The Reading Room
Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger
Charles T. Munger
Published: 2023, Stripe Press
Fourth abridged edition published in April 2023. Edited by Peter D. Kaufman
From 1733 to 1758, Benjamin Franklin, the Founding Father of the United States of America, dispensed useful and timeless advice through his book Poor Richard’s Almanack (“Poor Richard” being the pseudonym adopted by Benjamin Franklin for this purpose). Among the virtues extolled were thrift, duty, hard work, and simplicity. Then some two and fifty hundred years later Charlie Munger stepped forth with Poor Charlie’s Almanack, a collection of speeches and talks by Charlie Munger first published in 2005.
Poor Charlie’s Almanack is a testament to the power of thinking across disciplines. It’s not just a book about investing; it’s a guide to learning how to think for yourself to understand the world around you. His essays extol the virtues of free enterprise, but also of doing business the right way, with integrity and rigour. Of taking your work very seriously, but never yourself.
I encourage you to read Charlie’s speeches and essays with an open, curious mind. There are eleven in this book, each with a unique insight into Charlie Munger’s disciplines, both in work and life. You will be rewarded with insights that stay with you for a lifetime.
This book will embark you on an extraordinary journey toward better investing and decision-making. You may arrive at a better understanding of life as well, all thanks to the wit, wisdom, speeches, and writings of Charlie Munger – this generation’s answer to Benjamin Franklin. One can’t help but read a line like “Without numerical fluency …. you are like a one-legged man in an ass-kicking contest” and come away not only chuckling but also a little bit wiser. As you will discover, Charlie’s observations and conclusions are based on fundamental human nature, basic truths, and core principles from a wide range of disciplines.
The quotes, talks, and speeches presented in the book are rooted in the old-fashioned Midwestern values for which Charlie has become known: lifelong learning, intellectual curiosity, sobriety, avoidance of envy and resentment, reliability, learning from the mistakes of others, perseverance, objectivity, willingness to test one’s own beliefs, and many more. His lessons hang together in a coherent “latticework” of knowledge, available for recall and use when needed. It is clear throughout these talks and speeches that Charlie places a premium on life decisions over investment decisions. They centre on fundamental truth, human accomplishment, human foibles, and the arduous path to wisdom.
Poor Charlie’s Almanack opens with a “portrait” biography that chronicles Charlie’s progress from a modest Omaha childhood to prodigious financial success. New to this edition published in 2023, Charlie then offers us his reflections on aging, inspired by Cicero’s Discourse of Old Age. Next, it summarises the Munger approach to life, learning, decision making, and investing. This section details both Charlie’s unconventional way of thinking and his extraordinary work ethic – the twin fonts of his amazing success and then in the core of the book are eleven of Charlie’s speeches and talks he gave over a twenty-year period.
These speeches and addresses cover a wide spectrum of Charlie’s interests, ranging from how one acquires worldly wisdom, to how his “Multiple Mental Models” can be applied to business, to how the investment strategies used by charitable foundations can be improved. The eleventh talk is a special rendition of “The Psychology of Human Misjudgment” that Charlie created especially for this book. Each talk is well worth your time not only for the enjoyment it will provide you, but also for what you can absorb from the rich assortment of ideas and practices that Charlie relies on.
The Munger Approach to Life, Learning, and Decision-Making
Like Franklin, Charlie has made himself into a grandmaster of preparation, patience, discipline, and objectivity. To Charlie, successful investing is simply a byproduct of his carefully organized and focused approach to life.
Charlie’s approach to investing is quite different from the more rudimentary systems used by most investors. Instead of making a superficial stand-alone assessment of a company’s financial information, Charlie conducts a comprehensive analysis of both the internal workings of the investment candidate as well as the larger, integrated “ecosystem” in which it operates. When properly collected and organised, his Multiple Mental Models (about one hundred in number, he estimates) provide a context or “latticework” that leads to remarkable insights as to the purpose and nature of life.
