#90 Charlie Munger (Poor Charlie's Almanack)

What I learned from reading Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger. ---- Cicero, learned man that he was, believed in self-improvement so long as breath lasts. 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."Invert, always invert." It is in the nature of things, as Jacobi knew, that many hard problems are best solved only when they are addressed backward. It's quite interesting to think about Wal-Mart starting from a single store in Arkansas-against Sears with its name, reputation and all of its billions. How does a guy in Bentonville, Arkansas, with no money, blow right by Sears? And he does it in his own lifetime-in fact, during his own late lifetime because he was already pretty old by the time he started out with one little store. He played the chain store game harder and better than else. Walton anyone invented practically nothing. But he copied everything anybody else ever did that was smart. So he blew right by them all. Charlie's redundancy in expressions and examples is purposeful: for the kind of deep "fluency" he advocates, he knows that repetition is the heart of instruction. He enjoyed challenging the conventional wisdom of teachers and fellow students with his ever-increasing knowledge gained through voracious reading, particularly biographies. He never forgot the sound principles taught by his grandfather: to concentrate on the task immediately in front of him and to control spending. I would say everything about Charlie is unusual. I've been looking for the usual now for forty years, and I have yet to find it. Charlie marches to his own music, and it's music like virtually no one else is listening to. So, I would say that to try and typecast Charlie in terms of any other human that I can think of, no one would fit. He's got his own mold. Charlie Munger has spent a professional lifetime studying lives that have worked well and others that have glitches or have experienced failures. Despite his healthy self-image, Charlie would prefer to be anonymous. I am a biography nut myself. And I think when you're trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed them. I think you learn economics better if you make Adam Smith your friend. That sounds funny, making friends among 'the eminent dead,' but if you go through life making friends with the eminent dead who had the right ideas, I think it will work better for you in life and work better in education. It's way better than just giving the basic concepts. His underlying philosophical view was one of deep and realistic cynicism about human nature, including a distaste for pure mob rule and demagogues. Find out what you're best at and keep pounding away at it. This has always been Charlie's basic approach to life. Take a simple idea and take it seriously. Charlie likes the analogy of looking at one's ideas and approaches as "tools." “When a better tool (idea or approach) comes along, what could be better than to swap it for your old, less useful tool? Warren and I routinely do this, but most people, cling to their old, less useful tools."Henry Singleton has the best operating and capital deployment record in American business...if one took the 100 top business school graduates and made a composite of their triumphs, their record would not be as good as Singleton's. You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don't, you're going to lose. And that's as close to certain as any prediction that you can make. You have to figure out where you've got an edge. And you've got to play within your own circle of competence. The other aspect of avoiding vicarious wisdom is the rule for not learning from the best work done before yours. . . There once was a man who assiduously mastered the work of his best predecessors, despite a poor start and very tough time. Eventually, his own work attracted wide attention, and he said of his work: “If I have seen a little farther than other men, it is because I stood on the shoulders of giants."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 at how much I read. There is no better teacher than history in determining the future. There are answers worth billions of dollars in a $30 history book. ---- Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work. Get access to Founders Notes here. ---- “I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — Gareth Be like Gareth. Buy a book: All the books featured on Founders Podcast

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Senra?

  Warren Buffett is the public face of Berkshire Hathaway and is rightly credited with its tremendous long-term success. But there's another major contributor to the firm's legendary performance record, Charles T. Munger. Although less well-known to the general public than Buffett, he's an equally astute and effective teacher, as Poor Charlie's Almanack, a collection of his best talks, quotes, and ideas, will demonstrate. With Charlie himself as your guide via his speeches and writings, you're about to embark upon an extraordinary journey toward better investing, decision-making, and thinking about the world and life in general. Charlie's unique worldview, what he calls a multidisciplinary approach, is a self-developed

• 0:43David Senra?

  model for clear and simple thinking, while being far from simplistic itself. Throughout the book, Charlie displays his intellect, wit, integrity, and rhetorical flair, while simultaneously reinforcing the virtues of lifelong learning and intellectual curiosity. Alright, so that is from the cover, the inside flap of the book that I'm holding in my hand, Poor Charlie's Almanack, the expanded third edition, the subtitle is The Wit and Wisdom of Charles T. Munger. So this book is rather unique compared to some of the other biographies and books that I've covered so far on the podcast, because it's more like a textbook, again, very similar

• 1:24David Senra?

  to the 54 shareholder letters I went over, the Warren Buffett shareholder letters. The book is huge, so in addition to containing all the wit and wisdom of Charlie Munger, you could also work out with it, or maybe even yield it as a weapon. So it is large, and I have a ton of notes, so let's not waste any time, let's go ahead and jump into it. I want to start with this quote, that's a great quote to start with, it's at the very beginning of the book, and it's Charlie in his own words telling us, he says, "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. So I picked up that quote because, one, it gives you an insight into the personality of Charlie Munger.

• 2:08David Senra?

  He definitely has the habit of making these pithy statements meant to provoke. But, second, I think he's hitting on, there's no point in encouraging people to be lifelong learners if what you're learning does not affect your behavior. So I appreciate the fact that he just assumes that, hey, you're doing this learning and obviously you're gonna take the ideas and it's gonna change the way you act. So, the book is arranged in a rather bizarre way. As you could imagine, less of a narrative, more like a textbook. So I'm just gonna pull out some of, I mean, we're here to study the ideas of Charlie Munger, so it's not going to be like a cohesive experience whatsoever. So I just pulled out a bunch of ideas. I am gonna cover his early life, which is more, will sound more like a narrative. But this one was in the, this next highlight of mine, was just in the very beginning of

• 2:53David Senra?

  the book, and it's something I talk about constantly, that reputation is persuasive, and you're gonna realize that when you study Charlie Munger. He has a bunch of ideas that he repeats in different ways because he understands the importance of repetition and redundancy. So it says, "Charlie's redundancy in expressions and examples is purposeful. For the kind of deep fluency he advocates, he knows that repetition is the heart of instruction." So he's gonna give you the same idea. The bulk of the book, I'd say half of the book, is transcripts, edited transcripts of 11 of his most famous talks. And what you'll notice is he repeats a lot of the same things, but in different contexts. I actually think that's extremely helpful because, one, that you're more familiar with it, because you hear it over and over again, but he's also applying it to different domains

• 3:38David Senra?

  and different examples, which may, like, he has this idea of like the latticework of mental models, meaning like, you can't just hang an idea in your mind and not anchor it to something. If you don't anchor it to something, you're just gonna forget it. So that's what I think he was doing in all these talks. Alright, so let me go, I'm gonna start in Charlie's early life. He actually met Warren Buffett after. He worked for Warren Buffett's uncle. And he didn't know Warren, because he's a few years older at the time, so let me just go right to this. He says, Charlie initially crossed paths with the Buffett family during the formative years of his life when he worked at Buffett & Son, an upscale grocery store in Omaha. The boss and part owner was Warren's grandfather, okay, so now his uncle, his grandfather. His grandfather Ernest.

• 4:21David Senra?

  A strict disciplinarian, he scheduled his young workers for 12-hour shifts with no meals or breaks. The arduous working conditions in the Buffett grocery store had a lasting influence on both Charlie and Warren. So what they're talking about there is Warren, a few years after Charlie left, started working for his grandfather as well and experienced a lot of the same thing. He was an advocate of like, pressure and tough love to make you, obviously, stronger. He says Charlie's teachers, so now we're talking a little bit about his elementary and middle school, or some places called junior high, so it says Charlie's teachers remember a smart kid who was also inclined to be a bit of a wise a- they use the word wiseacre, which I think is like a Midwest term for wise ass.

• 5:04David Senra?

  He enjoyed challenging the conventional wisdom of teachers and fellow students with his ever-increasing knowledge gained through voracious reading, particularly biographies. So, something that's mentioned a bunch of the times in this book is the favorite thing for Charlie, first of all Charlie reads constantly. They say his kids think he's like a book with legs sticking out, legs and arms sticking out. But his favorite things to read is biographies. And he's read hundreds and hundreds of them. So more on his early life, he was growing up in Omaha, Nebraska during the Great Depression. So he says the 1930s brought hard times, and Omaha experienced the severity of the Great Depression.

• 5:46David Senra?

  Charlie's observations of the plight of those less fortunate made a lasting impression. Okay, so I want to interrupt what I'm doing there, because I thought that was a very important point. And let me go, I'm gonna go backwards in the book to the foreword that Warren Buffett wrote on Munger, to introduce like what, what he's learned and how to think about Charlie. And I wanted to tie it together to, because the book talks, there's several pages where it goes over like him noticing what's happening when you run out of money. And in my personal opinion, I've studied several people that have lived through the Great Depression, many of which become founders and investors and entrepreneurs later on in their lives, is that it changed the way they thought about how you should preserve your resources.

• 6:29David Senra?

  So it's no surprise to me, now that I've studied Charlie Munger, this is the third book I've read about him, and by far the most comprehensive, that his, you know, his, not his idol, it's not the right word I'm looking for, but the person he looks up to the most is Benjamin Franklin. So it says, this is now Warren Buffett writing, it says, "From 1733 to 1758, Ben Franklin dispensed useful and timeless advice through Poor Richard's Almanack. Among the virtues extolled were thrift, duty, hard work, and simplicity." So those are a lot of the themes that Charlie's going to, he's going to adapt for his own life. And I would just say, like, we've been talking in the last few weeks, especially with David Ogilvie, has this idea that you should make yourself into a formidable individual.

• 7:14David Senra?

  And I think, so what's thrift? Thrift is just another word for frugality, duty, meaning making sure like you're professional, like you show up and you do what you're supposed to do, you keep your word, you act with integrity, hard work and simplicity. So when I think about turning, like, what's the point of us studying these extreme characters, right? No one's going to write a book about you unless you have these extreme tendencies. And then the point of me wanting to study and learn from all these people is because I think it's helpful to make myself into a formidable individual. And so when I think about the traits I admire in other people that I want to emulate myself, and I do so right now imperfectly, because I am an imperfect human being,

• 7:54David Senra?

  they're very much the same traits that Ben Franklin, Charlie Munger are advocating. And I've seen this advocated by a bunch of the people that I've studied on the podcast. Those are things that I want to have part of like my toolset, for lack of a better word. It's only a handful of attributes, but if you can master those attributes, I think you'll have a good life. Continuing back to Warren, "Subsequently, two centuries went by in which Ben's thoughts on these subjects were regarded as the last word. Then Charlie Munger stepped forth. Initially a mere disciple of Ben's, Charlie was soon breaking new ground. What Ben had recommended, Charlie demanded. If Ben suggested saving pennies, Charlie raised the stakes. If Ben said be prompt, Charlie said be early."

