Tao of Charlie Munger A Compilation of Quotes from Berkshire Hathaways Vice Chairman on Life, Business, and the Pursuit of Wealth

In a compelling discussion, the host of Founders podcast underscores the profound influence of Charlie Munger on the world of investing and entrepreneurship. Munger, renowned for his partnership with Warren Buffett and his role in shaping Berkshire Hathaway's investment philosophy, is celebrated for his wisdom and the concept of learning from the "eminent dead" through biographies. The host reflects on Munger's journey from a lawyer to vice chairman of Berkshire, emphasizing his strategies such as understanding one's circle of competence, the dangers of rapid wealth accumulation, and the merits of long-term investment. Additionally, the episode delves into "The Tao of Charlie Munger" by David Clark, a collection of Munger's insights, and shares an anecdote of Munger's early life experiences that shaped his business acumen. The conversation also touches upon the importance of historical perspective in investing, with Munger and other respected thinkers advocating for a deep understanding of financial history.

• Subscribers gain access to the entire back catalog of podcasts.
• The podcasts offer lessons from influential figures like Charlie Munger.
• Learning from such individuals can positively impact one's life and work.

One of the benefits of subscribing to founders is not only the new podcast that I make every week, but being able to go back and listen to the entire back catalog.

This quote emphasizes the advantage of having access to a comprehensive library of past podcasts for subscribers.

• Charlie Munger's ideas have shaped entrepreneurs and investors.
• Munger influenced Warren Buffett to focus on "wonderful businesses" rather than just undervalued ones.
• This shift in strategy propelled Berkshire Hathaway to new heights.

I believe your life will be better if you learn from Charlie Munger than if you didn't. His ideas have influenced a generation of entrepreneurs, investors, really just anybody that wants to do their best work.

The quote suggests that Charlie Munger's wisdom is universally beneficial and has the potential to improve one's life and professional work.

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• The podcast is accessible in the listener's favorite podcast player.

Founders is an ad-free, private podcast. So you need to upgrade to hear the full episodes.

This quote informs listeners about the nature of the Founders podcast and the necessity of a subscription to access complete content.

• Charlie Munger advocates for learning from the biographies of great historical figures.
• Munger himself is an avid reader of biographies.
• Tying concepts to the lives and personalities of those who developed them enriches education.

I'm 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.

The quote reveals Charlie Munger's belief in the educational value of connecting ideas to the biographies of influential individuals.

• Charlie Munger is considered both a mystery and a paradox in American financial history.
• Despite lacking formal education in business disciplines, Munger became a legendary figure in business and investing.
• His approach to buying "wonderful businesses at fair prices" became the blueprint for Berkshire Hathaway's success.

Charlie Munger will be seen as the proverbial enigma wrapped in a paradox. He is both a mystery and a contradiction at the same time.

This quote describes Munger's unique and seemingly contradictory status in the financial world, given his background and achievements.

• "The Tao of Charlie Munger" is a book of quotes and insights from Munger.
• The book is highly recommended by readers for its impact on their understanding of business and wealth.
• The book is structured as a series of short essays, making it easily digestible.

The Tao of Charlie Munger, by David Clark is easily the most impactful book I've read over the past five years.

The quote is a testimonial to the profound influence of "The Tao of Charlie Munger" on a reader, suggesting its value as a learning resource.

• Speaker B advocates for not economizing on books or learning resources.
• The purpose of money, according to Speaker C, is to facilitate learning and growth.

I think you should economize and be frugal about with most of your resources in most things in life. But I don't think books is one of the things you should economize on or anything that teaches you something.

This quote underscores the importance of investing in educational materials, such as books, as they are seen as valuable resources for personal and professional development.

• People tend to mimic those they admire.
• Understanding influencers of respected individuals can provide deeper insights.
• The podcast serves as a medium to explore the influences behind successful entrepreneurs.

We're a species that mimics. So inevitably, the people that you admire were heavily influenced by other people.

The quote highlights the human tendency to imitate and the significance of tracing the influences on admired individuals to better understand their thinking.