Charlie counts preparation, patience, discipline, and objectivity among his most fundamental guiding principles. Munger, like Buffett, believes a successful investment career boils down to only a handful of decisions. Charlie generally focuses first on what to avoid – that is, on what NOT to do – before he considers the affirmative steps he will take in a given situation. Charlie recognises that even among the most competent and motivated of people, decisions are not always made on a purely rational basis. For this reason, he considers the psychological factors of human misjudgement some of the most important mental models that can be applied to an investment opportunity. He has three baskets for investing; yes, no, and too tough to understand.
Charlie treats financial reports and their underlying accounting with a Midwestern dose of scepticism. Charlie knows that there is no such thing as a riskless investment candidate; he’s searching for those with few risks that are easily understandable. He especially assesses a company’s management well beyond conventional number crunching. For example, how do they deploy cash? Do they allocate it intelligently on behalf of the owners, or do they overcompensate themselves, or pursue ego-oriented growth for growth’s sake? Superior companies have deep moats that are continuously widened to provide enduring protection. Over their long business careers they have learnt, sometimes painfully, that few businesses survive over multiple generations. Finally, Charlie seeks to calculate the intrinsic value of the whole business comparing value (what you get) with price (what you pay). On this subject Charlie is famous for his edict: “A great business at a fair price is superior to a fair business at a great price.” The evaluation, finally, becomes not so much mathematical as philosophical. Ultimately “a feel” emerges, a function of both the analysis itself and Charlie’s lifetime of accumulated experience and skill in recognising patterns.
For Charlie and Warren, the hard work is continuous, whether it results in current investing activity or not – and usually it does not. This habit of committing far more time to learning and thinking than to doing is no accident. He practices “extreme patience combined with extreme decisiveness. Charlie is possibly without peer when it comes to the checklist of atypical investment factors he considers and his deep fluency in the diverse disciplines from which they are drawn. Each must be considered as part of the complex whole of the investment analysis process, in much the same way that an individual tile is integral to the larger mosaic in which it appears. Charlie’s checklist includes:
- Risk – All investment evaluations should begin by measuring risk, especially reputational.
- Preparation – The only way to win is to work, work, work, work, and hope to have a few insights.
- Intellectual humility – Acknowledging what you don’t know is the dawning of wisdom.
- Allocation – Proper allocation of capital is an investor’s number one job.
- Patience – Resist the natural human bias to act. “Compound interest is the eighth wonder of the world”; never interrupt it unnecessarily.
- Decisiveness – When proper circumstances present themselves, act with decisiveness and conviction. Be fearful when others are greedy, and greedy when others are fearful. Opportunity doesn’t come often, so seize it when it does.
- Change – Live with change and accept unremovable complexity.
- Focus – Keep things simple and remember what you set out to do.
Charlie’s superior performance doesn’t come from a magic formula or some business-school inspired system. It comes from what he calls his “constant search for better methods of thought.” In the end, it comes down to Charlie’s most basic guiding principles, his fundamental philosophy of life: Preparation. Discipline. Patience. Decisiveness. Each attribute is in turn lost without the other, but together they form the dynamic critical mass for a cascading of positive effects for which Munger is famous (the “lollapalooza”).
Like his hero, Benjamin Franklin, Charlie Munger painstakingly developed and perfected unique approaches to personal and business endeavours. Through these methods, and the development and maintenance of sound, lifelong habits, he has achieved extraordinary success.
Concluding comments
This book review is mostly a selection of extracts from the introduction and early chapters of this fourth abridged edition of Poor Charlie’s Almanack published in 2023. Nonetheless I hope it will inspire you to read Charlie’s eleven talks and essays which form the major body of this book, and which provide a “bible” of life and investment. And my concluding thought having read Poor Charlie’s Almanack at the twilight of my career; I wish this book had been recommended to me a long, long time ago, but it’s “better late than never” for me!
