the first LP in Citadel, and inventing the first handheld computer with Claude Shannon.
• His autobiography, "A Man for All Markets," is highly recommended for its insights into successful investing strategies.
• Thorpe's philosophy aligns with Charlie Munger's advice: only invest where you have an edge.

"I also believe then, as I do now after more than 50 years as a money manager, that the surest way to get rich is to play only those games or make those investments where I have an edge."

This quote encapsulates Thorpe's investment philosophy, emphasizing the importance of participating in ventures where one has a distinct advantage or edge.

• Warren Buffett promotes the idea of selective and concentrated investing.
• Buffett's advice to business school students involves imagining having a limited number of investment opportunities in a lifetime, which encourages careful consideration and significant investment in high-conviction choices.
• The concept of concentrated investing is not conventional wisdom but is deemed effective by both Buffett and Munger.

"I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it. So you had only 20 punches representing all the investments that you got to make in a lifetime."

Buffett's metaphorical ticket with limited slots is a teaching tool to illustrate the value of thoughtful and focused investing, suggesting that a limited number of well-chosen investments can lead to substantial financial success.

• The speaker emphasizes the importance of focus, betting heavily on businesses where one has an edge.
• Historical examples include Rockefeller with Standard Oil, Carnegie with Carnegie Steel, and Sam Walton with Walmart, who all focused on one main business to amass wealth.
• The speaker chooses to concentrate on founders and their businesses, mirroring the focused approach of successful entrepreneurs.

"Rockefeller made all his money in Standard Oil and then he would make some really weird investment decisions and lost a bunch of money outside of Standard oil for the most part."

This quote highlights the benefits of specialization and focus, as demonstrated by Rockefeller's success with Standard Oil compared to his less successful ventures outside his area of expertise.

• Munger advocates for a multidisciplinary approach to business and life.
• He uses the term "autocatalysis" from chemistry to describe situations where a product or development enhances its own value or the value of related assets.
• Examples of autocatalysis include Disney benefiting from advancements in media technology and railroads becoming more profitable with the invention of the shipping container.

"When the video cassette was invented, Disney didn't have to invent anything or do anything except take the thing out of the can and stick it on the cassette."

The quote illustrates the concept of autocatalysis, where existing assets (Disney's movies) gained immense value through an external innovation (the video cassette), without requiring significant effort from the company.

• Charlie Munger believes in the importance of sharing accumulated wisdom and considers it a moral duty.
• Munger and Buffett see themselves as educators, aiming to be useful by imparting knowledge to others.
• The speaker agrees with this philosophy, acknowledging the economic and moral benefits of spreading valuable insights and combating harmful misconceptions.

"The best thing a human being can do is help another human being know more."

This quote by Charlie Munger underscores the value he places on education and the sharing of knowledge, viewing it as one of the highest contributions one can make to others.

• Munger repeatedly emphasizes the significance of incentives in influencing behavior.
• Real-life examples, such as Federal Express's shift payment system, demonstrate how aligning incentives with desired outcomes can lead to success.
• Understanding and leveraging the power of incentives is crucial in management and business operations.

"Almost everyone thinks that they fully recognize how important incentives and disincentives are for changing behavior. But this is not often so."

Munger's quote reflects the common underestimation of the power of incentives, despite their proven effectiveness in shaping the actions and performance of individuals and groups.

• Incentives significantly influence salespeople's behavior, as seen in the example of Xerox salespeople pushing an inferior machine due to a higher commission.
• The design of incentive structures can lead to unintended consequences, emphasizing the need for careful consideration in their creation.
• Charlie Munger highlights the importance of always considering the power of incentives in decision-making.

"The commission arrangement with the salespeople at Xerox gave a large and perverse incentive to push the inferior machine on customers."

This quote illustrates the direct impact of incentive structures on employee behavior, underscoring the necessity of aligning incentives with desired outcomes.

• Warren Buffett notes the tendency of companies to imitate their peers, often mindlessly, which can lead to negative consequences.
• Both Munger and Buffett are surprised by the inclination of high IQ individuals to engage in imitation without critical thinking.
• The phenomenon of imitation is likened to teenage behavior and is prevalent across industries, leading to potentially harmful trends and decisions.

"Buffett says the behavior of peer companies will be mindlessly imitated."

Buffett's observation serves as a warning against the dangers of imitation without analysis, which can be detrimental to a company's unique strategy and success.