• 8:41David Senra?

  Moreover, Charlie consistently practiced what he preached. It's hugely important that your actions are matching up with your words. It's very hard for us humans to do so. Ben, in his will, created two small philanthropic funds that were designed to teach the magic of compound interest. So I had heard about this before. I went and looked it up so I could explain it to you. But he left small sums, and it's about like $1,000 in his money. Let's say in our money, it'd be about $4,400 each, right? And he left it in a fund to be compounded for 200 years. And then the cities of Boston and Philadelphia could get the proceeds. And in his will, I think he dictated it. It might have been for like educational purposes or helping young people out, right? And so what he was trying to do is show that compound interest is very counterintuitive

• 9:26David Senra?

  to us. And so what happens, this $4,400, to convert it to like our dollars, this $4,400 each, right? So we're talking less than $10,000, wind up after 200 years, grew to $6.5 million, which then the cities of Boston, Philadelphia could use as was outlined in his will. So that's what he's talking about, this two, this is basically an experiment that would take place after he died, which I thought is extremely interesting. Obviously, compound interest is a huge, important idea to understand if you're going to understand Buffett, Munger, or really any growth in any company over a long period of time. They all start, as we've seen on the podcast, they all start out tiny and they grow large

• 10:11David Senra?

  if you don't interrupt this compounding of value. So it says, "Early on, Charlie decided that this was a subject far too important to be taught through some posthumous project." I know I spelled that pronoun incorrectly. "Instead, he opted to become a living lesson in compounding, issuing frivolous, defined as any, expenditures that might sap the power of his example." So Charlie, Warren's talking about like, they bought, well, Warren bought a private jet for Berkshire Hathaway, and he named it the indefensible because Charlie thought spending money or flying private was indefensible. And so Warren's poking fun at him here. He says, Consequently, the members of Charlie's family learn the joys of extended bus trips,

• 10:53David Senra?

  while their wealthy friends imprisoned in private jets miss those enriching experiences. Okay, so I want to go back to Charlie's early life because I do think this idea of, "Hey, I don't ever..." like, they call it the margin of safety, which is just saying, "Hey, we're never going to be short on cash professionally and personally." And I think that was learned, in part, not only through Ben Franklin, but personal experience going through the Great Depression. So it says Charlie learned that by supporting each other, the mongers weathered the worst economic collapse in their nation's history. So his family was able to operate from a relative strong financial position compared to, you know, I think at the time it was 25 to 30% of people that wanted to work were out of work during that. More about his early life, some of the stuff that he was studying.

• 11:37David Senra?

  And in this example, Charlie is specifically telling us, "Even if we're interested in business, investing, multidisciplinary approaches, lifetime learning, you need to study physics, and this is something I haven't done." So I'm going to have to take Charlie's advice here. So it says, "He was impressed by the process followed by physicists, such as Albert Einstein, to address the unknown. Physics-like problem-solving was to become a passion for Charlie and is a skill he considers helpful in framing the problems of life. He has often stated that anyone who wants to be successful should study physics because its concepts and formulas so beautifully demonstrate the powers of sound theory." And so, he's going to use this word multidisciplinary over and over and over again.

• 12:22David Senra?

  All that means is you can't just study one subject. You have to have worldly wisdom. You have to understand that the human default is we're extremely certain, even though we live in an extremely uncertain environment. And by having the best ideas from a broad range of subjects, it prepares you to deal with that uncertainty. That uncertainty that he rightly brings up, that most people don't even know exists, that most people are way too certain in their thoughts. And that's going to be a recurring theme. All right, more biography. So now we've moved ahead. He's married for the first time.

• 12:56David Senra?

  And it says, "Despite outward appearances, all was not sunny in Charlie's world. His marriage was in trouble, and he and his wife finally divorced in 1953. Not long thereafter, Charlie learned that his adored son, Teddy, was terminally ill with leukemia." So he goes through the, what I would argue is the single worst experience that a human can go through, and that's the death of a child. "It was a significant burden for 29-year-old Charlie. In that era, before bone marrow transplants, there was no hope. A friend remembers that Charlie would visit his dying son in the hospital, and then walk the streets of Pasadena crying." So he brings this up in later speeches, that even if your child, you see your child die of cancer, or some kind of disease, that self-pity is not. I mean, it's obviously you're gonna, you're gonna mourn, you're gonna grieve,

• 13:41David Senra?

  you're gonna be changed for the rest of your life, but he uses that example. It's like, self-pity is never the answer to your problem. He is trained as an attorney. Interesting enough, he never got an undergrad degree, but he winds up getting accepted into Harvard Law School. So he has a law practice, but he gets remarried. There's like, a blended family, there's like, gross to be like, I don't know, eight or nine kids. He's got an army of kids here. And so he says, "With many new responsibilities, Charlie worked hard at his law practice. Even so, his earnings were unsatisfactory to him, as they were based on a combination of billable hours and seniority." So he talks about, "He never forgot the sound principles taught by his grandfather, another lesson from the Great Depression. To concentrate on the task immediately in front of him, and to control spending."

• 14:26David Senra?

  Those are, that's, those are two great life skills. That if you're gonna teach your grandchildren or your children something, concentrate on what's in front of you, and control your spending. So he winds up realizing, "Hey, I'm never gonna be wealthy if I'm working by the hour. Even if I could be a high-paid attorney, but it's still billable hours." And he talks later in his speeches that, listen, it's this idea where I'm gonna have a quota of 2000, I think it's 2080 or 2040 billable hours a year. Like, I would be miserable, I can't work under that. So I had to follow, he talks about, the advice he gives you is, "Follow your own drift," is the word he uses, which means, you are who you are. You know what you're naturally interested in. He could not work in that environment, and the, his mind was telling him that. Now, he did something that's rare, he actually acted on that.

• 15:09David Senra?

  A lot of people just wallow in, in, and suffer in silence. So he's saying, "Follow your own drift." So he says, "What was he interested in?" He was interested in business. He realized that he had a lot of clients that were, a lot of his law practice clients were businessmen. And he's like, well, you know, they're not any smarter than me. Like, they figured it out. I can do so too. So he says, he began investing in stocks and acquired equity in one of his client's electronics businesses. Then he has a passion for, for architecture. So he starts doing the real estate development. The venture building condominiums, this is near the school Caltech, was a smashing success. And the partners earned a handsome profit of $3,000 on a hundred and thirty, on a hundred thousand dollar investment. In all cases, he left all of his, this is gonna be his standard MO here.

• 15:53David Senra?

  In all cases, he left all of his profits in real estate ventures so that the bigger and bigger projects could become possible. Same thing with Berkshire Hathaway. They take all the profit and they just buy better and better businesses. The successful practice of law was then, was by then a backstop rather than ending objective for Charlie. So it kind of puts a floor on his, his earnings, right? I'll never go below that, but eventually I'm gonna make enough money that I don't need this anymore. At about that time, he was launching his new law firm. He was carefully crafting his exit plan. Charlie set up an investment partnership. So he starts investing his own money and starts, to a smaller degree, investing other people's money. And that's where he, we're gonna get to the part of the story. Now Charlie's 35 years old and this is where he meets Warren Buffett. Even though they grew up in the same city, they worked at the same place. They were separated by a few years.

• 16:38David Senra?

  So they, he's invited to, to a dinner with some friends. Warren shows up because Warren kept getting confused by other people in Omaha. They kept calling him Charlie. And he's like, I wanna know if that's an insult or not, which I thought was hilarious. So it says, as the evening progressed, the two young men, Warren, Warren was 29 and Charlie then 35, became engrossed in a wide-ranging dialogue covering many aspects of business, finance and history. Where one was knowledgeable, the other was just as excited to learn. So they always talk about like they're, they're almost too much alike. And I wanna interrupt the biography section of this podcast with, so the book, like I said, is more like a textbook. So there's just these, these random sections put into the story or into the pages.

• 17:23David Senra?

  And this is, I just wanna pull one out. They're doing a Q and A with Warren Buffett. And he's asked the question, what would you say are his, meaning Charlie's, most unusual characteristics? And this is his answer. He says, I would say everything about Charlie is unusual. I've been looking for the usual now for 40 years and I have yet to find it. Charlie marches to his own music. It's music like virtually no one else is listening to. So I would say that to try and typecast Charlie in terms of any other human that I could think of, no one would fit. He's got his own mold. I think, again, that's an attribute that I'm certainly trying to do, and I would encourage others to. You have to lean into what makes you unique. And by doing so, studying a wide range of other high-performing humans is a good way to do that. All right, they wouldn't have written this book about Charlie Munger if he wasn't,

• 18:08David Senra?

  if, like they said, if he's not, what'd he say, marching to his own music. Okay, let's go back to his biography. Oh, nope, I lied, I'm not going back to his biography. There's just this one sentence for one of Charlie's first partners. A law firm that he started is actually still in existence today. It's widely successful, even though his name's still on it, even though he's not actively involved in it. And then it just talks about, like, Charlie is a, he's an information machine. He says, this has to do with, my opinion, why reading biographies is so helpful. Charlie Munger has spent a professional lifetime studying lives that have worked well, and others that have glitches or have experienced failure. Okay, back to the biography. Charlie left the firm as an active partner after only three years.

• 18:52David Senra?

  When he left, this gives you an idea of his personality, when he left, he didn't take his share of the firm's capital. Instead, he directed that his share go to the estates of his young partner, this guy named Fred, who passed away prematurely, and who left behind a wife and children, and children, excuse me, when he died of cancer. And I think that's very admirable, obviously. He spent much of his time, after leaving the law practice, building the asset base of his partnership, of his investment partnership. He also spent time working on various real estate developments. He was investing in stocks partly with his own money and partly with other people's money. Munger kept the overhead cost at close to zero.

• 19:33David Senra?

  And he had, before joining Berkshire Hathaway, he had fantastic returns. It was like, something like 20% per year, or something like that. Oh, this is, this is an interesting thought. I've always said, like, it's better to be wealthy. Healthy and anonymous than than to seek fame like seek wealth through hopefully building products that other people love and enjoy and can make somebody else's life better. I go back to that when I'm talking to people that want to start businesses and don't know how I'm like, well, the easiest way to think about a business is Richard Branson's definition to me. Like a business is just something that's our product, let's say product, but he said business. A business or a product is just something that makes somebody else's life better.

• 20:13David Senra?

  And when you think about it through those terms, like products and businesses can be there, it's almost limitless of what you could do. But anyways, he talks about, I bring this up because he winds up, he's on, you know, the Forbes 400 as one of the wealthiest people and he doesn't like that. So it says, while he doesn't mind the wealth, he regrets having his name on any such list. Despite his healthy self-image, meaning he's got a giant ego, Charlie would prefer to be anonymous.

