Charles Munger, a billionaire, is famously private, but his investment strategies are outlined in a book called Poor Charlie’s Almanack. Munger has made several lucrative investment decisions at Berkshire Hathaway, earning billions of dollars.
Nonetheless, his motivations extend beyond just financial gain. Poor Charlie’s Almanack delves into Munger’s ethical investment philosophy, stressing the significance of paying taxes, as well as his contributions to educational institutions and causes such as Planned Parenthood.
This book review provides an overview of everything you can learn from it.
Let’s get started without further ado.
Table of Contents
Key Insights
Lesson 1: Charlie Munger had a philanthropic spirit and strong work ethic growing up.
Charlie Munger’s success story is a testament to the importance of hard work and doing things right the first time. Munger’s experience of working 12-hour shifts without a break for just two dollars a day at Warren Buffet’s grandfather’s grocery store instilled in him a strong work ethic that he carried throughout his career, from a grocery store employee to a billionaire.
Munger’s dedication to his work was so intense that even when he was at home, his mind was often still on work. However, he was also known for his ability to focus intensely and block out distractions, a useful skill when you have eight children vying for your attention.
Aside from teaching his children the value of hard work, Munger also instilled the importance of doing things right the first time. This lesson was evident when his son forgot to pick up the newspaper and the housekeeper after making a trip in violent winds. Munger immediately ordered his son to go back, storm or no storm, teaching him the importance of being responsible and productive.
Despite his strict parenting style, Munger’s children have fond memories of their childhoods. As a father, he supported his children’s careers and education and was always ready to lend a helping hand.
Munger’s dedication to giving back to society is also admirable. He and his wife, Nancy, have made significant contributions to universities, hospitals, and causes close to their hearts, such as Planned Parenthood. For Munger, giving back to society is just as important as working hard.
Lesson 2: Munger’s unique educational journey helped him become an independent thinker and fostered his creativity.
Success can come from an unconventional path, and Charlie Munger is a prime example of that. Munger, a successful investor and vice-chairman of Berkshire Hathaway, didn’t have a typical educational background. Instead, his parents encouraged him to read and learn as much as possible, and he spent much of his teenage years immersing himself in medical journals.
In college, Munger studied mathematics and physics, which he believes was crucial to his success in applying logic to solve complex problems. However, he wasn’t able to complete his degree due to the pressure to join the military during World War II.
After serving in the Army Air Corps, Munger attended several prestigious institutions but never earned a degree. However, this didn’t stop him from excelling in his field. He was admitted to Harvard Law School and graduated magna cum laude among the top of his class.
Munger’s non-traditional education allowed him to think independently and creatively, skills that have benefited him throughout his career. Munger’s success story serves as a reminder that there is no one-size-fits-all approach to education or success, and that the disruptions of life can sometimes lead to unexpected opportunities.
Lesson 3: Munger’s career as a professional investor started after he had an unexpected encounter over dinner.
Charlie Munger’s journey from being a lawyer to one of the world’s most successful investors is an inspiration for those looking for a career transition. His encounter with Warren Buffet over dinner, who was already interested in business and investing, changed the course of his career.
Munger’s passion for intellectual curiosity and problem-solving found a new outlet in the world of finance and investing. He realized that he wanted more in his career than just being a lawyer and that he had skills and intelligence to use elsewhere. The meeting with Buffet led to a partnership that has lasted for over 50 years, proving the power of networking and chance encounters.
Munger’s background in physics and mathematics helped him to develop a unique approach to investing that goes beyond traditional financial analysis. His legal training taught him to respect the law and pay attention to detail. The combination of these skills and Buffet’s constant intellectual challenges enabled them to become highly successful investors.
Munger’s decision to build wealth through stock ownership in a holding company instead of directly managing funds for investors was a significant shift in his investment strategy. His partnership with Buffet in managing Berkshire Hathaway has been highly successful, and their spectacular results have made them one of the world’s most respected investment firms.
The lesson we can learn from Munger’s story is that it’s never too late to make a career transition. It’s essential to have a passion for what you do, an open mind for new opportunities, and the willingness to take risks. Networking and chance encounters can also play a crucial role in opening up new career paths. With determination, persistence, and a willingness to learn, anyone can achieve their career goals, even into their 90s, just like Munger and Buffet.