Biography
Charles T. Munger was born on 1st January 1924 in Omaha, USA to Alfred Munger, a lawyer, and Florence (Russell). As a teenager he worked at Buffett & Son, a grocery store owned by Warren Buffett’s grandfather.
A portrait of Charles T. Munger by Michael Broggie
The 1930s brought hard times, and Omaha experienced the severity of the Great Depression. Charlie’s observations of the plight of those less fortunate made lasting impressions. Charlie’s grandfather was a respected federal judge, and his father followed in his footsteps to become a prosperous lawyer. He witnessed the generosity and business acumen of his grandfather as he helped rescue a small bank in Strasbourg, Nebraska, that was owned by Charlie’s Uncle Tom. Charlie learned that, by supporting each other, the Mungers weathered the worst economic collapse in the nation’s history.
Physics-like problem solving was to become a passion for Charlie and is a skill he considers helpful in framing the problems of life. As it turned out, Charlie had little trouble succeeding at Harvard although he annoyed a few people along the way. Because of his intellect (the Army measured his IQ. at top of the curve), Charlie tended to be abrupt, which was often interpreted as rudeness. Charlie graduated from Harvard law School in 1948 and was one of twelve in his class of 335 to graduate magna cum laude and subsequently became a partner in a law firm in Southern California.
Charlie Munger began investing in stocks and acquired equity in one of his client’s electronics businesses, a practice common among lawyers in the mid-1950s and 1960s. In 1961, Charlie tackled property development for first time, in partnership with Otis Booth, a client and friend. The venture, building condominiums on land near Caltech, was a huge success, and partners earned a handsome profit of $300,000 on a $100,000 investment. In all cases, he left all his profits in real estate ventures so that bigger and bigger projects became possible. When he stopped in 1964, he had a nest egg of $1.4 million from real estate projects alone.
Charlie first met Warren Buffet at a dinner party in Omaha where the death of Charlie’s father required him to be to administer the family’s estate. During the dinner, Charlie and Warren realised they shared many ideas and it became self-evident they were meant to be in business together. As Warren was investing in and acquiring companies, he sent business to Munger and his law firm. Subsequently Charlie left the law firm as an active partner in 1965 to develop his plan for financial independence by building the asset base of Wheeler, Munger & Co., his investment partnership with Jack Wheeler. Charlie built the partnership through to 1975. It did exceptionally well for the first eleven years, compounding at 28.3% versus 6.7% for the Dow. But the partnership was hit hard in the vicious bear market of 1973 and 1974 as the partnership’s largest holdings. Blue Chip Stampa and New America Fund, fell sharply. The partnership rebounded strongly in 1975, rising 73.2%.
After this difficult experience Charlie followed Warren in concluding he no longer wanted to manage funds directly for investors. When Wheeler, Munger & Co was liquidated its stakeholders received shares in Blue Chip Stamps and Diversified Retailing which were converted into Berkshire Hathaway stock in 1975 at $38. In 2023 each share was worth more than $85,000. Under Warren and Charlie’s leadership, Berkshire Hathaway has a spectacular track record of identifying undervalued companies and then either buying large stakes in the public markets or acquiring them outright. For the most part they hold their major investments for the long term and they still own almost every business they’ve ever acquired outright. Since 1964, when Warren, and some years later, Charlie, assumed management of Berkshire Hathaway, its market value has increased an astonishing 13,500 times, from $10 million to roughly $135 billion.
Charlie T. Munger died on 28 November 2023, 34 days short of his 100th birthday. As the father of 8 and the grandfather of 16, he regarded his legacy as helping future generations inherit a better world.
The information contained above and in other entries in the Ocean Dial Book Review Series is intended for general information and entertainment purposes only, and should not be relied upon in making, or refraining from making, any investment decisions. No information provided herein should or can be taken to constitute any form of advice or recommendation as to the merits of any investment decision. You should take independent advice from a suitably qualified investment adviser before making any investment decisions.
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