Making End$ Meet - Book Review, Poor Charlie's Almanack

Book Review
Poor Charlie's Almanack:
The Wit and Wisdom of Charles T. Munger
Published 2008
Reviewed October 2019

Contact

I read this book in about twenty-five hours between July 5 and October 20, 2019.

The experience of reading Charlie Munger reminds me of a friendly debate I once had with an ex-father-in-law many years ago. I posited to him that life is 80% theory and 20% practice: get your theory straight, and the practice will follow. But if you do not do the work of straightening out your theory, anything you try will be futile folly.

He disagreed. He believed my wires were crossed. A man of action (and proud of it), he was convinced that life is 20% theory and 80% practice.

He had no patience for theorizing. He wanted action. "Don't just sit there; do something."

In all his doing, much to his loved ones' consternation, he had also gone bankrupt not just once, but several times.

According to Charlie Munger, I was right. Here's how he puts it: "The habit of committing far more time to learning and thinking than doing is no accident. It is the blend of discipline and patience exhibited by true masters of a craft . . . " (70).

~~~

I learned about this book, or had occasion to re-learn about it (I had heard of it before, I can't remember where or how), while listening to Tim Ferriss' 12/27/18 interview of The Benitago Group's Benedict Dohman and Santiago Nestares earlier this year, in the podcast entitled "How to Generate 8-Figure Revenue at Age 21 (Or Any Age)." They had a lot to say about Pareto Optimality or The Eighty-Twenty Rule, and they gave Charlie Munger a lot of credit for their remarkable wisdom, objectivity, sobriety, keen, accurate analytical abilities . . . and, of course, their consequential financial success.

Fascinated and encouraged by what can happen when youth respect and heed elders' wisdom (eight figures at age 21???!!!), I looked up a Youtube video of one of his speeches that they mentioned, began taking notes of the speech, then realized, "Hey, this is dumb. This is all probably written down somewhere in a book that I can buy." So I Googled around, found Poor Charlie's Almanack, and bought it.

Key Take-Aways

Enjoy learning. Both Charlie and Warren enjoy learning, thinking, reading, and writing. A lot of people I know do not want to think. They believe it's too hard, so they try to delegate it or hire it done. In so doing, I feel they really miss out on the fun and the juice of life. They also miss out on profits and the kinds of returns on investment for which Berkshire Hathaway is famous, because they manage and invest foolishly.
Be a multidisciplinary, polymath, Renaissance Man. Charlie regularly laments and lambasts the "man with a hammer syndrome": if the only tool you have is a hammer, everything looks like a nail. He's mercilessly critical of higher education for isolating its colleges into insulary, self-interested, self-serving, deluded intellectual ghettos.
Psychology. He seems to have a love-hate relationship with Psychology. He loves it because it accounts for market behavior in ways that business schools fail to account, and he hates it because Psychology departments in universities do it so poorly that in the case of the University of Chicago, the dean abolished the whole department (272).
"Remedial Worldly Wisdom." He feels that the soft sciences would do well to avail themselves of rigorous methods used in the hard sciences like Physics, Chemistry, Engineering, and Mathematics. While he has never taken a course in Business or Economics, he has attained his remarkable investing success by applying Hard Science Rigor to business and economics. He calls the learning and adoption of Hard Science Rigor by Soft Scientists "Remedial Worldly Wisdom."
Lollapalooza Effect. The Lollapalooza Effect is when forces from several different disciplines that higher education usually isolates in separate colleges and departments (thereby blinding graduates to them) work together to create phenomena like real estate bubbles, stock market crashes, or viral popularity. If you're aware of Lollapalooza Effects, you can avoid misfortune and enjoy fortunes that others don't notice.
Inanities. Charlie calls himself "An Inanity Collector." I had to listen to that several times to understand what he was saying because of the way it rolls off the tongue. As you can tell from the bemused, incredulous expression on his face in the above photograph, he has spent his life noticing what is ridiculous, then avoiding it and doing the opposite. In so doing, he offended scoundrels and fools, and made enemies. But at this stage of his life, the verdict is in; the results speak for themselves; so he has no regrets. But getting there involved many years of struggle and conflict; and along the way, I am sure he felt weary and misunderstood.
Morality. Both Warren and Charlie are intensely moral people who are scrupulously honest. They're repulsed and offended by things like sketchy accounting or self-dealing. Reading through the book, I could tell that the fundamental basis for their investment decisions has been moral. Make no mistake: in a culture that judges judgment, they can, do, and have passed moral judgment on their associates. That is how they developed the legendary, excellent Berkshire Hathaway portfolio.
Focused Investing. Conventional wisdom advocates diversification. Mutual funds are appealing because they offer a level of diversification to ordinary people that was unavailable several decades ago. But Munger and Buffett are not diversified. Like Peter Thiel in his book Zero to One, they recognize how in any given diversified portfolio, Pareto's Law of Disproportionality applies: most of the gains are caused by a minority of the investments in it . . . in Berkshire Hathaway's experience, ten (198). So they focus on the Critical Few and disregard the rest. Their message is that we have too many choices; we need to narrow them down and focus on quality. When Warren speaks to college students he tells them to imagine that for investing, they had a punch card with twenty boxes in it. If over their whole life they could only invest in twenty things, they'd be a lot more careful about their choices.
Patient "Sit On Your Ass Investing." If you've been careful about your investment choices and have done your homework rigorously using Charlie's multidisciplinary approach, watching for ways to benefit from Lollapalooza Effects, you don't have to be constantly tweaking the portfolio, creating churn, transaction costs, and taxes. Charlie calls this undiversified, patient, inactive way "Sit On Your Ass Investing."