• 20:41David Senra?

  So now we're moving through, I'm just gonna keep pulling this out. Okay, so this, this is me repeating myself because I can't, I can't get over how much Charlie repeats himself on why you should read biographies. Now, obviously that, that makes me feel good because it feels like I'm on the right path with founders. If you think about it, like Charlie could learn, he has, not only is he, he's well-known and respected by almost every single entrepreneur and investor alive today. But he has essentially unlimited assets, so that means he could learn from anybody. He could learn, he, he could take any class, talk to any person. He has, there's no limits on to, to how like when designing his own curriculum for personal development. There's no limit to, to what he could do.

• 21:25David Senra?

  And it's interesting to me that he chooses to read, that he reads everything, but he, his favorite is biographies. What does that tell you? Like somebody with limitless or unlimited resources can, is picking up a book that's $15 that's available to you and I. Like that tells you it has value because his actions say they do. This is Charlie. I'm a biography, not myself. I think when you're trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who develop them. That sounds funny, making, uh, so he talks about, uh, like men being friends and. These people's friends and mentors. He says, "That sounds funny, making friends among the eminent dead. But if you go through life making friends with the eminent dead who had the right ideas,

• 22:09David Senra?

  I think it will work better for you in life and work better in education. It is way better than just giving the basic concepts. See how people apply them in their own lives. Gives you this like anchor, he calls lattice work. Now, this is Charlie on being a partner, business partner. A partner, I guess this could apply to personal relationships too. A partner ideally is capable of working alone. You could be a dominant partner, a subordinate partner, or an always collaborative equal partner. I've done all three. People couldn't believe that I suddenly made myself a subordinate partner to Warren. But there are some people that it is okay to be a subordinate partner to. I didn't have the kind of ego that prevented it. There are always people who will be better at something than you are.

• 22:51David Senra?

  You have to learn to be a follower before you become a leader. People should learn to play all the roles." One of his favorite thinkers is Cicero, who lived, let's see, about 43 B.C. So, this is Munger on Cicero. But when I read this sentence, it could easily also be Munger on Munger. So, you kind of see that he's not only learned from this person, but he's let that person influence the way he thinks and acts. He says, "His," meaning Cicero, but again, this could be Munger, "his underlying philosophical view was one of deep and realistic cynicism about human nature, including a distaste for pure mob rule and demagogues." That's something that Charlie talks about constantly.

• 23:34David Senra?

  The idea of staying away from, don't latch on to extreme ideologies. He says, "It turns your brain into mush." Part of the reason some people don't like him is because he criticized, he says, "The state, the basic state of the human condition is one of great miscognition." Saying like, "Humans' default state is to make bad decisions and have a poor life. And it is your job, it is your duty to learn the skills and the ideas necessary so you don't wind up in that default state." Alright, so moving ahead, this is another lesson from Cicero. "Cicero, learned man that he was, believed in self-improvement so long as breath lasts."

• 24:10David Senra?

  So Warren Buffett, Charlie Munger, both talk about the idea that they're going to be learning to the day they die, and they also want to be working to the day they die. They believe you should find something that you enjoy working on, that you want to do it every day of your life. Embedded in this section, I found something that was fantastic. This idea, this explicit idea, he's giving advice to us, is shooting for durability. That's something I admire, I've been searching my whole life for, is to find a company, or an action, or an activity, or work I could do, that I never have to quit. I think like the, just like compound interest works in magical ways, I think when you work on one idea, or one company, for a very, very long time, you reap benefits that so few people actually ever get to, because they give up at year five, or year eight, or year 20, or year 30. It's very, very rare.

• 24:54David Senra?

  He's Charlie, one of Charlie Munger's sons, and he realized what the attributes of the business that Charlie admired. So he says, "He admired both stores because they were durable institutions, and because their merchandise was fairly priced. Durability has always been a first-rate virtue in my father's eyes." Alright, so now this is Buffett on Charlie's absent mindedness. So I'm going to read his story, it's rather humorous, I chuckled. "The note I left myself is he has the ability to focus on one thing at the exclusion of everything else. That is a superpower." Again, something else that I found in Charlie that I want to adopt myself, that I have imperfectly adopted this trait into my own life, and I think especially today in the

• 25:39David Senra?

  information age, when there's a million distractions sitting around in our pocket, that the ability to focus is a superpower, and I think it's actually going to become more and more important as the information age progresses. This is now Warren Buffett. He says, "I was in New York City with Charlie to attend a Solomon Brothers board meeting. We had come out of the building and we were standing on the sidewalk discussing what had transpired at the meeting. At least that's what I thought we were doing. For suddenly I realized that I'd been talking to myself for some time. I looked around for Charlie, only to see him climbing into the back of a taxi cab, headed off to the airport. No goodbye, no nothing." People thinks it's Charlie's eyes that cause him to miss seeing things. Charlie lost his vision in one eye many years ago due to complications from a cataract surgery.

• 26:23David Senra?

  But it's not his eyes, it's his head. "I once sat through three sets of traffic lights and plenty of honking behind us as Charlie discussed some complex problems at an intersection." So obviously you don't want to focus on something to where you're holding up traffic, but I think the ability to eliminate distractions and focus on what is the most important is a fantastic idea for us. This is some perfect advice. "Find out what you're best at and keep pounding away at it." This has always been Charlie's basic approach to life. This is Bill Gates on Charlie. "He is truly the broadest thinker I've ever encountered. Charlie has the ability to capture knowledge with simple descriptions.

• 27:04David Senra?

  When discussing the intelligence of offspring, he refers to the genetic lottery. When discussing venture capitalists who defend stock options, he deems them no better than the piano player in a whorehouse. When discussing the deleterious effects on efficiency and cost-plus contracts, he likes to say even the mule knew when to slow down." I think that's what makes Munger such an effective teacher. It's not like those are all, I mean, some people might consider this a kind of like dry subject matter, right? When he adds in these Mungerisms, you laugh. And when you're laughing or you're entertained, you're more likely to learn. I think it's a really smart idea. And I think, again, one that he got from, at least in part, from Franklin. All right, so now here's some Munger quotes.

• 27:48David Senra?

  I think it hits on what I just said about finding what you're best at and keep pounding away at it. I love this as like a life motto. "Take a simple idea and take it seriously." He talks a lot about how some of the great businesses were created by doing that. They took a simple idea and they took it to its extreme. They took it deadly seriously. All right, another quote. This is like a paragraph, it's gonna be a little longer. "Our experience tends to confirm a long-held notion that being prepared on a few occasions in a lifetime to act promptly in scale in doing some simple and logical thing will often dramatically improve the financial results of that lifetime.

• 28:27David Senra?

  A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits with a curious mind that loves diagnosis involving multiple variables. And then, all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past." That's a good outline. That's a good description of basically Berkshire's MO. It's, "We're not gonna diversify, we're gonna do our homework, so that we're gonna know a lot about our subject matter, so when the opportunity does come, most of the time we're gonna be sitting on our ass on a lot of cash. But when the opportunity does come, because we've already put in the work, it's gonna

• 29:09David Senra?

  be clearly recognizable, it doesn't not, so we've identified a huge opportunity, which means we're not gonna be like, "Oh, we're gonna buy a little part." No, we're gonna go all in as heavy as we can. And the reason we can go heavy, all in to such a degree with our resources is because we were responsible with those resources and allowed them to accumulate over time."

• 29:28David Senra?

  The next page. Oh, this is the idea he's learned from this guy named John Muir, about thinking about business as an ecosystem. This is, "I find it quite useful to think of a free market economy as a sort of equivalent of an ecosystem. Just as animals flourish in niches, people who specialize in some narrow niche can do very well, even more true in the age of the internet. In business," this is one of my favorite quotes about his idea that I was just referencing. "In business, we often find that the winning system goes almost ridiculously far in maximizing and are minimizing one of the few, one or a few variables. Simple idea, taken very seriously, like the discount warehouses of Costco."

• 30:13David Senra?

  I like this idea too. We should be thinking about ideas as tools. Plus Munger's latticework of mental models, which he talks about a lot, but I'm going to introduce you to here. Charlie likes the analogy of looking at one's ideas and approaches as tools. When a better tool, an idea or an approach, comes along, what could be better than to swap it out for your old, less useful tool? Warren and I routinely do this, but for most people, but most people forever cling to their old, less useful tools. So you are not your ideas. And if an idea comes wrong, that proves one of the ideas is wrong, or can improve on it in any way, just ditch it. You're not your ideas. What's his says his, meaning Charlie, his models supply the analytical structure that

• 30:58David Senra?

  enables him to reduce the inherent chaos and confusion of a complex investment problem into a clarified set of fundamentals. Especially important examples of these models include the redundancy backup system model for engineering, so that's his idea of having a giant buffer. The compound interest model for mathematics, we've already discussed that. The breakpoint tipping moment model from physics, he calls that Lollapalooza, when you have a bunch of different, a bunch of different things happening usually in your favor, that's how you get really wealthy, or in some cases they can move against you, but let's talk about in your favor. Compound your benefits nonlinear.

• 31:38David Senra?

  So he calls that, that's stolen from his study of physics, which is the breakpoint tipping moment. It's also called like, you know, a way to think about this, it was popularized the last couple of years by Malcolm Gladwell, his book, The Tipping Point, same thing here. And then the modern Darwinian synthesis model from biology. And then he also studied the cognitive misjudgment models from psychology. So that's, that's the basic, basic, basic outline of Munger's latticework of mental models, which he expounds on quite a bit.

• 32:08David Senra?

  So we can talk a little bit more about that before. They have a quote here from Bill Gross of PIMCO, legendary fixed income expert, friend of Charlie and Warren's. And it talks about like the, he says, "Munger and Buffett aren't the only elite investors who use non-business models to superb success." So he talks about the book that rests on my library coffee table is not any of my own or one on investing, but several books by historians. He says, "There is no better teacher than history in determining the future. There are answers worth billions of dollars in a $30 history book." So same thing, should be studying history. Okay, so this is Charlie's advice to us is learn for yourself, only the autodidacts are free, and Charlie's guiding principles.

• 32:51David Senra?

  Charlie painstakingly created his own largely self-taught system. The self-taught statement is no exaggeration." So this is a quote from Charlie, says, "To this day, I've never taken any course anywhere in chemistry, economics, psychology, or business." This is what I was talking about last week where I'm rather skeptical of institutionalized learning because anything I've sought out and wanted to learn myself because of what my own innate desire, I've learned and remembered. Anything somebody like a teacher made me do for a grade or to get out of a class, like it just goes in one ear and out the other. It's largely useless. So he says, "His clarity is hard-won, the product of a lifetime of studying the patterns of human behavior, business systems, and a myriad of other scientific disciplines.

