Tren Griffin has written a book, Charlie Munger: The Complete Investor. In it, Griffin breaks down what makes Munger – Warren Buffett’s partner at Berkshire Hathaway – Munger.
It’s by no means complete, but it’s a good start. Griffin’s bibliography alone could fill the reading queue for a year, and Munger’s original writings go well beyond that. But the book serves a purpose, it gives us a place to start. Griffin has distilled and organized Munger’s ideas so anyone (even me!) can understand and learn from them.
Griffin’s been on the blog before, when he spoke on the a16z podcast about the book.
Two quick notes before we jump in. The first is for you, dear reader, to keep your guard up. Jason Zweig emphasized the importance of skeptical reading and this post is especially suspect. We’re at risk for Generation Loss. That is, a copy of a copy will always lose some of the original data.
In our case, Benjamin Graham influenced Munger who was written about by Griffin who was read by me and is now consumed by you.
Graham > Munger > Griffin > Me > You
That’s enough copies of copies that something in Graham’s original message will be lost. What I hope is that something will be added in its place.
Second, this “A Dozen Things I’ve Learned” style post is a tribute to Griffin who writes them at his blog, 25iq. If this post is bad, it’s because of me, not the premise. Griffin’s posts are some of the best writing I read each week.
1- Don’t try to be Charlie Munger. “No one can ever be Charlie Munger,” Griffin writes, “just like no one can be Warren Buffett.” So what’s the point?
The point, writes Griffin, “is to consider whether Munger, like his idol Benjamin Franklin may have some qualities, attributes, systems, or approaches to life that we might want to emulate, even in part.”
That’s the point of this website. You can’t folow the same book writing path as Andy Weir, but you could model the persistence. You can’t become a tech mogul like Mark Cuban, but you can be inspired by his attitude. You can’t make movies like Judd Apatow but you can emulate his humility.
Find something that successful people do and fold it into who you are.
2- Work hard at simple things. Investing, says Buffett, is, “simple, but not easy.” Griffin quotes Munger as saying, “take a simple idea and take it seriously.” To succeed you don’t need to solve huge problems like Elon Musk, you can work hard at smaller things.
Penn Jillette said that his only trick is working hard than the audience expects he would.
When James Corden worked with Meryl Streep on Into The Woods, he said she was great to work with because she took her work very seriously, but not her life.
- Writing is a form of thinking. “Part of the benefit of creating a checklist is the process of writing down your ideas. I have always loved the point Buffett made about the importance of making the effort to actually put your ideas in writing. In Buffett’s view, if you cannot write it down, you have not thought it through.” – Tren Griffin
Comedians support this idea too. Phil Rosenthal said that comedy is a form of deep understanding. Only if you understand something deeply do you understand what part of it is funny. It’s the idea behind Jason Zweig’s book, The Devil’s Financial Dictionary.
- Focus on the stones of history rather than the clouds of the future. Griffin does a wonderful job explaining how Munger and Buffett make predictions – they look to the past. Griffin writes, emphasis mine:
“Effective Graham value investors are like great detectives. They are constantly looking for bottom-up clues about what happened in the past.”
“What Munger looks for is a business that has a significant track record of generating high, sustained, and consistent financial returns.”
“By sticking to investing activities that are easy, avoiding questions that are hard, and making decisions based on data that actually exists now, the Graham value investor greatly increases his or her probability of success.”
This is what makes Griffin’s book great. In three pages he’s refined one of Munger’s big conclusions. Like a master chef who studies the recipe for Bolognese and we get to eat at the restaurant.
Munger doesn’t try to predict the future because the future is complex/chaotic. Instead, Munger looks for companies that have succeeded in dealing with the future as it came.
Chaos theory doesn’t have a large role in the book, but it underlies Munger’s thinking. That is, there are too many variable to perfectly model a future. Rather than looking at what might happen, Munger looks at what has happened. This gives him an idea about how a company will react in the future – whatever may come.
- Everything is a system and systems are alive. Systems are alive and we should listen to them. This idea is throughout the book. From the macro chaos theory to the way Munger manages Berkshire. Griffin quotes Buffett, who warns against, “institutional imperative.”
“As if governed by Newton’s First Law of Motion, an institution will resist any change in its current direction; just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds…”
That’s Buffett talking about his own company. Even he can’t control the “institutional system.” Griffin writes – and this thrilled me to no end – “the culture at Berkshire has been created by Buffett and Munger so as to reject the institutional imperative like a foreign body.”
Griffin compares the “Berkshire culture system” to the immune system!
Everything is a system and systems are alive. They move to natural states. If we think of them this way we can better understand the world we live in – #6 will help with that too.
