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Charlie Munger is one of the great minds of the 20th century. Below is an attempt to capture that wisdom in one shareable place.
“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless, you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve.”
Charles “Charlie” Munger, a longtime resident of Pasadena, California, is perhaps best known as the Vice Chairman of the world’s greatest compound interest machine: Berkshire Hathaway, Inc.
In the time of his and Warren Buffett’s reign as the leaders of Berkshire, the company has returned roughly 2,000,000% on its initial value, or 20,000 to 1. This was accomplished in the adult lifetime of two men, simply by investing the capital of the company in an increasing number of prosperous enterprises and without dangerous amounts of borrowing. It is a story for the ages.
Charlie is known as a “sidekick” only to people who don’t know him very well. To those who do know him, Charlie is a fiercely independent intellectual who, in the words of his partner Buffett, “Marches to the beat of his own music, and it’s music like virtually no one else is listening to.”
Besides his work co-headlining the Berkshire affair and a variety of other business and philanthropic ventures, Charlie is known for his fluent, multidisciplinary mind. Trained as a meteorologist during World War II and as a lawyer at Harvard before devoting himself to business, Munger has drawn heavily from the study of psychology, economics, physics, biology, and history, among other disciplines, in developing his system of “multiple mental models” to cut through difficult problems in complex social systems. It is a system like no other.
As a result, his insights on business and life are unique, rare, and correct with unusual consistency. Speeches and writings made long ago stand up in their logic and validity today as much as when they were written, given their basis in the deeply fundamental wisdom of the world.
Adopting the “Munger” approach to thinking is difficult, as is imitating any genius, but utilizing its core tenets will very quickly begin to remove the cobwebs from your mind. When asked his secret to success, Munger once answered simply “I’m rational.”
On this page:
“All Berkshire does is copy the right people.”
“Take a simple idea and take it seriously.”
“It’s not a competency if you don’t know the edge of it.”
“I like people admitting that they were complete, stupid horses asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.”
“Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group… then to hell with them.”
“There’s no way you can live an adequate life without many mistakes. In fact, one trick in life is to get so you can handle mistakes.”
“Extreme specialization is the way to succeed. Most people are way better off specializing than trying to understand the world.”
The Key to Success: “I have never succeeded very much in anything in which I was not very interested. If you can’t somehow find yourself very interested in something, I don’t think you’ll succeed very much — even if you’re very smart.”
“An intense interest in any subject is indispensable if you want to excel.”
“The iron rule of nature is: You get what you reward for. If you want ants to come, you put sugar on the floor.”
“So people want to find some formula. It's what I call 'physics envy.' These people want the world to be like physics. But the world isn't like physics, outside of physics. And that false precision just does nothing but get you in trouble.”
“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless, you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day — if you live long enough — most people get what they deserve.”
“We’re just not interested in taking a substantial chance of taking a lot of very decent people back to 'Go' so we can have one more zero on our net worth.”
“I think Warren and I know the edge of our competency better than other people do.”
“If you skillfully follow the multidisciplinary path, you will never wish to come back. It would be like cutting off your hands.”
“I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.”
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
“I paid no attention to the territorial boundaries of academic disciplines and I just grabbed all the big ideas that I could.”
“Just because you like it does not mean that the world will necessarily give it to you.”
“I always say I want to know where I would die so I can never go there.”
“I'm afraid that's the way it is. If there are twenty factors and they interact some, you'll just have to learn to handle it — because that's the way the world is. But you won't find it that hard if you go at it Darwin-like, step by step with curious persistence. You'll be amazed at how good you can get.”
“It takes character to sit there with all that cash and do nothing. I didn't get to where I am by going after mediocre opportunities.”
Charlie Munger’s three rules for a successful career:
The desire to get rich fast is pretty dangerous.
Knowing what you don’t know is more useful than being brilliant.
People are trying to be smart. All I am trying to do is not to be idiotic, but it’s harder than most people think.