• 33:34David Senra?

  Charlie counts preparation, patience, discipline, and objectivity among his most fundamental guiding principles." So go back to this idea of making yourself a formidable individual. These are more traits that we want to put in our toolbox. Patience, which I don't have any of. Preparation, I do somewhat better on that. Discipline and objectivity among his most fundamental guiding principles. Those are all great traits for a human being to have. He will not deviate from these principles, regardless of group dynamics, emotional itches, or popular wisdom, that this time is different. When faithfully adhered to, these traits result in one of the best-known Munger characteristics: not buying or selling very often.

• 34:13David Senra?

  Munger, like Buffett, believes a successful investment career boils down to a handful of decisions. So when Charlie likes a business, he makes a very large bet and typically holds that position for a very long period. Charlie calls it "sit-on-your-ass investing" and cites its benefits. You're paying less to brokers, you're listening to less nonsense, and if it works, the tax system gives you an extra 1, 2, or 3 percentage points per year.

• 34:43David Senra?

  So again, that's another idea that was covered at length in the Buffett shareholder letters. Oh, okay, another thing that was covered in the shareholder letters. Buffett and Munger are laser-focused on moats, okay? And what's a moat? Charlie refers to a company's competitive advantage as its moat, the virtual-physical barrier it presents against incursions. Superior companies have deep moats that are continuously widened to provide enduring protection. In this vein, Charlie carefully considers competitive destruction forces that, over the long term, lay siege to most companies. Almost every company is going to, I mean, I would say every company in history is eventually going to wither away because of this. Just some companies last a little longer than others.

• 35:27David Senra?

  Munger and Buffett are laser-focused on this issue. Over their long business careers, they have learned, sometimes painfully, that few businesses survive over multiple generations. Okay, so I kind of just tripped over my own point there. Accordingly, they strive to identify and buy only those businesses with a good chance of beating these tough odds. So one way to think about a moat is, if you gave me, you know, $20 billion, how could I compete with that company? One moat they always reference is Coca-Cola because of their... Dominant position in the beverage industry. Even if you gave somebody a startup $20 billion to compete with Coke, they probably wouldn't be successful, at least not right now. Eventually, obviously, they will wither away

• 36:10David Senra?

  and another company or maybe a series of companies will take their place. But it's extremely hard to do so. So again, it's not, there's no such thing as like a indestructible company. We just, some are harder to attack than others. And so they're looking for ones that are extremely hard to attack. And they're hard to attack if you use the, take the metaphor to its logical conclusion because they have a giant moat outside their castle. Okay, so Charlie says he practices extreme patience combined with extreme decisiveness. That's a quote from Munger. "If you look at our top 15 decisions," oh, excuse me. "If you took out our top 15, if you took our top 15 decisions out, we'd have a pretty average record. It wasn't hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along,

• 36:54David Senra?

  you pounced on them with vigor. There are worse situations than drowning in cash and sitting, sitting, and sitting. I remember when I wasn't awash in cash and I don't want to go back." This is Charlie's advice to us. Pay up for quality and learn from constructive criticism. He says if you, if Seize Candies, which is one of their most successful investments ever, I think they paid like, I don't know, 20, let's say 25 or 30 million for them and they've made in like profits that accrued since then, I think over a billion dollars from Seize Candies. It prints money. It's outstanding how much money a candy company can make. So it says if Seize Candies, when we were buying it, had asked for $100,000 more, Warren and I would have walked. That's how dumb we were.

• 37:38David Senra?

  That's interesting way to analyze your past decisions. Like, oh, that was really stupid, right? So it says, "Ira Marshall said, 'You guys are crazy. There are some things you should pay up for, like quality businesses and people. You are underestimating quality. We listened to the criticism and changed our mind. This is a good lesson for anyone. The ability to take criticism constructively and learn from it. If you take the indirect lessons we learned from Seize, you could say Berkshire was built on constructive criticism."

• 38:11David Senra?

  Now, on the very next page, he has this idea of, like, same line of this. You have to learn from your mistakes, right? And this is a $10 billion mistake. And this is interesting, because I always repeat this favorite quote of mine, that humans scorn the abstract, even though there's a lot of things that are abstractions that are extremely important in our lives. So it says, "The most extreme mistakes in Berkshire's history have been mistakes of omission. We saw it, but we didn't act on it. They're huge mistakes, and we lost billions, and we keep doing it. After nearly making a terrible mistake not buying Sees candies, we've made similar mistakes many times. These opportunity costs don't show up on financial statements, but they've cost us many billions."

• 38:56David Senra?

  That's what I mean about humans scoring the abstract. "Since mistakes of omission aren't visible, most people don't pay attention to them." So what did Charlene Warren do? "We rub our noses in mistakes of omission." This whole exchange here was from one of the Berkshire's annual meetings. They had just gone discussing failing to buy Walmart's stock at the time, because the price had gone up a little bit from the time they wanted to buy and the time they could buy. And that mistake, as of that day, which might be even more now, it cost them over $10 billion. So I want to interrupt the wit and wisdom of Charlie Munger with this idea that I've talked about many times, that books are the original links.

• 39:39David Senra?

  They lead us from one person to another, so on and so forth. So, there's several books and people profiled in the work of Buffett and Munger that are now, like, I've immediately started buying the books and gonna, like, stay down this path for a little bit in the next few weeks. So, we started with Warren Buffett's Sherlock letters, talks a lot about Charlie Munger, obviously, in that, talks about David Ogilvie. So I did David Ogilvie last week, did Munger this week. Next week, I'm doing the book of Jim Clayton, the guy where Warren reads his biography, that's the book I bought, and then buys the guy's company. Well, that obviously is the book we need to read, right? If he learned so much from it and is so compelled, I winds up buying the company for a couple hundred million dollars. Charlie's also introduced me to several people in the book. One of them is this guy I want to tell you about right now, this guy named Henry Singleton.

• 40:24David Senra?

  And he's profiled in this book called The Outsiders. Let me just run down his, tell you a little bit about Singleton real quick because I find it fascinating. They call him a business and chess master. Singleton was co-founder of Teledyne and chief executive of the Los Angeles-based conglomerate for three decades. He attended the Naval Academy, then transferred to MIT, where he received a bachelor's, master's, and PhD degrees in electrical engineering. An enormously skilled chess player, he was only 100 points below the grandmaster level and could play without looking at the board. From 1963 to 1990, when he was running the company, Teledyne returned an astounding 20% compound annual return to shareholders. This was a period when the S and P returned 8%.

• 41:06David Senra?

  He repurchased 90% of Teledyne's outstanding shares primarily between 1972 and 1984. Singleton built a record as a manager and capital allocator with few peers in modern business history. Sharing Buffett's admiration for Henry Singleton, Charlie wonders, given the man's talent and record, have we learned enough from him? So when Charlie asked that question, I was like, I need to read the part of this book. Because he's explicitly saying like, this guy is so skilled at life, he's worthy of more study, right? And then this is a quote from Warren Buffett on Singleton. "Henry Singleton has the best operating and capital deployment record in American business. If one took the 100 top business school graduates and made a composite of their triumphs, their records would not be as good as Singleton's."

• 41:51David Senra?

  So keep an eye out for a podcast in the future, next few weeks with Singleton. This is Charlie on how to get rich, and then also a defense against inflation. So how to get rich. A young shareholder asked Charlie how to follow in his footsteps, and Charlie brought down the house by saying, "We get these questions a lot from the enterprising young. It is a very intelligent question. You look at some old guy who's rich and you ask, how can I become like you, except faster?" And then this is his answer, his advice. Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step, you get ahead, but not necessarily in fast spurts.

• 42:35David Senra?

  But you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. And at the end of the day, if you live long enough, most people get what they deserve. And then this is his defense against inflation. And his idea for us is you need to reduce your material needs. Most people will see declining returns due to inflation. One of the great defenses is if you're worried about inflation is to not have a lot of silly needs in your life. You don't need a lot of material goods. So that could have easily been said 200 years prior by Benjamin Franklin. Oh, so this is interesting. If you've listened to every single Founders Podcast I've done so far, I've mentioned this guy a few times. It's the founder of Costco.

• 43:20David Senra?

  His name is Jim Sinigal. Munger, basically, if he's, I think the business he most admires that's not part of Berkshire, so like outside of Coca-Cola and Geico and the rest of these, is Costco. And Jim is one of the co-founders of Costco. Well, let me just read this. So this is Munger on Sinigal. You wouldn't, you just wouldn't believe how efficient and sophisticated Costco's warehouse operation is. Jim Sinigal is a fabulous business operator. He's like a Carnegie, a Rockefeller, or a James J. Hill. Let me pause there. Never heard of James J. Hill. Munger mentioned him several times, just found his biography, just bought his biography. So that's going to come up too. I consider him to be one of the top five retailers of the past century. And why did I buy James Hill's biography?

• 44:03David Senra?

  Because Munger, who I admire, just put him in the same sentence as Carnegie and Rockefeller. So we have to study him. We have no choice. It's not even my decision, but I have to. He says, I consider him to be one of the top five retailers of the past century. He's that good. He works 80 hours a week and sets a terrific example for his entire organization in terms of work ethic, integrity, loyalty, and selfishness. He's a moral leader as well as a practical leader. These are not minor virtues.

• 44:29David Senra?

  We have our own living, breathing Sam Walton at Costco. So I think Munger, he used to be, I don't know if he still is, but he used to be on the board of Costco. And the reason I say, if you listen to my podcast, you know who Jim Sinigal is, because when I covered The Everything Store, the book on Amazon and Jeff Bezos, Bezos said that his meeting with Sinigal was life-changing. They met in like 2000 or 2001, I think it was 2001 after the dot-com bust. They, I think they met at like a Starbucks, or met for coffee or whatever the case is. And you know, Jim just laid out to Jeff what he's learned about business. And shortly thereafter, Jeff had a passion for trying to reduce, he says like, Jeff has this quote where he's like, there's two types of businesses in the world, ones that try to figure out how to charge more and one that figures how to charge less. We're going to be the latter.

• 45:13David Senra?

  That comes directly from Jim Sinigal. The idea, Amazon Prime, looks extremely similar to, Costco makes almost all their money on their membership program. So again, these are ideas that Jeff Bezos stole rightfully, because he's smart. He's going to obviously study entrepreneurs of the past, people who have been successful before he was, and take the ideas that are valuable. Okay, so now, everything I just read to you and just expounded on, came from like the first half of the book. The first half of the book is like this weird like collection of just ideas he has. The second half is all these giant talks, and I'm talking like 300, 250 pages of a giant book here. So I'm, obviously it would be impossible to read them all, but I'm just going to pull out some quotes and ideas that I really like.