• Munger emphasizes the importance of resisting social proof when it leads to poor decisions.
• He advocates for learning to ignore wrong examples set by others as a valuable skill.
• Munger uses the story of a little boy and sheep to illustrate the importance of understanding the subject matter over simply following others.

"Learn how to ignore the examples from others when they are wrong because few skills are more worth having."

This quote encapsulates Munger's advice on the importance of independent thinking and not succumbing to peer pressure or common practices when they are misguided.

• Daily practice is crucial for maintaining high-level skills, as demonstrated by a famous pianist's observation about performance deterioration without practice.
• The public recognition often comes from the unseen practice and dedication behind the scenes.
• Continuous learning and practice are beneficial not just personally but also for one's family, customers, business, and the world.

"Skills of a very high order can be maintained only with daily practice."

This quote highlights the necessity of consistent practice to achieve and maintain excellence, which is often acknowledged publicly even though the effort is private.

• The speaker emphasizes the importance of revisiting material repeatedly to retain and understand information, rather than relying solely on memory.
• Foundersnotes.com is mentioned as a resource for accessing a searchable database of notes and highlights from biographies of entrepreneurs.

"It's not to have a good memory. It's I reread things over and over and over again."

This quote underscores the method used by the speaker to ensure a deep understanding of the material, which involves repeated review rather than relying on initial memorization.

• Steve Jobs viewed hiring as the most important job in a startup, with the first ten hires being crucial to the company's success.
• Jobs also suggested that every hire should be considered as a significant percentage of the company, advocating for taking the necessary time to find "A players."
• The speaker uses Readwise to search for insights on hiring from various founders' biographies.

"Each is 10% of the company. So why wouldn't you take as much time as necessary to find all A players?"

Steve Jobs' quote stresses the importance of dedicating time and effort to hiring the right people, especially in a startup's early stages, as each person significantly impacts the company's trajectory.

• Founders have unique methods for identifying and hiring talent, from prioritizing social skills to conducting unusual job interviews.
• Rockefeller hired talented people as he found them, not as needed, while Vannevar Bush used technical discussions to gauge a candidate's problem-solving ability.
• Nolan Bushnell asked about reading habits to find creative individuals, and Larry Ellison sought confidence in candidates.

"The ability to deal with people is as purchasable a commodity as sugar or coffee. And I pay more for that ability than any other under the sun."

Rockefeller's quote reveals his prioritization of social skills in hiring, valuing the ability to interact effectively with people above other traits.

• High hiring standards are essential, with the idea that "A players hire A players, B players hire C players."
• Founders like Max Levchin of PayPal and Elon Musk of SpaceX have been meticulous in their hiring processes to ensure talent quality.
• Musk personally interviewed the first 3000 employees at SpaceX, highlighting the importance of direct involvement in hiring.

"A players hire A players, B players hire C players. So the first B player you hire takes the whole company down."

This quote from Max Levchin emphasizes the critical nature of maintaining high hiring standards to prevent a decline in overall company talent and performance.

• Izzy Sharp of Four Seasons used hiring as a form of distribution by bringing in famous chefs, which increased hotel recognition and guest numbers.
• Hiring talented individuals can serve dual purposes, enhancing the company's reputation and attracting more customers.

"Remembering that Cesar Ritz made his hotels world famous by hiring some of the foremost chefs, we decided to do something similar."

Izzy Sharp's quote demonstrates how hiring decisions can be strategically used to boost a company's profile and attract business, drawing on historical examples for inspiration.

• Founders like Estée Lauder and Peter Thiel emphasize hiring people who align with the company's thinking, values, and unique mission.
• Nolan Bushnell sought passionate and intense individuals, as exemplified by Steve Jobs' enthusiasm.
• The culture of a company is often a reflection of the founder's personality and values.

"Hire people who think as you do and treat them well. In our business, they are top priority."

Estée Lauder's quote conveys the significance of hiring individuals who share the founder's mindset and values, which is crucial for building a cohesive and motivated team.

• Founders play a central role in the recruiting process and in creating an environment that values talent and vision.
• Steve Jobs believed that after hiring, it is essential to build an environment that inspires employees and aligns them with the company's greater purpose.

"It's not just recruiting; after recruiting, it's building an environment that makes people feel they are surrounded by equally talented people and their work is bigger than they are."

Steve Jobs' quote encapsulates the ongoing responsibility of founders to foster a workplace culture that encourages excellence and a sense of belonging to something larger than oneself.