Life, in last, is like a poker game wherein you have to learn to quit sometimes when holding a much-loved hand. You must learn to handle mistakes and new facts that change the odds.
My idea of shooting a fish in a barrel is draining the barrel first.
Once we’d gotten over the hurdle of recognizing that a thing could be a bargain based on quantitative measures that would have horrified Graham, we started thinking about better businesses.
Ben Graham had a lot to learn as an investor. His ideas of how to value companies were all shaped by the Great Crash and the Depression almost destroyed him. It left him with an aftermath of fear for the rest of his life, and all his methods were designed to keep that at bay.
Sit on your ass investing. You’re paying less to brokers, you’re listening to less nonsense, and if it works, the tax system gives you an extra one, two, or three percentages points per annum.
Acknowledging what you don’t know is the dawning of wisdom.
You’re looking for a mispriced gamble. That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.
You should remember that good ideas are rare. When the odds are greatly in your favour, bet heavily.
Mimicking the herd invites regression to the mean.
I’ve never been able to predict accurately. I don’t make money predicting accurately. We just tend to get into good businesses and stay there.
If you, like me, lived through 1973-74 it even the early 1990s, there was a waiting list to get OUT of the country club. That’s when you know things are tough. If you live long enough, you’ll see it.
The way to get rich is to keep $10 million in your checking account in case a good deal comes along.
I succeeded because I have a long attention span.
It is an unfortunate fact that great and foolish excess can come into prices of common stocks in the aggregate. They are valued partly like bonds, based on roughly rational projections of use value in producing future cash. But they are also valued partly like Rembrandt paintings, purchased mostly because their prices have gone up, so far.
I think that, every time you see the word EBITDA, you should substitute the word ‘bullshit earnings.’
Where you have complexity, by nature you can have fraud and mistakes. This will always be true of financial companies, including ones run by governments. If you want accurate numbers from financial companies, you’re in the wrong world.
Smart people aren’t exempt from professional disasters from overconfidence.
It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait.
In terms of business mistakes that I’ve seen over a long lifetime, I would say that trying to minimize taxes too much is one of the great standard causes of really dumb mistakes. Anytime somebody offers you a tax shelter from here in life, my advice would be don’t buy it.
An isolated example that’s very rare is much easier to endure than a perfect sea of misery that never ceases.
Move only when you have the advantage. You have to understand the odds and have the discipline to bet only when the odds are in your favor.
View a stock as an ownership of the business and judge the staying quality of the business in terms of its competitive advantage.
I think that one should recognize reality even when one doesn’t like it. Indeed, especially when one doesn’t like it.
It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. There must be some wisdom in the folk saying: ‘It’s the strong swimmers who drown.’
There is more dementia about finance than there is about sex.
If people weren’t wrong so often, we wouldn’t be so rich.
You have to be very patient, you have to wait until something comes along, which, at the price you’re paying, is easy. That’s contrary to human nature, just to sit there all day long doing nothing, waiting. It’s easy for us, we have a lot of other things to do. But for an ordinary person, can you imagine just sitting for five years doing nothing? You don’t feel active, you don’t feel useful, so you do something stupid.
We have a history when things are really horrible of wading in when no one else will.
By and large I don’t think much of finance professors. It is a field with witchcraft.
There isn’t a single formula. You need to know a lot about business and human nature and the numbers… It is unreasonable to expect that there is a magic system that will do it for you.
Successful investing requires this crazy combination of gumption and patience, and then being ready to pounce when the opportunity presents itself, because in this world opportunities just don’t last very long.
We just keep our heads down and handle the headwinds and tailwinds as best we can, and take the result after a period of years.
In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables — like the discount warehouses of Costco.
There are two kinds of businesses: The first warns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested — there’s never any cash. It reminds me of the guy who looks at all of his equipment and says, ‘There’s all of my profit.’ We hate that kind of business.