• 45:57David Senra?

  Some of these I've actually heard, and it was nice to have heard the speech first and then read it after. I think it helped in my understanding. But first, he's giving a commencement speech at Harvard in 1986, and I just thought this paragraph was interesting. He says, "Most graduation speakers choose to lay out a prescription for attaining a happy life," right? So everybody gets up there and they give you their advice on what they've learned. Charlie, using the inversion principle, he recommends in the speech, "compellingly makes the opposite case by setting forth what a graduate may do to reach a state of misery." So he's like, his idea of you want to find out, his idea of invert, always invert. And so, instead of saying, "How do I solve this problem?" Like, how do I work backwards? Well, it talks about, like, the example I think he uses is, like, if you want to learn,

• 46:41David Senra?

  like, if your goal is, "Okay, I want to help the people of India," right? Start with, "What are the actions I would take if I want, if that would hurt the people of India?" Right? And it makes you think about the same problem in a vastly different way, and then avoid those actions. So, he's doing this, he's telling us what to avoid in life. And one of this is, he's really big on staying sober. So, he says, "The four closest friends of my youth were highly intelligent, ethical, humorous types. They favored, they were favored in person and background. Two are long dead, with alcohol a contributing factor. And a third is a living alcoholic, if you call that living. While susceptibility varies, addiction can happen to any of us through a subtle process

• 47:24David Senra?

  where the bonds of degradation are too light to be felt, and they, until they are too strong to be broken. And yet, I have yet to meet anyone in over six decades of life, whose life was worsened by fear and avoidance of such a deceptive pathway to destruction." So, he's telling us, "Hey, don't, don't drink and don't do drugs." Charlie's, more on Charlie's Keys to a Miserable Life. So, he's gonna give us, I think there's what, three or four of them here? "First, be unreliable." So, again, he's saying, "If you want a miserable life, these are the traits you should do." Obviously, we don't want a miserable life, so we're gonna be doing the opposite. "First, be unreliable. Do not faithfully do what you have engaged to do. If you only, if you will only master this one habit, you will more than counterbalance

• 48:08David Senra?

  the combined effects of all your virtues, howsoever great."

• 48:14David Senra?

  Somebody pause there, that's a hell of a statement. "Just being unreliable will foreclose many opportunities in your life. It doesn't even matter how great you are." He's saying that, "If you're unreliable, no one's gonna be able to trust or work with you, therefore, you're not gonna reap any benefits in the future. If you like being distrusted and excluded from the best human contribution and company, this prescription is for you." Master this one bad habit and you will always play the role of the hare in the fable. Except that instead of being outrun by one fine turtle, you will be outrun by hordes and hordes of mediocre turtles. And even some mediocre turtles on crutches. See what I mean about like he's taking this really important idea, but that visualization of the classic fable,

• 48:56David Senra?

  the turtle and hare, or turtle and hare, whatever you want to call it. Now, and when I'm reading, I pictured that cartoon I was watching when I was younger or something like that, right? And then he adds mediocre turtles. Could you imagine if you're unreliable, it doesn't matter how smart and capable you are, because you're unreliable, you're gonna have people that you deem less skilled than you actually do better in life? That's like a little version of personal hell, right? But then the idea that you're gonna have mediocre turtles on crutches. Because you're unreliable, they're still kicking your ass. My second prescription for misery is to learn everything you possibly can from your own experience. Minimizing what you learn vicariously from the good and bad experience of others living in debt.

• 49:37David Senra?

  So he's talking about, you know, don't worry about studying what the best and worst of whatever people figured out. Do it only on firsthand experience, see how far you get. That's a good key on why he reads so many biographies, because he doesn't want to do this. This prescription is a sheer shot producer of misery and second-rate achievement. We only get one shot at life. Do you not want to ever tap into the potential that you have? He's just like, "No, no, I'm cool being second-rate." You can see the results of not learning from others' mistake by simply looking about you. This gets rather, what's the word I'm looking for? This is like controversial, where he criticizes humans, right? So he says, "You can see the results of not learning from others' mistakes by simply looking about you. How little originality there is in the common disasters of mankind.

• 50:21David Senra?

  Drunk-driving deaths, reckless-driving maimings, incurable venereal diseases, conversion of bright college students into brainwashed zombies as members of destructive cults, business failures through repetition of obvious mistakes made by predecessors, various forms of crowd folly, and so on and so on." So he's saying if people were actually, if the standard default condition of human beings were actually capable of learning from other people, or we actually tried to obtain that skill, you wouldn't have people making mistakes that other humans have made in the past already. The other aspect of avoiding vicarious wisdom is the rule of not learning from the best work done before yours.

• 51:03David Senra?

  There was once a man who assiduously mastered the work of his best predecessors, despite a poor start and a very tough time in analytical geometry. Eventually, his own work attracted wide attention, and he said of his work, "If I have seen a little farther than other men, it is because I stood on the shoulders of giants." So, what is he telling us right there? He's telling us two things: invert, always invert, because that's the whole point of the speech he's doing. And two, learn from your predecessors. Learn from them. You could take an average person that has the knowledge of what worked and didn't work in the past, and that applies to their life, will get further than the brilliant person that doesn't.

• 51:45David Senra?

  My third prescription to you for misery is to go down and stay down when you get your first, second, or third severe reverse in the battle of life. Meaning you quit. A little bit of adversity, you just gave up. Because there's so much adversity out there, even for the lucky and the wise, this will guarantee that in due course, you will be permanently mirrored in misery. My final prescription for you, for a life of fuzzy thinking and infelicity, is to ignore a story they told me when I was very young about a rustic who said, "I wish I knew where I was going to die, then I'd never go there." So now, he's talking about, he's actually Johnny Carson, like the old, this is a lesson about inverting.

• 52:30David Senra?

  They learned from Johnny Carson. So, because Carson gave a speech very similar, I should have said this at the beginning, Carson gave a speech very similar to the one Munger's giving at this commencement address. So it says, "What Carson did was to approach the study of how to create X by turning that question backward. That is, by studying how to create non-X. The great mathematician Jacoby had exactly the same approach as Carson, and was known for his constant repetition of one phrase: invert, always invert. It is in the nature of things, as Jacoby knew, that many hard problems are solved only when they are addressed backward."

• 53:10David Senra?

  In my opinion, as a certified biography nut, that Charles Darwin would have ranked near the middle of Harvard School graduating class of 1986. Yet he is now famous in the history of science. And so, he's asking, like, how did this happen? Like, you have somebody, this is what I was just saying, like, you have somebody that's average in terms of like, where they would have appeared in a graduating class, yet because of their approach, actually is what led to like the differentiation, what led to their outside success. So this Darwin's result was due in large measure to his working method, which violated all my rules for misery and particularly emphasized a backward twist

• 53:52David Senra?

  in that he always gave priority and attention to evidence tending to disconfirm whatever cherished and hard-won theory he already had. In contrast, most people early achieve and later intensify a tendency to process new and disconfirming information so that any original conclusion remains intact. So it goes back to his tool, thinking about ideas as tools. Some people are like, this idea is now a part of me, I can't, like, I'm a good person, so this idea is good. Meanwhile, there's new information coming in, Charles would just get rid of his old idea. So would Munger. And he's saying that most people don't. They get rid of disconfirming information so that any original conclusion remains intact. They become people of whom Philip Wiley observed,

• 54:34David Senra?

  "You couldn't squeeze a dime between what they already know and what they will never learn." If you minimize objectivity, you ignore not only a lesson from Darwin, but also one from Einstein. Einstein said that his successful theories came from curiosity, concentration, perseverance, and self-criticism. So if you don't engage in self-criticism, I mean, that's essentially like getting rid of your bad ideas. And by self-criticism, he meant testing and destruction of his own well-loved ideas. Okay, so I just walked over my point again. All right, let's move forward. So this next talk is about worldly wisdom, mental models, etc. So he says, "That enables me to start talking about worldly wisdom, a much broader topic that interests me because I think all..."

• 55:19David Senra?

  All too little of it is delivered by modern educational systems, at least in an effective way. So he constantly criticizing academia. He's saying it's not really teaching you. He's teaching you how to master like one thing, when you should be learning from different domains and different subjects. He calls it like the balkanization of academia. It's like the old saying, "To the man with only a hammer, every problem looks like a nail." And of course, that's the way the chiropractor goes about practicing medicine. But that's a perfectly disastrous way to think and a perfectly disastrous way to operate in the world. So you've got to have multiple mental models. One of the mental models you have to learn is probability. If you don't get this elementary, but mildly unnatural mathematics of elementary probability into your repertoire, then you

• 56:04David Senra?

  go through life, then you go through a long life like a one-legged man in an ass-kicking contest. You're giving a huge advantage to everybody else. So you have to study probability. He's got more advice for us. Always start with why. If you wrote a letter or directive in the bra- he's talking about the Braun Company and what he learned from them. If you wrote a letter or directive in the Braun Company telling somebody to do something and you didn't tell them why, you would get fired. You might ask, "Why is this so important?" Well, again, that's a rule of psychology. So you have to study psychology as well. If you always tell people why, they'll understand it better, they'll consider it more important,

• 56:45David Senra?

  and they'll be more likely to comply. Even if they don't understand your reason, you'll be far more likely to comply. So from one of the books, one of Charlie's favorite books is by Robert Kialdini. It's called "The Psychology of Influence of Persuasion." I read it a long time ago. I think I've read it twice, actually. And there's a story in the book that actually illustrates this, where they do an experiment where there's a long line of like the photocopy machine in an office, and if you ask, "Hey, can I get ahead of you?" That's all. It's just like, "Hey, can I cut you in line?" They'll say, "No." But if you say, "Hey, can I get ahead of you?" Then you tell the reason why. It doesn't even matter what the reason is. Maybe it's like, "Oh, I have a meeting in five minutes." Most people will let you cut ahead of them.

• 57:27David Senra?

  And they even tested it by saying, "Hey, can I cut you in line? I have to make copies." Like, that's not really a reason, but the fact that they understood why, people are more willing to comply. It's like a weird hack of human psychology. Alright, so these are ideas and models that Charlie likes most. And then also, an indication where we learned from David Ogilvie that if an ad works in one country, it'll probably work in others. This is probably why Ogilvie found that ads worked in multiple countries. So he says, "The engineering idea of a backup system is a very powerful idea." I mentioned this a little bit earlier. "The engineering idea of breakpoints, that's a very powerful model, too." "The notion of a critical mass, that comes out of physics." It is also a very powerful model.

• 58:09David Senra?

