Charlie Munger

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

Unsurprisingly we’ve covered Munger before; using Damn Right (post), the 2017 Daily Journal Meeting, and using Tren Griffin’s Book (twice!). Today’s source is a 2017 conversation at the University of Michigan.

My favorite quote was this: “I was not a courageous, adventuresome, admirable man. I was a cautious little squirrel.”

Charlie Munger is like a time traveling man; he’s seen the future but explains it in the language of the past.

Onto the notes.

Learn the right things.

“And he (Charlie’s paternal grandfather) had an attitude that was pretty damned extreme. And I would say his attitude was, you had a moral duty to make yourself as un-ignorant and as un-stupid as you possibly can.”

“When I was young, I could get an A in any mathematics course without doing any work at all.”

However…

“I never touched calculus, not once, after I was 19 years-old, I’ve lost it. The symbols would mystify me. But I think you’ll find, if you really know the basic stuff, it’s enormously useful, and only a very few people are ever going to need any calculus.”

Munger’s success equation is this; natural gifts plus hard work times a luck coefficient. Within the ‘hard word’ variable is ‘working on the right things.’ Toward the end of the interview he talks about Bitcoin then makes a larger point.

“And by the way, I just laid out a wonderful life lesson for you. Give a whole lot of things a wide berth; they don’t exist. Crooks, crazies, egomaniacs, people full of resentment, people full of self-pity, people who feel like victims—there’s a whole lot of things that aren’t going to work for you; figure out what they are and avoid them like the plague. And one of them is Bitcoin.”

Munger’s best compounding investment hasn’t been financial, but intellectual. Learning new things each day has made him a better decision maker and that’s his real success.

Another thing to learn is about yourself.

Know thyself. Why did Charlie Munger go to law school?

“I knew I didn’t want to go into the bottom of a big organization and crawl my way up. I’m a natural contrarian; that was not going to work for me. And I found that people could tell … when I thought they were idiots, and that is not a way to rise in a big organization. And so I couldn’t do that.”

Self-knowledge was one of the big ideas from 2017 and it’s still underappreciated. To enter your thoughts like a third person and make sound decisions is a wonderful skill.

Stakeholders. Host Scott DeRue had this exchange with Munger.

So, that’s actually what I wanted to ask. So you moved to California and you actually start a law firm and then practice law for some period of time…
“I had no alternative…I had an army of children almost immediately. I painted myself into quite a corner.”

Yeah. So zero choice is pretty powerful, for sure.
“Yes. Of course.”

Part-of-the-reason Munger and Buffett have been successful investors is their advantage of personal/permanent capital. They don’t have to answer to investors in the same way that Munger had to answer to his children earlier in his career.

Some stakeholders are like small yippy dogs. Good for appearances but expensive in time and money. “We don’t have an isolated group [managers] surrounded by servants,” Munger said in another interview, “Berkshire’s headquarters is a tiny little suite.”

Some stakeholders can be external, created by peer pressure with the Joneses. Burton Malkiel told this story:

“When Jack Bogle first met Warren Buffett they were at a hotel together and Jack recognized Warren, went up and introduced himself, and he said to Warren, ‘you know the thing I really like about you is you have rumpled suits just the same as I do’ and Jack and Warren have become very good friends.”

Some stakeholders can be fans, peers, or owners as in the case with The GMs like Daryl Morey or Sam Hinkie.

Whether mouths to feed or mouths with feedback, the more people involved the more you’ll be involved with people.

Career capital.

“Coming to business, not as business school graduates, but as people who would own portfolios or securities, we fought like capitalists, because we were always in a shareholder mindset. A lot of people running the business think like careerists. And believe me, you gotta think like a careerist to a certain extent if you’re in a career. But it also helps to look at the business strategy problems as though you are an owner. And so my advice to you is, you don’t wanna be…never get to be a careerist so much that you don’t see it from the owner’s point of view.”

Reid Hoffman said that what makes company founders so powerful is their ability to think like owners rather than careerists AND to get people to believe in those ideas too.

Rory Sutherland is on the same page:

“There are lots of cases where your need to signal something, by making a decisions – and it may be the rationality of the decision – actually prevents you from making a better decision.”

Michael Mauboussin is too:

“I do think there’s an element of career risk, and this spans not just sports but also investment management. Bill Belicheck goes for it in fourth down and it doesn’t work out and people give him the benefit of the doubt. But if you’re a coach who has a .500 team, it may be th correct decision but if you lose that game people don’t think about the quality of your section making process, they do think about the outcome, that’s a real big problem.”

 

Thanks for reading.

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