Lesson 4: Charlie Munger is an ethical investor committed to high standards.
Wall Street is often portrayed as a place of corruption and unethical behavior in popular media, but that’s not entirely accurate. Despite the lack of regulation allowing corrupt practices to thrive, there are still principled investors out there, such as Charlie Munger and his company, Berkshire Hathaway.
Berkshire Hathaway, a massive conglomerate with over 175,000 employees, has had relatively few scandals or lawsuits and is known for its integrity and trustworthiness among clients and partners. Munger strongly condemns illegal practices like manipulating financial records and insider trading.
However, the pressure on investment managers to perform and prove their value can sometimes lead to cutting corners and breaking the law.
Tax evasion has also become more prevalent with the growth of international trade, with companies setting up operations in tax havens to avoid paying taxes.
Munger’s strict adherence to the law and insistence that Berkshire Hathaway employees and shareholders do the same has helped the company maintain a positive reputation, unlike companies like Enron that have faced scandals.
Despite Berkshire Hathaway’s good track record, there have been close calls in the past. For instance, their investment in Salomon Brothers led to partnerships with questionable individuals like Robert Maxwell. This experience solidified Munger’s belief that it’s essential to work with people who share similar ethical values.
Lesson 5: Two essential traits of successful investors are patience and focus.
In the world of investing, patience and discipline can be the keys to success. Warren Buffet and Charlie Munger, two of the most successful investors in history, have long been proponents of a strategy they call “sit-on-your-ass investing.” This approach involves identifying undervalued companies that have strong long-term prospects and buying large portions of their stock.
Rather than trying to make quick profits through frequent trading, Buffet and Munger believe in holding onto these stocks for the long haul. This allows them to benefit from the natural growth of these companies over time, and to avoid the volatility and uncertainty of the stock market in the short term.
One of their most famous success stories is their investment in Coca-Cola after the stock market crash of 1987. Despite the drop in value, they saw the potential in the company’s strong brand and invested $1.3 billion to become its largest shareholder. Today, those same shares are worth $8 billion.
While diversification can be a valuable risk management tool, Munger believes that investing in a smaller number of high-quality companies can be even more effective. By acquiring a majority stake in these companies, investors can exert more control over their future direction and increase their potential for long-term growth.
In the end, the lesson of Munger and Buffet is clear: slow and steady wins the investing race. While the flashy world of day trading and high-risk investments may be tempting, the patient and disciplined approach of sit-on-your-ass investing has proven to be a reliable path to success.
Lesson 6: A successful investor needs diverse mental models to solve problems.
Investing, like any other field, requires a range of problem-solving skills and tools. In Charlie Munger’s parables, he tells the story of a worker who only has one tool – a hammer. Similarly, an investor who approaches every problem with just one solution will not be successful in the long run.
To succeed as an investor, one must have a wide range of tools and perspectives from different disciplines. This allows for adaptability in thinking and problem-solving skills, making it easier to tackle any situation that may arise.
While prestigious educational institutions often specialize in just one discipline, this can lead to rivalries between departments and a detrimental impact on the quality of education. Instead, a good educational model to follow is pilot training.
Pilots are trained to think creatively and respond to problems quickly. Using the “hammer method” when flying a plane can have deadly consequences. Therefore, pilots are not just trained in theory but also have to demonstrate mastery of what they’ve learned in practice.
Flight simulators help pilots keep their knowledge current and demonstrate their problem-solving skills. They also perform mental checklists, considering potential causes or solutions to problems, even those they may not initially think are likely.
Applying this multidisciplinary approach to investing can lead to better judgments and the ability to think through complex decisions. Regularly updating skills and engaging in mental checklists can keep one’s mind active and alert, making it easier to tackle any situation. Remember, investing is not a one-size-fits-all approach. Successful investors have a range of tools at their disposal and the ability to adapt their thinking to the situation at hand.
Lesson 7: Successful investors recognize their own limitations and leverage them to their benefit.
Investing can be a daunting task, but it doesn’t have to be. The key is to make rational decisions based on objective data, rather than letting emotions and biases cloud your judgment. One way to do this is by using a “two-track analysis” approach.