• Books act as hyperlinks, connecting ideas and people.
• Studying the influences of admired individuals can lead to a deeper understanding of their perspectives.

Books are the original hyperlinks. They link us from one person or one idea to another.

This quote draws an analogy between books and hyperlinks, suggesting that books connect readers to a chain of ideas and influences.

• Edwin Land's impact on Steve Jobs is often understated, with Jobs quoting Land's ideas.
• Jeff Bezos was influenced by Sam Walton and had a life-changing meeting with James Sinegal of Costco.
• Elon Musk openly acknowledges the influence of Benjamin Franklin and Henry Ford.
• Studying influential figures like Charlie Munger is seen as valuable due to the impact they've had on successful individuals.

"Ideas that we quote Steve Jobs, he's just quoting Edward Lan, and this happens all the time."

This quote highlights the often-unrecognized influence of Edwin Land on Steve Jobs, suggesting that many of Jobs' ideas were originally Land's.

"Jeff Bezos, who is he influenced by? Well, read the everything story. Talks about Sam Walton, talks about life-changing meeting with the founder of Costco, James Sinigal, I think, is how you pronounce his name."

The quote suggests that understanding Jeff Bezos' influences, such as Sam Walton and James Sinegal, is important for grasping his approach to business.

"He talks openly about being influenced by people like Benjamin Franklin and Henry Ford."

This quote indicates that Elon Musk is transparent about the historical figures who have shaped his thinking and approach to entrepreneurship.

"Almost every single person I look up to that, I enjoy the way they look at the world, references the influence he's had."

The speaker suggests that many of the people they admire in the business world acknowledge the significant influence that Charlie Munger has had on them.

• Charlie Munger spent his youth engaged in reading, which is a recurring theme in his biography.
• Munger's early job at the Buffett grocery store taught him foundational business principles.
• He emphasizes the importance of history in understanding current challenges and maintaining perspective.
• Munger's stoic philosophy involves focusing on what can be controlled and learning from history, particularly the Great Depression.

"Charlie spent much of his youth reading the television and video games of his day."

The quote uses a metaphor to compare reading to the prevalent entertainment mediums of today, emphasizing Munger's passion for reading during his youth.

"Charlie was introduced to the world of business at the Buffett grocery store."

This quote explains how Munger's early exposure to business fundamentals came from working at a grocery store owned by Warren Buffett's grandfather.

"Charlie often brings up the horrors of the Great Depression at Berkshire Hathaway annual meetings as a reminder of just how bad things can get."

Munger uses the Great Depression as a historical benchmark to help others understand the potential severity of economic downturns and to maintain a sense of perspective.

• Studying difficult periods in history, like the Great Depression, can provide valuable lessons.
• Personal stories of survival, such as Alistair Urquhart's experiences in WWII, offer insights into human resilience and adaptability.
• These stories can be motivational for entrepreneurs and help put modern challenges into perspective.

"There is a value in studying these time periods."

The speaker suggests that examining challenging historical eras can offer important lessons and insights.

"The story demonstrates the adaptability of humans, our fierce desire to survive, and puts the stress of building companies into the proper perspective."

This quote summarizes the relevance of Alistair Urquhart's survival story to entrepreneurs, highlighting human resilience and the importance of maintaining perspective when facing business challenges.

• Munger enrolled at the University of Michigan to study mathematics before joining the military.
• His time in the Army Air Corps and at Caltech introduced him to meteorology and the Southern California climate.
• Munger learned about odds and probability while playing poker with his army buddies, which he later applied to investing.

"After high school, 17-year-old Charlie enrolled in the University of Michigan to study mathematics."

This quote provides information on Munger's academic background before his military service and subsequent career.

"Charlie Munger was learning important investment skill while playing poker with his army buddies."

The speaker notes that Munger's poker playing during his military service helped him develop skills that would be useful in his investing career.

• Munger's legal career and his role as a director at an international harvester dealership informed his understanding of business.
• He learned firsthand what constitutes a bad business through his experiences with the dealership.
• Munger's investment philosophy includes the principle of folding when odds are against and betting heavily when odds are favorable.