  "The next most reliable models are from biology and physiology, because after all, all of us are programmed by our genetic makeup to be much the same." And so, just as a man working with a tool has to know its limitations, a man working with his cognitive apparatus has to know its limitations. "The psychology of misjudgment, as I call it, is a terribly important thing to learn." And so he continues, like, "Why is the psychology of misjudgment so important to study?" Says, "Terribly smart people make totally bonkers mistakes by failing to pay heed to it." "In fact, I've done it several times during the last two or three years in a very important way." "You never get totally over making silly mistakes."

• 58:52David Senra?

  "There's another saying that comes from Pascal that I've always considered one of the really accurate observations in the history of thought." Pascal said, "The mind of man at one and the same time is both the glory and the shame of the universe." And that's exactly right. "It has this enormous power. However, it also has these standard misfunctions that often cause it to reach wrong conclusions." "It also makes man extraordinarily subject to manipulation by others." "For example, roughly half of the army of Adolf Hitler was composed of believing Catholics." "Given enough clever psychological manipulation, what human beings will do is quite interesting."

• 59:37David Senra?

  Then he's gonna touch on this idea again, where he's gonna repeat himself. The economy as an ecosystem. Just as animals flourish in niches, similarly, people who specialize in the business world and get very good because they specialize frequently find good economics that they wouldn't get any other way. This is Munger on Walton, which he mentions a bunch of times. He holds him in high regard. And he says, "It's quite interesting to think about Walmart, starting from a single store in Arkansas against Sears with its name, reputation, and all of its billions. How does a guy in Bentonville, Arkansas, with no money, blow right by Sears?" And he does it in his own lifetime.

• 1:00:22David Senra?

  In fact, during his own late lifetime, because he was already pretty old by the time he started out with just one little store. I think he was like 42 or 45, something like that, when he started the first Walmart. "He played the chain store game harder and better than anyone else." Walton invented, this is why I highlighted this part, this one section is particularly interesting. Walton invented practically nothing, but he copied everything anybody else ever did that was smart. So he just blew right by them all. Think about it, you don't even have to innovate. If you just master the good ideas of what everybody else already figured out, and you actually apply them, that puts you ahead of almost every single other person, because it's such a rare technique and rare skill. That's amazing.

• 1:01:06David Senra?

  One of my favorite quotes comes from founder of Angelus, Naval Ravikant. And he says, "What do you do that feels like play to you, but looks like work to others? Build a business around that." I think that's fantastic advice. And Charlie's kinda echoing that here. "You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don't, you're gonna lose. And that's as close to certain as any prediction that you can make. You have to figure out where you've got an edge, and you've gotta play within your own circle of competence."

• 1:01:42David Senra?

  So here you have Munger kind of poking fun. He really hates this idea that efficient market dairy. And, well, what I took, let me read, let me read the paragraph first. He says, "It's rather interesting because one of the greatest economists of the world is a substantial shareholder in Berkshire Hathaway and has been from the very early days after Buffett was in control. His textbook always taught that the stock market was perfectly efficient and that nobody could beat it, but his own money went into Berkshire and made him wealthy. So like Pascal and his famous wager, he hedged his bet." Which is another way of saying if your actions aren't really lining up with your ideas or your words, you don't actually believe them.

• 1:02:25David Senra?

  So what I took away from that paragraph is you have to, I say this over and over again, you have to watch what people do. And you have to make sure that their opinions are tied to a profit and loss statement. That's the only way it has any kind of value. This guy is, in Munger's opinion, poisoning the minds of generations of people, teaching him a theory that he calls bonkers. Yet what does he do with his own money? He gives it to somebody that can, that is, that can beat the market, that Buffett and Munger. So that's a, that's a hell of an insult, actually. Now that I reread that part, like, that's, that's pretty damning on, on that economist. He doesn't name him by name, but, I mean, obviously the guy's gonna know who he is. "By knowing that myself, if you can make this very simple concept part of your decision making, you will do very well.

• 1:03:09David Senra?

  The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds." This is something we've heard Munger talk about many times. "And the rest of the time, they don't. It's just that simple." That is a very simple concept. And to me, it is obviously right. Yet, practically, nobody operates that way. When you get, when you get a few, you should really load up. It's just that simple. So the difference between knowing something and actually acting on it. No point in learning if you're not gonna do it. And there's something about it that goes against our nature because you see that the standard, like the default is that people are not going to do that. They'll tell you diversify, they hedge, they have Plan B, C, D, you know, all the way down to Plan Z,

• 1:03:51David Senra?

  if you will. Munger, Buffett aren't like that. They have belief in their ability, in their ability to learn about what's valuable of a business and to bet heavily on it. So this is Munger, who talks about it's super, super important that you need to get the incentives right. As usual in human affairs, what determines the behavior are incentives for the decision-maker. From all business, my favorite case on incentives is Federal Express. I love this story. The heart and soul of its system is having all of its airplane come to one place in the middle of the night and ship 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 there were a lot of delays. It was always screwed up. They could never

• 1:04:35David Senra?

  get it done on time. They tried everything. Moral persuasion, threats, you name it, and nothing worked. Finally, somebody got the idea to pay all these people not so much an hour, but so much a shift. And when it's all done, they can go home. Well, their problem's cleared up overnight. So getting the incentives right is a very, very important lesson. It was not obvious to Federal Express what the solution was. But maybe now, it will hereafter be, more often, be obvious to you. This is more on Munger, Munger's elaborating on betting heavily on the few unique insights that you have. The Berkshire system is not bonkers. It's so damn elementary that even bright people

• 1:05:20David Senra?

  are going to have limited, really valuable insights in a very competitive world where they're fighting against other very bright, hardworking people. So what he's saying is it's obvious. Like, you can't have such a large ego that you're going to outsmart people every time. You might be able to do this a handful of times in your life. Well, guess what? If you only do it a handful of times in your life, you're fabulously wealthy. And it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times. Isn't that perfectly obvious? How many of you have 56 brilliant insights in which you have equal confidence? Raise your hands, please. Now, how many of you have two or three insights that you have some confidence in? I rest my case.

• 1:06:03David Senra?

  And so when he puts it like that, like it's, I didn't say, it's not, I almost used the word easy. It's not the right word. I think it's a lot, it's easier to do, or at least doable for most people to come up with two or three really good insights in their lifetime about ways to businesses, products, services, whatever the case is. It's next to impossible. Like you could probably make one good business. Maybe you have, you can invest or make two or three good businesses, or have the opportunities to partake in that in your lifetime. But what's the chances you can come up with 50 or 100? Charlie's point is extremely low. So why don't you just focus on

• 1:06:44David Senra?

  doing it a few times and doing it really, really well. Oh, so this is the book I'm going to do in two weeks. This is bananas. This is another example of books, the original link. So I've known about Claude Shannon. His biography came out like two years ago. He's like the inventor of the information age. But I never heard about this book. So it says in, um, this guy named William Poundstone, William Poundstone's book Fortune's Formula collects much of the modern evidence on this point in a highly entertaining way. Moreover, the book contains an account of the Lollapalooza, that's a, that's his, Charlie's term for when a bunch of different factors are all pointing in the same direction. It's how you build wealth really fast, of the Lollapalooza investment record of Claude Shannon, pioneer scientist in information theory that makes Shannon's

• 1:07:28David Senra?

  methods look, look much like those of Charlie Munger. So I downloaded the Kindle version and I read the first, like the sample, first I read the description and read the samples. I go, I'm definitely doing this book right away because it was fascinating. But I got that idea from, from Munger. Okay, so now I got to the point where Munger, he's giving us advice. He's saying, listen, undertake a multidisciplinary approach. And he's going to give us specific ways to do so. I love this quote though, from some, somebody he learned from, this guy named Sir William Ulster, who was alive in like the 1800s. This is the very first step towards success in any occupation is to become interested in it. I thought that was fascinating. Okay, so that was just a quote. Let me get into Munger's advice on how to undertake a multidisciplinary approach. This is Munger talking.

• 1:08:12David Senra?

  I've long believed that a certain system, which almost any intelligent person can learn, works way better than the systems that most people use. What you need is a lattice work of mental models in your head. And you hang, and you hang your actual experiences and your vicarious experience that you get from reading and so forth, on this ladder work, lattice work of powerful models. And with that system, things gradually get to fit together in a way that enhances cognition. Your assigned reading for today included the latest annual letters from Jack Welch and Warren Buffett relating to General Electric and Berkshire Hathaway. So we've done half of our homework here. Jack Welch has a PhD in engineering and Warren plainly could have gotten a PhD in any field he wanted to pursue. Both gentlemen are inver- invert teachers. That's not how you pronounce that word.

• 1:08:56David Senra?

  Great teachers, let's just say that. When I urge a multidisciplinary approach, that you've got to have the main models from a broad array of disciplines and you've got to use them all, I'm really asking you to ignore jurisdictional boundaries. So he's saying like, don't just pay attention to what you learned and whatever field of study, like look over the fence and see what they have that they've already learned too. The wor- and why you do that? Because the world isn't organized that way. It discourages the jumping of jur- it discourages the jumping of jurisdictional boundaries. Big bureaucratic businesses discourage it. And of course academia itself discourages it. So he's telling us, don't do this, don't discourage it. Like your, your school might be set up like that, your large corporation you work for might, might be set up like that, but it's not something that you want to do.

• 1:09:39David Senra?

  All I can say is that, all I can say there is that in that respect, academia is horribly wrong and dysfunctional. So if you want to be a good thinker, you must develop a mind that can jump the jurisdictional boundaries. Since you're at, he has this thing, it's like, forget it, I'll do it myself curriculum, I would, I would say. Since your academic structure by and large doesn't encourage minds jumping jurisdictional boundaries, you're at a disadvantage because in that one sense, even though academia is very useful to you, you have been mistaught. My solution for you is one that I got from a very early age from the nursery. Uh, nursery rhyme, it's the story of the little red hen. The punchline of the, of course is, "Then I'll do it myself," said the little red hen.

• 1:10:24David Senra?

  So if your professors won't give you an appropriate multidisciplinary approach, if each wants to overuse his own models and underuse the important models in other disciplines, you can correct that folly yourself.

• 1:10:38David Senra?

  Another person that I was introduced to and I've ordered the book is the founder of Hershey Chocolate. And somebody Munger looks up to and he references a few times, but I, so I'm gonna ignore most of that because I'll cover it when I read the book, but there's a story here that I think is a good point that Charlie's saying. It's like, there's some things in life that are just hard to copy. They're not going to be at all obvious. So this is, this is Charlie giving us a little story on that. He says, "One of my favorite business stories comes from Hershey. They get their flavor because they make their cocoa butter in old stone grinders that they started with in the 1800s in Pennsylvania. And a little bit of the husk of the cocoa bean winds up in the chocolate.