Over the very long term, history shows that the chances of any business surviving in a manner agreeable to a company’s owners are slim at best.
The difference between a good business and a bad business is that good businesses throw up one easy decision after another. The bad businesses throw up painful decisions time after time.
If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.
Averaged out, betting on the quality of a business is better than betting on the quality of management. But, very rarely, you find a mange who’s so good that you’re wise to follow him into what looks like a mediocre business.
From all business, my favorite case on incentives is Federal Express. The heart and soul of their system — which created the integrity of the product — is having all their airplanes come to one place in the middle of the night and shift all the packages from plane to plane. If there are delays, the whole operation can’t deliver a product full of integrity to Federal Express customers. And it was always screwed up. They could never get it done on-time. They tried everything — moral suasion, threats, you name it. And nothing worked. Finally, somebody got the idea to pay all these people not by the hour, but by the shift — when it’s done, they can go home. Well, their problems cleared up overnight.
As you can tell in Berkshire’s operations, we are much more conservative. We borrow less, on more favorable terms. We’re happier with less leverage. You could argue that we’ve been wrong, and that it’s cost us a fortune, but that doesn’t bother us. Missing out on some opportunity never bothers us. What’s wrong with someone getting a little richer than you? It’s crazy to worry about this.
We didn’t know when we were young which things to stretch for, but by the time we reached Iscar, which we never would have bought when we were young, we knew to stretch for the right people. It’s a hell of a business. Everything is right there. Isn’t it good that we keep learning? Better late than never.
Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Slug it out one inch at a time, day by day. At the end of the day — if you live long enough — most people get what they deserve.
Know the big ideas in the big disciplines and use them routinely — all of them, not just a few.
I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.
There’s no way that you can live an adequate life without many mistakes. In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke.
Extreme specialization is the way to succeed. Most people are way better off specializing than trying to understand the world.
Any year that passes in which you don’t destroy one of your best loved ideas is a wasted year.
Being rational is a moral imperative. You should never be stupider than you need to be.
Another thing I think should be avoided is extremely intense ideology because it cabbages up one’s mind.
We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side.
‘One solution fits all’ is not the way to go. The right culture for the Mayo Clinic is different from the right culture at a Hollywood movie studio. You can’t run all these places with a cookie-cutter solution.
Warren is one of the best learning machines on this earth. Warren’s investing skills have markedly increased since he turned 65. Having watched the whole process with Warren, I can report that if he had stopped with what he knew at earlier points, the record would be a pale shadow of what it is.
I’m getting more experienced at aging. I’m like the man who jumped off the skyscraper and at the 5th floor on the way down says, ‘So far this is not a bad ride.’
You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. But there are also cases where you have to recognise that you have no wisdom to add — and that your best course is to trust some expert.
Most people are trained in one model — economics, for example — and try to solve all problems in one way. You know the saying: ‘To the man with a hammer, the world looks like a nail.’ This is a dumb way of handling problems.
The best armor of old age is a well-spent life preceding it.
In my whole life, I have known no wise people who didn’t read all the time — none, zero. You’d be amazed at how much Warren reads and how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.
Life is always going to hurt some people in some ways and help others. There should be more willingness to take the blows of life as they fall. That’s what manhood is, taking life as it falls. Not whining all the time and trying to fix it by whining.
I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up. And boy does that help, particularly when you have a long run ahead of you.
The highest form that civilization can reach is a seamless web of deserved trust — not much procedure, just totally reliable people correctly trusting one another. In your own life, what you want is a seamless web of deserved trust. And if your proposed marriage contract had forty seven pages, I suggest you not enter.
I think the attitude of Epictetus is the best. He thought that every missed chance in life was an opportunity to behave well, every missed chance in life was an opportunity to learn something, and that your duty was not to be submerged in self-pity, but to utilize the terrible blow in constructive fashion. That is a very good idea.