"He doesn't last long as an attorney. And then he also becomes a director of an international harvester dealership, which I think just sells, like farm equipment."

This quote outlines Munger's career trajectory post-law school and his directorship at a dealership, which played a role in shaping his business acumen.

"He talks about constantly a strategy he later developed to investing or he later adapted to investing."

The speaker is referring to how Munger adapted the lessons learned from poker about odds and probability into his investment strategies.

• The individual worked at a prestigious law firm but dedicated an hour each day to real estate projects.
• After completing five projects, he recognized that substantial wealth would not come from practicing law.
• This realization prompted a shift towards other ventures for wealth accumulation.

He decided that each day he would devote 1 hour of time at the office to work on his own real estate projects.

The quote indicates a strategic allocation of time towards personal investment while still maintaining a legal career.

He has said that the first million dollars he put together was the hardest money he ever earned.

This quote reflects on the effort and difficulty faced in earning the initial wealth through real estate development.

He realized he would never become rich or never become really rich practicing law.

This quote signifies the moment of realization that law practice would not lead to significant wealth, prompting a career pivot.

• Traditional employment is not typically a path to substantial wealth.
• IRS data indicates the majority of high incomes derive from investments, not salaries.
• The individual sought to be the one hiring attorneys, not working as one, indicating a desire to be in a position of capital allocation.

There's nothing wrong with having a normal job. It's just you're not going to become wealthy being an employee.

This quote suggests that while employment is respectable, it is not the pathway to significant wealth accumulation.

45% of the people reporting $10 million a year income comes from interest, dividends, capital gains, stuff like that.

The quote provides statistical evidence that the majority of high earners' income comes from investment returns rather than salaries.

I want to be on the other side of this transaction. I want to be the people hiring the attorney, not the one actually doing the work.

This quote expresses the desire to shift from being a service provider to a client, which implies moving from labor to capital.

• The individual met Warren Buffett through mutual friends and formed a strong, lasting relationship.
• After returning to California, they communicated frequently and eventually started investment partnerships.
• The individual also established a new law firm but soon left law practice to focus on investing.

He meets Warren at a lunch through mutual friends, and they instantly hit it off.

The quote describes the beginning of a significant professional relationship that would have a profound impact on both individuals' careers.

Charlie finally started an investment partnership with an old poker buddy who was also a trader at the Pacific Coast Stock Exchange.

This quote details the start of an investment venture, highlighting the transition from law to finance.

Within three years, he stopped practicing law to focus on investing full time.

The quote marks the complete career shift from law to investment, emphasizing the commitment to this new path.

• The individual became vice chairman of Berkshire Hathaway and was instrumental in its growth.
• Investments and management decisions led to significant increases in net income and stock price over decades.
• Warren Buffett credits the individual with influencing his investment strategy away from only seeking bargains.

Charlie became Berkshire Hathaway's first vice chairman.

This quote indicates the individual's ascension to a significant leadership role within Berkshire Hathaway.

From a net income of $148,000,000 and a stock price of $1,200 a share in 1984 to an income of approximately 24 billion and a stock price of $210,000 a share in 2016.

The quote showcases the dramatic growth of Berkshire Hathaway during the individual's tenure.

Charlie shoved me in the direction of not just buying bargains as Ben Graham had taught me.

Warren Buffett acknowledges the influence the individual had on his investment philosophy, moving beyond the teachings of Ben Graham.

• Charlie Munger is against the concept of quick riches and sees it as dangerous due to the need for gambling on short-term price movements and the risks of leverage.
• He advocates for long-term investment based on the economics of a business rather than short-term price fluctuations.

The desire to get rich fast is pretty dangerous.

This quote conveys Munger's warning against the pursuit of rapid wealth accumulation, emphasizing the risks involved.

Trying to get rich fast is dangerous because we have to gamble on the short term price direction of some stock or other asset.

The quote explains why attempting to get rich quickly is risky, as it involves speculation on unpredictable short-term market movements.