• 1:11:20David Senra?

  Therefore, they get that odd flavor that people like in Hershey's chocolate. Hershey knew what, knew, knew enough when they wanted to expand into Canada to know they shouldn't change their winning flavor. Therefore, they copied their stone grinders. Well, it took them five years to duplicate their own flavor. As you can see, flavors can be quite tricky." And the lesson I took away from there is even your own business, there could be things that give you an advantage that other people want to copy and one, they might not be able to, but two, it may even be kind of a mystery to you. Now, they went up figuring it out, but it took them five years to get the same flavor, just in two different locations. So I think that can be applied to a bunch of different ways to, to actually have an advantage in your business.

• 1:12:04David Senra?

  Because if it's so hard for Hershey to copy their own flavor, how hard is it for their competitors to copy their flavor? Oh, this is interesting. "Do you have an ideology from which you won't budge?" Another lesson in worldly wisdom. Heavy ideology is one of the most extreme distorters of human cognition. Ideology does some strange things and distorts cognition terribly. If you get a lot of heavy ideology young and then you start expressing it, you're really locking your brain into a very unfortunate pattern and you're going to extort your general cognition.

• 1:12:39David Senra?

  And he says, "Why? Because ideology, it pounds, since it pounds ideas in better than it convinces out, it is a very dangerous thing to do." Alright, skipping ahead, this is such a great point. Let me read it to you and then I'll tell you what I took away from it. He says, "I don't want you to think that we have any way of learning or behaving so you won't make a lot of mistakes. I'm just saying that you can learn to make fewer mistakes than other people, and how to fix your mistakes faster when you do make them." And to me, his whole point is the way you think, and then how you apply that to whatever you're working on. It's like, your system should be able to survive even with the mistakes you make. Because it's inevitable that humans are going to make mistakes.

• 1:13:22David Senra?

  So you cannot build a business, you can't build a system of thinking that relies on no mistakes being made. There is no such thing as a perfect human being, so you can't have a perfect system. This is him telling us to master the best of what other people have already figured out. He said, this is a question and answer section. He says, "I understand your skepticism about overly ideological people," is what I just mentioned earlier. "But is there an ideological component to what you do? Is there something that you're irrationally passionate about?" And then this is Munger's fantastic answer. He said, "Yeah, I'm passionate about wisdom. I'm passionate about accuracy and some kinds of curiosity. Perhaps I have some streak of generosity in my nature and a desire to serve values

• 1:14:05David Senra?

  that transcend my brief life. But maybe I'm just here to show off. Who knows? I believe in the discipline of mastering the best that other people have figured out. I don't believe in just sitting down and trying to dream it up all by yourself. Nobody is that smart." So in almost every talk, Munger is going to talk about, "You need to study multiple disciplines, you need to study multiple disciplines, you need to study multiple disciplines," over and over and over again. And there's this one paragraph where he's talking about this, like, class at Harvard Business School. And I think this paragraph actually is a great illustration of why that's so important.

• 1:14:47David Senra?

  So the note that I wrote myself is if you don't study multiple disciplines, you won't know the right move to make when the right answer lies outside of your field. So this is a good, quick story that illustrates, I think, the importance of Munger's point. He says, "This professor gave a test involving two unworldly old ladies," meaning they don't have worldly knowledge, "who had just inherited a New England shoe factory making branded shoes and beset with serious business problems described in great detail." So two old ladies inherit this business. The business is in poor trouble. What are you gonna do? "The professor then gave the students ample time to answer with written advice to the old ladies. In response to the answers, the professor next gave every student an undesirable grade

• 1:15:32David Senra?

  except for one student who was graded at the top by a wide margin. So only one person got the right answer, like came up with the right answer. Everybody else was well off, well off the right answer. What was the winning answer? It was very short and roughly as follows. "This business field, and this particular business, in its particular location, presents crucial problems that are so difficult that unworldly old ladies cannot wisely try to solve them through hired help. Given the difficulties and unavoidable agency costs, the old ladies should promptly sell the shoe factory, probably to the competitor who would enjoy the greatest marginal utility advantage."

• 1:16:17David Senra?

  Thus, the winning answer relied not on what the students had most recently been taught in business school, but instead on more fundamental concepts like agency costs and marginal utility lifted from undergraduate psychology and economics." I'm gonna repeat this because he repeats it and I think it's such an important point. There's an old two-part rule that often works wonders in business, science and elsewhere. One, take a simple idea, and two, take it very seriously. So this is Charlie on the folly of fake diversification. So on one end, you have, like, I look like a barbell, right? So on one end, you have the index.

• 1:16:57David Senra?

  You have, you're owning, if you, if you have no ability to accurately determine like what's the true value of a business, just go the Vanguard, Jack Vogel route and just own the entire index, right? And then, so that's on, that's on one side. And on the other side, you have the Munger and Buffett method, which is like, only, like, only invest in thing, in the few opportunities that you feel you have like a unique advantage and bet heavily, right? So a handful of companies, you don't own all of them, you own a few. What Munger says, like, the reason I say it's, this is Charlie on the folly of fake diversification. He says, because the other diversification, that's not either an index or their route. It's like, it's in the middle, it's like in the messy middle, it doesn't actually make any sense.

• 1:17:42David Senra?

  So he says, "I have more than skepticism regarding the orthodox view that huge diversification is a must for those wise enough so that index, indexization is not the logical mode for equity investment." He's like, "If you're not doing it our way, do it, just have an index, don't, like, this is absurd." "I think the orthodox view is grossly mistaken. A person or institution with almost all wealth invested long-term in just three fine domestic corporations is securely rich. Long-term results would be superior by reason of his lower costs, required emphasis on long-term effects, and concentration in his most preferred choices." Which means, that third part to me is, this isn't going to work unless you do your homework.

• 1:18:25David Senra?

  So you should, you've done the, you only have a few attempts here. So you have to make sure those attempts are good, which means you concentrated in your most preferred choices. Assuming, that assumes that you did the work to figure out what, what business is actually valuable. "I go even further. I think it could be a rational choice in some situations for a family or a foundation to remain 90% concentrated in one equity."

• 1:18:53David Senra?

  Now that sentence, if you just took that out of context and said it to some random person on the street, they would freak out because you're so indoctrinated about diversification. But if you study how the great fortunes are made, that's exactly how they did it. It is extreme concentration in an extremely valuable asset. Buffett has 99% of his net worth in Berkshire. Munger has over 90% of his family's net worth in Berkshire. You have all these people that got fabulously wealthy because they're usually a person or a family. And if you're a hugely successful entrepreneur, like, well, I'll give you an example. I don't have to go to history. Jeff Bezos, where's most of his wealth coming from? It's coming from one equity. It's his ownership of Amazon.

• 1:19:38David Senra?

  Like, this is completely obvious, but completely opposite of what most people are taught. And even for me, when I first started studying Munger and Buffett's views on diversification, I mean, I've already adopted like more of a barbell strategy and a lot of things in life in general, so I was more open to it, but it felt like wrong. It just sounded wrong because it was so different from what other people have said in the past. But those other people are not wealthy. Oh, my goodness, I have an insane amount of notes. All right, I have a long note to myself, but I'm going to read that note to you after I read what spawned that note. So this is Charlie, talking again about his distaste for efficient market theory. He says, "My foregoing acceptance of the possibility that stock value in aggregate can become

• 1:20:20David Senra?

  irrationally high is contrary to the efficient market theory that many of you once learned as gospel from your mistaken professors of yore. Your mistaken professors were too much influenced by rational man models of human behavior from economics and too little by foolish man models from psychology and real-world experience." I remember this part, I'll tell you why. This one paragraph is illustrating his why I think it's wise to follow his multidisciplinary approach. "Crowdfolly, the tendency of humans, under some circumstances, to resemble lemmings, explains much foolish thinking of brilliant men and much foolish behavior, like investment management practices of many foundations represented here today."

• 1:21:05David Senra?

  He's giving a talk to institutional investors, so he's kind of like... Shitting on their ideas in front of them. So it says, "Gives foolish thinking of brilliant men and much foolish behavior like investment management's practices of many foundations represented here today. It is sad that today each institutional investor apparently fears most of all that its investment practices will be different from practices of the rest of the crowd." So there's a lot to unpack in that one paragraph. One, "It is possible academia has taught you wrong. It has taught you wrong detrimental ideas or theory." Two, "You are more likely to believe this nonsense if you don't possess broad multidisciplinary worldly wisdom."

• 1:21:45David Senra?

  And three, "He is saying this to a group of investment professionals that make mistakes because of a failure to understand how their own operations related to the larger system of which they're a part. That results in higher fees and waste." And four, "He says humans are prone to make those mistakes because we copy and mimic each other." That's a lot of ideas that like, and I wouldn't have known how to interpret that if I didn't obviously study Munger at length and read now, read three books about him. But that's what I love about this guy is he's able to, he's able to synthesize such complex, different ideas from multiple different fields and then explain to you in like, what's the real world application of that?

• 1:22:27David Senra?

  And he's giving it, and he knows, he's knowing the audience that he's speaking to. He's like, "You guys are making these mistakes. You're paying more in fees, you're copying each other, your returns are lower, and you're, even if you've mastered what you learned in business and finance because you didn't understand, you know, psychology or the idea of like the, where like your theories are wrong. Like you rely too much on the rational man theory in economics." Well, there's no such thing as a rational man. You would know that if you just talked to people day to day. I don't know, I really appreciated his ability to break that down in such like a short amount of time.

• 1:23:02David Senra?

  A rough rule in life is that an organization foolish in one way in dealing with a complex system is all too likely to be foolish in another. So this, fresh in my mind, was what David Ogilvie told us in Confessions of an Advertising Man. If you have high standards in one department of your company, that can lead to high standards in other departments. So that's the positive effect of that. Munger's telling us the negative effect. That if we don't know how to deal with complex systems in one way, we're more likely to be, since most of life is a series of complex systems, you're most likely to make that same mistake in others. So identifying the, one, that you live in a complex environment way beyond your understanding is the first step, but two, understanding that that lesson needs to be applied over and over and over again to different domains, to different experiences you have in life. Love that idea.

• 1:23:46David Senra?