The first step in this approach is to take a rational look at the investment data. Analyze the potential risks and rewards of the investment and weigh them against each other. It’s important to do this without letting your emotions come into play. Emotions such as fear, greed, or excitement can influence your decisions and lead to poor investment choices.
The second step is to step back and consider the psychological factors that may be at play. Ask yourself questions like: Are you drawn to a particular investment because of personal biases or prejudices? Or are you avoiding a good investment because of antipathy towards the management? Being aware of your own biases and how they may be influencing your decisions can help you make more informed choices.
Another critical aspect of successful investing is defining your “circles of competence.” This means investing in industries or companies that you know well and understand deeply. Warren Buffett and Charlie Munger famously do this, sticking to what they know and avoiding high-tech industries they don’t have the knowledge to assess. While it’s tempting to broaden your circles of competence, it’s essential to know your limits and stay within them.
Praise
1. The Importance of Mental Models
One of the standout themes of the book is the importance of mental models. Munger argues that in order to make good decisions and avoid mistakes, we need to have a “latticework” of mental models – a set of principles and frameworks that we can use to analyze and understand the world around us. He provides numerous examples of how mental models have helped him and Buffett in their investment decisions, and emphasizes the need for readers to develop their own set of mental models to succeed in any field.
2. Practicality and Wisdom
Another thing I like about this book is the practicality and wisdom that Munger offers. He provides numerous examples of how he has applied his mental models to make successful investment decisions, and also shares insights into how to lead a fulfilling life. Munger emphasizes the importance of constantly learning, reading widely and having a strong work ethic. He also stresses the need to avoid self-pity and cultivate a strong sense of responsibility for one’s own actions and outcomes.
3. Munger’s Unique Perspective
Finally, I appreciate the unique perspective that Munger offers in this book. He is a highly successful businessman and investor, but also has a deep interest in philosophy, psychology and history. This gives him a broad and multidisciplinary perspective on life, which is evident in his writing and speeches. Munger’s approach to investing, which emphasizes a long-term view and a focus on high-quality companies, is also unconventional and interesting to read about.
Criticism
1. Lack of Organization and Cohesion
While the book contains many valuable insights, wisdom and practical advice from Charlie Munger, it lacks organization and cohesion. The book is a compilation of speeches and writings from Munger over the years, and as a result, the content is scattered and lacks a clear structure. This can make it difficult for readers to fully grasp the breadth and depth of Munger’s ideas, and may leave them feeling overwhelmed or confused.
While the book does contain an index and a glossary of terms, these do not fully compensate for the lack of organization and cohesion. As a result, readers may find it difficult to extract the most valuable lessons from the book and apply them to their own lives.
2. Self-Promotion
The second issue I have with this book is the amount of self-promotion that Charlie Munger engages in. The book includes a lot of praise for Munger from others, and he also praises himself frequently. This self-aggrandizement can be off-putting, as it detracts from the wisdom and insights that Munger has to offer. It also detracts from his reputation as a man of great integrity and charity, as it suggests that he may have an ego that is out of proportion with his accomplishments.
3. Lack of Depth
Finally, while the book contains many good aphorisms and insights, it lacks depth in terms of real-life examples of how Munger’s ideas have been applied. This can make it difficult for readers to fully grasp the practical application of his ideas, and may leave them feeling unsatisfied or disappointed. The book does provide some real-life examples, but these are few and far between, and do not fully illustrate the power of Munger’s ideas.
Conclusion
Overall, Poor Charlie’s Almanack is a must-read for anyone interested in success and personal development. The book is full of insights from a successful and well-read billionaire, and it’s clear that Munger has acquired practical wisdom from a very young age.
Although some sections may be challenging for those unfamiliar with the business world, the book provides significant insights into business, investing, and life in general. The book is not a quick read, but it’s worth spending quality time with every day for a good couple of months to fully absorb Munger’s tidbits of wisdom.
After graduating from Harvard Law School, Charles Munger established his own successful law firm.
The billionaire vice chair of Berkshire Hathaway was introduced to investing by a chance meeting with Warren Buffet.
Poor Charlie’s Almanack is a compilation of Munger’s investment advice, compiled from the minutes of Berkshire Hathaway board meetings as well as Munger’s own speeches.
Buy The Book: Poor Charlie’s Almanack
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