• Munger stresses the importance of understanding one's limitations in knowledge to avoid investments in unfamiliar businesses.
• He also emphasizes the value of avoiding stupidity over trying to be overly clever.

Knowing what you don't know is more useful than being brilliant.

This quote suggests that being aware of one's ignorance is more advantageous than intelligence when it comes to investing.

People are trying to be smart. All I am trying to do is not be idiotic, but it's harder than most people think.

The quote highlights Munger's approach to investing, which focuses on avoiding foolish decisions rather than attempting to be excessively smart.

• Munger advocates for "sit on your ass investing," which involves minimal trading and capitalizing on tax benefits from holding investments long-term.
• He advises against the entrepreneurial trend of starting businesses with the intention to sell quickly.
• Munger believes in thorough research before making an investment and then holding onto it without frequent trading.

Sit on your ass investing. You're paying less to brokers, you're listening to less nonsense.

This quote encapsulates Munger's investment strategy of minimal activity, which reduces costs and exposure to potentially misleading information.

Start something to sell fast is glorified. But the type of person who is able to build a business and sell it is probably not going to be content sitting on their ass with just money to show for it.

The quote critiques the entrepreneurial trend of creating businesses solely for a quick sale, suggesting it may not lead to long-term satisfaction.

Do your homework, read research. Then once you make your purchase, that's it, you're done.

Munger's advice, as relayed in the quote, is to invest in thorough preparation and research and then to commit to the investment without succumbing to the temptation of frequent trading.

• The importance of focus and patience in entrepreneurship is emphasized.
• Charlie Munger and Warren Buffett's investment philosophies highlight the benefits of holding investments long-term.
• The concept of "time is a friend to a good business" is discussed, suggesting that a strong business will benefit from the passage of time.
• Patience is not just a virtue but a strategic advantage in business and investing.

Charlie knows that time is a good friend to a business that has exceptional economics working in its favor. But for a mediocre business, time can be a curse.

• This quote explains that time amplifies the inherent qualities of a business, benefiting the exceptional ones and deteriorating the mediocre.

The reason that him and Warren are successful is because they have patience.

• This quote suggests that patience is a key factor in the success of Charlie Munger and Warren Buffett, as it allows for strategic decision-making and long-term growth.

• Diversification is commonly taught in finance, but Charlie Munger criticizes it for being overemphasized.
• Munger believes in investing in a small number of high-quality businesses rather than spreading investments too thin.
• The discussion includes the idea that too much diversification can lead to a lack of focus and suboptimal investment performance.

Charlie calls diversification "Twaddle."

• Munger dismisses excessive diversification as nonsense, implying that it is not a sound investment strategy.

Charlie discovered that if we invest in companies that have great economics working in their favor at a reasonable price, we can bring the number of companies we own down to ten or fewer and still be protected against an unexpected business failure and have good growth on our portfolio over a ten to 20 year period.

• This quote summarizes Munger's strategy of investing in a limited number of companies with strong economic prospects, which can lead to growth and protection against failure.

• The value of learning from historical financial markets and past experiences is highlighted.
• Reading biographies of successful individuals and understanding their experiences can provide valuable insights.
• The cyclical nature of economic booms and busts is emphasized, with the idea that understanding history can provide a strategic advantage in investing.

If you live long enough, you'll see this over and over and over again.

• The quote underlines the repetitive nature of economic cycles and the importance of learning from them to make informed decisions.

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

• This quote from the book "The Tao of Charlie Munger" emphasizes the educational value of reading biographies to learn from others' experiences.

• The discussion criticizes the tendency to start multiple businesses rather than focusing on one.
• The rarity of finding one great business and the importance of committing to it are stressed.
• The idea of "put all your eggs in one basket and watch that basket" is discussed as a strategy for success.

You found one great business you already won. Just stick with it.

• This quote emphasizes the achievement of finding a great business and the wisdom of dedicating full attention to it.

Do you bet heavily? You should remember that good ideas are rare. When the odds are greatly in your favor, bet heavily.

• This quote relays the advice that when one has a good idea or business, it is worth investing heavily, as good ideas are scarce.