  The prudential rule is that underlying the, oh, this, so this is what I mean about him giving these great anecdotes and like stories that really like highlights what he's trying to say here. He says, "The prudential rule is that, is that, underlying the old advertisement for machine tools." There used to be this famous ad, you've probably heard, seen it, it says, "The man who needs a new machine tool and hasn't bought it is already paying for it." Well, that rule also applies, I believe, to thinking tools. If you don't have the right thinking tools, and the people, and the people you seek to help are already suffering from easily removable ignorance. So to me, it's like, if you're not, if you, if you know that your business needs this tool, and you don't buy it, right, it means you're already paying for it. Well, if you know that your mind is imperfect, the way you're making decisions is imperfect,

• 1:24:31David Senra?

  or there's, or another way to think about this is, there's, there's information out there that's useful to you, that you haven't gone out and actually actively sought, like you're already, and maybe it's a reason, because, oh, I, you know, I don't want to invest a seven hour, like, it might be seven hours to read this book and $20, like, well, that's a small price to pay for not having that knowledge. Isn't it better just to, to invest the time and the money, so then you can reap the benefits of that knowledge moving forward for the rest of your life? Certainly, most people would agree with that. But, most people would agree with it with words. That's, it's unclear to me how many would actually agree with their actions. Okay, oh, he's got this, so I'm moving forward. He's a big, he really likes this idea of checklist. So he comes up with, he's giving this talk on, to business school graduates,

• 1:25:14David Senra?

  and he has this extreme success checklist that I really love. So I'm just gonna pull out. It's like a, it's only like four factors. Extreme success is likely to be caused by some combination of the following factors. A, extreme maximization or minimization of one or two variables. Example, Costco are our furniture and appliance stores. So that's Nebraska Furniture Mart, which I covered at length in the Berkshire Hathaway shareholders. But there's that idea again. Extreme maximization or minimization of one or two variables. Take a simple idea and take it seriously. B, adding success factors so that a bigger combination drives success, often in nonlinear fashion, as one is reminded by the concept of breakpoint

• 1:25:57David Senra?

  and the concept of critical mass in physics. Often, results are nonlinear. You get a little bit more mass and you get a lollapalooza result. And of course, I've been searching for lollapalooza results all my life, so I'm very interested in models that explain their occurrence. C, an extreme of good performance over many factors. Example, Toyota or Les Schwab. Les Schwab is another person he founded. Let me just read you his short bio. Les Schwab was born in Ben, Oregon. I'm gonna skip over his early life. He starts a small tire shop that he turned from a $32,000 a year business into one that's generating $150,000 annually. And then he starts to build, he starts expanding throughout the Pacific Northwest.

• 1:26:42David Senra?

  And today, he has, he started these tire stores that have sales in excess of a billion dollars annually. So it says, an extreme of good performance over many factors. And Les is competing with, you know, at the time, many of the major tire manufacturers had their own stores. So he had, like, cars were stacked against him because they gave preferential treatment to their own corporate stores. Alright, so let's see. D, catching and riding some sort of big weight.

• 1:27:08David Senra?

  Moving ahead, he's got two ideas here next to each other. One, make yourself worthy, and two, lifetime learning is a moral duty. It's non-negotiable in Charlie's eyes. So I love this idea about making yourself worthy because we're talking about the idea of making yourself into a formidable individual, right? He says, "The safest way to try to get what you want is to try to deserve what you want. It is such a simple idea. You want to deliver to the world what you would buy if you were on the other end. By and large, the people who have had this ethos win in life. And they don't win just money and honors. They win the respect and the deserved trust of the people they deal with. The acquisition of wisdom is a moral duty. It's not something you do just to advance in life.

• 1:27:51David Senra?

  Without lifetime learning, you people are not going to do very well. You are not going to get very far in life based on what you already know. You're going to have to advance in life based on what you learn after you leave here." This is another commencement address. "Consider Berkshire Hathaway, one of the best-regarded corporations in the world. It may have the best long-term, big asset-involving-investment record in the history of civilization. The skill that got Berkshire through one decade would not have sufficed to get it through the next decade with comparable levels of achievement. Warren Buffett had to be a continuous learning machine. The same requirement exists in lower walks of life. I constantly see people rise in life who are not the smartest, sometimes not even

• 1:28:34David Senra?

  the most diligent, but they are learning machines. They go to bed every night a little wiser than they were that morning. And boy, does that habit help, particularly when you have a long run ahead of you." Charlie goes back to Cicero and about studying history, but the lesson I got from what he's about to say here is that you need to study history, but don't stop there. That's just one of the many techniques you have to master. So now this is a quote from Cicero, it says, "History is the witness that testifies to the passing of time. It illuminates reality, vitalizes memory, provides guidance in daily life, and brings us tidings of antiquity. To be ignorant of what happened before you were born is to be ever a child. For what is a man's lifetime unless the memory of past events is woven with those of earlier

• 1:29:19David Senra?

  times?" So that's the end of the quote from Cicero. And now here's Charlie talking about that. Cicero is famous for saying that a man who doesn't know what happened before he's born goes through life like a child. That is a very correct idea. Cicero's right to ridicule somebody so foolish as to not know history. But if you generalize Cicero, as I think one should, there are a lot of other things that one should know in addition to history. And those other things are the big ideas in all disciplines. The way complex adaptive systems work, and the way mental constructs work, problems frequently become easier to solve through inversion. So you're repeating this again, it's obviously very important to him. If you turn problems around into reverse, you often think better. For instance, if you want to help India, this was what I was referring to earlier,

• 1:30:03David Senra?

  the question you should consider asking is not, "How can I help India?" Instead, you should ask, "How can I hurt India?" You will find what will do the worst damage, and then you try to avoid it. Perhaps the two approaches seem logically the same. But those who have mastered algebra know that inversion will often and easily solve problems that otherwise resist solution. And in life, just as in algebra, inversion will help you solve problems that you can't otherwise handle. Let me use a little inversion now. What will really fail in life? What do we want to avoid? Some answers are easy. For example, sloth and unreliability will fail. If you're unreliable, it doesn't matter what your virtues are. You're going to crater immediately.

• 1:30:47David Senra?

  So faithfully doing what you've engaged to do should be an automatic part of your conduct. Of course, you want to avoid sloth and unreliability.

• 1:30:58David Senra?

  Some more advice from Charlie. Avoid self-pity. Generally speaking, envy, resentment, revenge, and self-pity are disastrous modes of thought. Self-pity can get pretty close to paranoia. You don't want to drift into self-pity. I had a friend who carried a thick stack of cards. And when somebody would make a comment that reflected self-pity, he would slowly pull out this huge stack of cards, take the top one, and hand it to that person. The card said, "Your story has touched my heart. Never have I heard of anyone with as many misfortunes as you." Every time you find yourself drifting into self pity, just give yourself one of my friend's cards.

• 1:31:41David Senra?

  Self pity is always counterproductive. It's the wrong way to think. And when you avoid it, you get a great advantage over everybody else. Because self pity is a standard response. And you can train yourself out of it. See, he references that over and over again. He'll identify the standard default typical human response. And then he'll tell you exactly why that's the wrong, the exact wrong thing you should do. So that's a good way to identify your like behavior in others that you may think that you're constantly choosing, but you might be mimicking from people around you. Like, hey, does this behavior actually make sense? Is it default? Do I see other people around me engaging in the same behavior? Yes, I do. Okay, now that doesn't necessarily always mean it's wrong.

• 1:32:25David Senra?

  But I need to make sure I'm working through and actually choosing this action as opposed to just mimicking it. They're very similar. And sometimes you can't even tell which ones, which actions are ideas you're choosing, which ones you're just mimicking. Just a few more here. I love this. This idea. Maximize non-inequality. And I'm probably not pronouncing it correctly, but he says, "Another idea that I found important is that maximizing non-inequality will often work wonders. What do I mean? Well, John Wooden of UCLA presented an instructive example when he was the number one basketball coach in the world. He said to the bottom five players, "You don't get to play, you are practice partners. The top seven did almost all the playing.

• 1:33:11David Senra?

  Well, the top seven learned more, remember the importance of the learning machine, because they were doing all the playing. And when he adopted this non-egalitarian system, Wooden won more games than he had won before. I think the game of competitive life often requires maximizing the experience of the people who have the most aptitude and the most determination as learning machines. And if you want the very, and if you want to reach the very highest, and if you want the very highest reaches of human achievement, that's where you have to go." Let me read that part again too. So he says, "I think the game of competitive life often requires maximizing the experience

• 1:33:53David Senra?

  of the people who have the most aptitude and the most determination as learning machines." It's a really interesting idea. Alright, here's Munger, here's a couple of thoughts on incentives from Munger. "Almost everyone thinks he fully recognizes how important incentives and disincentives are in changing cognition and behavior, but this is not often so." So again, he's describing the default human condition and how we can overcome that to the, and actually utilize a better idea. "For instance, I think I've been in the top 5% of my age cohort almost all my adult life in understanding the power of incentives, and yet I've always underestimated that power. Never a year passes, but I get some surprises that pushes a little further my appreciation

• 1:34:37David Senra?

  of incentive superpower." So it talks about, he's quoting Ben Franklin in Poor Richard's Almanack, he says, "If you would persuade, appeal to interest and not to reason. This maxim is a wise guide to a great and simple precaution in life. Never, ever, think about something else when you should be thinking about the power of incentives. Perhaps the most important rule in management is get the incentives right. Incentives are superpowers." And I love this, this good old school wisdom, he calls this Granny's Rule. "Granny's Rule provides another example of reward superpower so extreme in its effects that it must be mentioned.

• 1:35:22David Senra?

  You can successfully manipulate your own behavior with this rule. Granny's Rule, to be specific, is the requirement that children eat their carrots before they get dessert. And the business version requires that executives force themselves daily to first do their unpleasant and necessary tasks before rewarding themselves by proceeding to the pleasant tasks. Given reward superpower, this practice is wise and sound." So do the stuff that you, that you're regretting, do it first thing, get it over with. It's the stuff that you actually need to do, you know you want to do it, but you want to waste time doing something else. So that's Granny's Rule. And finally, I'll close on what may be the most important idea.

• 1:36:06David Senra?

  That's hard to say, but it's pretty, no, it may be the most important idea. And it's work on something that you have intense interest in. Another thing that I have found is that intense interest in any subject is indispensable if you're really going to excel in it. I could force myself to be fairly good in a lot of things, but I couldn't excel in anything in which I didn't have an intense interest. So to some extent, you're going to have to do as I did. If at all feasible, you want to maneuver yourself into doing something in which you have an intense interest.

• 1:36:48David Senra?

  And that sound you just heard was me closing the book. I will leave the story there. There is just so much more in this book. If you find the ideas of Charlie Munger interesting, like I do and like a lot of people do, I would definitely pick up the book. If you want, so this is like a textbook. It is giant, like I said earlier. So I'll leave a link in the show notes if you want to buy it. It's actually a way to support the podcast at the same exact time because of the Amazon affiliate link, which means I get a small percentage of sale and no additional cost to you. Thank you very much for your support. I will talk to you next week.