Griffin/ Munger 2

Supported by Greenhaven Road Capital, finding value off the beaten path.

We’ve already covered Tren Griffin’s book: Charlie Munger; The Complete Investor. That post was in the ‘dozen things’ format that Griffin uses at his site 25iq.com. To recap:

  1. Be inspired but don’t try to imitate Munger (or anyone).
  2. Work hard on simple things. Getting these right is hard enough.
  3. Writing (checklists) is a form of thinking.
  4. Focus on facts, not projections.
  5. Think about things as systems.
  6. Anthropomorphize to reframe something.
  7. Don’t overmeasure.
  8. Turn problems into games.
  9. Know the fool at the poker table.
  10. Be okay with the wrong side of maybe.
  11. Always be learning.
  12. Passion comes from ability + interest.

The first reading of a book is like a connect the dots exercise. The second reading of a book is more like coloring with a box of crayons. There are still things beyond my scope but the experience was more vivid. Central to this second reading was thinking about checklists.

How to create checklists like Charlie Munger

Good decision making starts with filters. Munger and Warren Buffett will look at situations that are “too hard” and stop there. Buffett and Munger also prefer not to invest in technology products. If a business has a moat, it moves on like a talent show contestant.

In his class at Harvard, Royce Yudkoff teaches students to look for businesses with recurring customers. Whether wizened or weaned, good decision makers start with a firm filter to eliminate options.

Of course, filters won’t be perfect. Sometimes a checklist will filter too much and you’ll pass on a wonderful opportunity. That’s fine. Ben Carlson tells his clients that investing is a game of “regret minimization.” Someone will be more successful than you, good for them.

Othertimes checklists will not filter out enough. That’s okay too, to a point. Good decision makers aim to get in the best probabilistic situations but understand what Phillip Tetlock calls the wrong side of maybe.

Despite these two drawbacks – mistakes of omission and commission – filters remain helpful because they create detachment. This is a key leadership trait says Jocko Willink. Detaching from your position means a decision maker can be more empathetic, an important part of negotiations and coaching.

In addition to understanding the other side, checklists separate decision makers from what Munger calls “the psychology of human misjudgment.” Griffin writes, “A financial planner provides the greatest value for clients by helping investors keep their emotional and psychological dysfunctions under control.” This is something Tadas Viskanta talked about with James Osborne.

When Munger builds a checklist he uses data from things that actually happen rather than things that could happen. He’s said, “projections are put together by people who have an interest in a particular outcome.” Michael Lombardi put it in football terms when he cautioned against the one-year-wonder.

Munger harvests data from internal and external sources. See’s Candy is the oft-cited example of when Buffett and Munger learned from a success. It was this investment that validated the idea to buy high-quality businesses.

Externally Munger reads – a lot. “Nothing has served me better in my long life than continuous learning.” In addition to reading is time for thinking. “People calculate too much and think too little.”

A checklist, like any tool, requires a capacity for operations. Griffin points out that Munger has patience, is comfortable as a contrarian, and enjoys the process.

 

Thanks for reading,
Mike

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