Dean Kendall of the University of Michigan music school once told me a story: ‘When I was a little boy, I was put in charge of a little retail operation that included candy. My father saw me take a piece of candy and eat it. I said, “Don’t worry. I intend to replace it.” My father said, “That sort of thinking will ruin your mind. It will be much better for you if you take all you want and call yourself a thief every time you do it.”’
It’s bad to have an opinion you’re proud of if you can’t state the arguments for the other side better than your opponents. This is a great mental discipline.
The Lollapalooza Effect
The term Charlie Munger coined for factors which reinforce and greatly amplify each other.
The most important thing to keep in mind is the idea that especially big forces often come out of these one hundred models. When several models combine, you get lollapalooza effects. This is when two, three, or four forces all operating in the same direction. And, frequently, you don't get simple addition. It's often like a critical mass in physics where you get a nuclear explosion if you get to a certain point of mass — and you don't get anything much worth seeing if you don't reach the mass. Sometimes the forces just add like ordinary quantities and sometimes they combine on a breakpoint or critical-mass basis.
More commonly, the forces coming out of these one hundred models are conflicting to some extent. And you get huge, miserable tradeoffs. But if you can't think in terms of tradeoffs and recognize tradeoffs in what you're dealing with, you're a horse's patoot. You clearly are a danger to the rest of the people when serious thinking is being done. You have to recognize how these things combine. And you have to realize the truth of biologist Julian Huxley's idea that 'Life is just one damn relatedness after another.' So you must have the models, and you must see the relatedness and the effects from the relatedness.
— Outstanding Investor Digest, December 29, 1997
The Berkshire System: Reflections Upon Celebrating 50 Years
On Berkshire Hathaway's 50th anniversary, Charlie Munger contributed his reflections on what he called "The Berkshire System."
The (Revised) Psychology of Human Misjudgement Speech by Charlie Munger
This speech is considered the magnum opus on why we behave the way we do.
A Lesson on Elementary Worldly Wisdom
Charlie describes his thoughts on how to invest, but only after going through a detailed list of useful mental models fundamental to understanding the world before you learn to invest.
Charlie Munger's 2007 Commencement Address
Charlie delivered this commencement address to the graduates of the University of Southern California Law School on May 13, 2007.
Strengths and Weaknesses After Considering Interdisciplinary Needs
Economics has often been the Queen of the social sciences. And yet, it’s still not very good. Charlie diagnoses its strengths and weaknesses, and offers some ways it could improve.
Turning $2 Million Into $2 Trillion
Charlie goes though a long mental exercise of building Coca-Cola up from scratch, starting in 1986, using only the elementary mental models that would be learned by a young college student.
Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger
Compiled by Glenair CEO Peter Kaufman, Poor Charlie’s Almanack is the greatest compendium of Munger wisdom available.
Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger
Janet Lowe’s brief readable biography of Charlie Munger’s life.
Seeking Wisdom: From Darwin to Munger
Seeking Wisdom is the result of Peter Bevelin's quest for wisdom. In it he shares the wisdom of some of the greatest minds throughout history, including the philosophy of super-investor and Berkshire Hathaway Vice Chairman Charles Munger.
Tao of Charlie Munger: A Compilation of Quotes from Berkshire Hathaway's Vice Chairman on Life, Business, and the Pursuit of Wealth
Words of wisdom from Charlie Munger—Warren Buffett’s longtime business partner and the visionary Vice Chairman of Berkshire Hathaway—collected and interpreted with an eye towards investing by David Clark, coauthor of the bestselling Buffettology series.
Read my book summary →
Wesco Financial was a diversified conglomerate that owned insurance, furniture rental, and steel servicing businesses. It was originally owned by Blue Chip Stamps, which also owned See's Candies, and merged with Berkshire Hathaway in 2011. Charlie Munger served as the Chairman and CEO of Wesco from 1984 to 2011. Below is an archive of the shareholder letters he published from 1997 until 2009.