- Anthropomorphize to reframe something. “The Graham value investor believes Mr. Market is unpredictably bipolar in the short term; for that reason, when the market is depressed, it will sometimes sell you an asset at a bargain price.” – Tren Griffin
Note what Graham compared the stock market to. Not a machine. Not an equation. Not a computer. A person. That’s a key point, because as we noted above, “Mr. Market” can be entirely unpredictable (like that one friend where nothing he does surprises us).
Rename the stock market as bi-polar Mr. Market and we see things in a new light. This is incredibly helpful.
Chris Dixon reframes startups as a maze. Dan Coyle reframes exercise repititions as meditative. Stephen Dubner reframes himself in situations to think differently. Dubner recalls being at a “New England yard sale.” The skies were blue, the air was clean, and the stuff was laid out on tables. This stuff looks great, Dubner thought to himself, but what if this stuff was in Pier One instead? He reframed how he viewed the trinkets and decided he didn’t in fact need one.
- Measure what matters, but not more. “Practically everybody overweighs the stuff that can be numbered, because it yields to the statistical techniques they’re taught in academia, and doesn’t mix in hard-to-measure stuff that may be more important.” – Charlie Munger
Did you have a nice holiday? How do you know? Was it because you drove (walked?) 500 miles? Was it how much you spent on gifts? Pounds of mashed potatoes consumed?
Of course not, and this quote from Munger magnifies the end of the spectrum we need to think about. Remember that systems don’t always talk in numbers. But numbers are simple and we are cognitive misers. It’s so easy to just look at the numbers.
Numbers may be all you need, Munger says, but maybe not.
- Turn problems into games. Munger says that his multidisciplinary approach has made life “more fun.” Griffin writes, “looking for models that can reveal and explain mistakes so one can accumulate worldly wisdom is actually lots of fun. It is like a puzzle to be solved.”
Remember, Chris Dixon reframed entrepreneurship to be like a maze. In Principles Ray Dalio writes about the fun of solving problems too. In Reality is Broken, Jane McGonigal examines how games help us learn better. Tyler Cowen sees games as very helpful in learning.
Turning problems into games is a reframing technique anyone can use.
- Know the fool at the poker table. The axiom goes; if you can’t spot the fool at the poker table, it’s you. The stock market is a huge poker table with some of the best players and biggest fools.
Griffin writes, “investing is less than a zero-sum game due to fees, costs, and expenses relative to the market. If you are buying an investment, by definition someone else is selling. Either the buyer or the seller is making a mistake.”
Your job is to figure out which side you’re on – and that’s really hard.
When Cliff Asness spoke with Tyler Cowen, even he didn’t know who was on the other side of his trades. It could a pension fund manager who needs to dial down a risk figure, Asness explained, but he didn’t know. Asness has a Ph.D. from Chicago and runs AQR Capital Management and he’s not sure who the fool is.
Luckily for fools like me, Munger has another piece of advice. If you find a problem that’s too hard to solve (e.g. who’s the fool at the poker table), decide that it’s too hard, and move on to something else.
- Be okay with the wrong side of maybe. You need to be disciplined and clear headed writes Griffin. How does Munger suggest we do that? “The right way to think is the way (Richard) Zeckhauser plays bridge,” Munger said.
Okay. So how is that? (emphasis mine)
“Bridge requires a continual effort to assess probabilities in at best marginally knowable situations, and players need to make hundreds of decisions in a single session, often balancing expected gains and losses. But players must also continually make peace with good decisions that lead to bad outcomes, both one’s own decisions and those of a partner. Just this peacemaking skill is required if one is to invest wisely in an unknowable world.” – Richard Zeckhauser.
Philip Tetlock calls this “the wrong side of maybe,” in his book Superforecating. Tetlock explains that sometimes long odds come up. You can’t look at a forecast that says 20% chance of rain as wrong if it rains that day. The forecast said it could rain. What you need to do, Tetlock writes, is to evaluate long term predictions that people put numbers to.
Bill Simmons knows this when he bets on sports (and it’s why he’s a superforecaster). He knows bad bounces happen. That’s the understanding that Munger advocates for investors.
- Be studios. Munger is described as “a book with legs sticking out.” He reads a lot. But then again, almost everyone who succeeds is in a state of constant learning.
- There is no passion without knowledge, and vise versa. I used to think “follow your passion” was good advice. Then bad. Now I don’t know.
What I do know is that passion alone isn’t enough. Passion needs to enter a positive feedback cycle where it turns into skills and knowledge and then reinvests in passion for more skills and knowledge.
Griffin writes, “One trick related to passion is that you are not likely to be passionate about something you do not understand…the more you know about some topics, the more passionate you will get.”
When I taught at a local college I surveyed students on two questions to start the semester; what do you like doing and what are you not good at doing. Their answers never overlapped.
The things they were bad at they never enjoyed.
Then we listed those skills. We improved those skills as the semester went on and voila, by the end of the semester they were better at them and enjoyed them more.
Ramit Sethi put it this way, “when you get good at something, you get passionate.”