Money Managers and Accountants. Charlie has nothing nice to say about money managers. He calls them "croupiers" and "febezzlers." He thinks they're parasites who rob investors of three to five points of ROI, who should quit and find something better to do with their time and talents. As a former lawyer, he seems to have the same attitude about lawyers, and about most of the accounting profession. He takes a very dim view of how accountants handle squishy assets and liabilities like goodwill and stock options; he says optimism has no place in the accounting profession. He praises double entry bookkeeping and cash registers . . . anything with built in checks and balances that keep people honest and encourage virtuous behavior. He goes so far as to praise the invention of the cash register as a saintly deed, since before its invention, employee theft was so widespread that it destroyed many businesses, lives, and fortunes.
The Hazards of Extreme Ideology. Now in my mid fifties, having spent most of my life involved in religion, I can really appreciate his point about the hazards of extreme ideology. It impairs discernment. It causes bias. It alienates. It causes blind spots. In terms of time, energy, money, and foregone opportunities, it can be expensive . . . even abusive. Charlie's influence encourages me to stay the course toward circumspection that I am on.
Twaddle. Twaddle is the tendency of people who do not know the answer to a question to ramble instead of think. Twaddle is noise pollution that frustrates hearers' ability to think, worsens error, and obstructs solution. It's corrosive to an organization. Charlie helped me notice this, and I thank him for the lesson (490).
Serpico Effect. The Serpico Effect is when everyone rationalizes that a mistake is okay because everybody else is making it. It's named after Frank Serpico, the one honest cop in the otherwise corrupt New York Police Department, who was nearly murdered for his exceptional integrity and his adamant refusal to go with the flow.
Checklist Routines. "You should not only possess wide-ranging elementary wisdom but also go through mental checklist routines using it. There is no other procedure that will work as well" (434). Charlie's checklists are summarized on page 320, which in turn refers to other sections of the book. He says we should live life with the checklist style rigor of an airplane pilot or of a hard scientist.
Assiduity. "Another thing you have to do is have a lot of assiduity. I like that word because to me it means: 'Sit down on your ass until you do it.' I've had marvelous partners, full of assiduity, all my life" (437). (See Lonely Work page.)
Granny's Rule. "Granny's Rule . . . 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 their pleasant tasks" (456-57).

Favorite Quotes

"Drive thy business, or it will drive thee" (preface).

"He that falls in love with himself will have no rivals" (preface).

"Learn it all to fluency, like it or not" (70).

"People calculate too much, and think too little" (134).

"Invert, always invert" (157).

". . . psychology books are grossly inadequate in dealing with misery-caused mental misfunction" (235).

"I call [Berkshire Hathaway] the ultimate didactic enterprise" (274).

"The company that needs a new machine tool, and hasn't bought it, is already paying for it" (296).

"If you would persuade, appeal to interest, not reason" (377).

"The cash register did more for human morality than the Congregational Church" (408).

". . . a man who doesn't know what happened before he [was] born goes through life like a child" (427).

"Control thy passions lest they take vengeance on thee" (437).

"An ounce of prevention is worth a pound of cure" (460).

"A small leak will sink a great ship" (484).

"Skills of a very high order can be maintained only with daily practice" (487).

"The elite founders got our Constitution through by a whisker only because they were psychologically acute" (494).

Talk Eleven: The Psychology of Human Misjudgment

Talk Eleven (441-498) warrants its own section in this review because this Youtube video of it, from which I tried to take notes, is what motivated me to find and buy the book. I will not discuss the talk at length but will instead simply enumerate the twenty-five tendencies he discusses, then leave it to you to buy your own copy of the book and learn more about them. They are:

Reward and Punishment Super Response
Liking / Loving
Disliking / Hating
Doubt-Avoidance
Inconsistency-Avoidance
Curiosity
Kantian Fairness
Envy / Jealousy
Reciprocation
Influence-from-Mere-Association
Denial
Excessive Self-Regard
Overoptimism
Deprival Super-Reaction
Social Proof
Contrast-Misreaction
Stress-Influence
Availability-Misweighting
Use-It-Or-Lose-It
Drugs
Senescence (Aging) Misinfluence
Authority Misinfluence
Twaddle
Reason-Respecting
Lollapalooza

As I review this list, along with everything else I've learned from Munger's book, one word comes to mind: DISPASSION. Throughout the whole thing, without mentioning it by name, that is what he is urging and teaching.

~~~

I love this book. I admire Charlie Munger. How can one not? It's a gem, and so is he. I'm in awe of his intellect and his feats.

I notice a paradox, however (and Charlie is a great appreciator of paradoxes): while a harsh critic of specialists, he is himself a specialist of sorts. He specializes in thinking, which as I've already pointed out, most people do not want to do. This is why they hire money managers and accountants.

This is why they are willing to yield their three to five points in return on investment. Even if the people they hire make mistakes, it spares them the hassle of thinking. They just do not want to think, and they're glad to buy their way out of it.

After all, thinking is hard work. But for Charlie and those of us who are like him, thinking is his fun. He can't not think. He even does it on his vacations. He wrote Talk Eight, starting on page 357, on his vacation in Minnesota in 2000 (371).

He's also big on admitting your own constraints. Neither he nor Warren are big on technology. Charlie has never used a computer. He has one on his desk, but he has never turned it on. They don't invest in technology because they know they're not good at it.

How he can be so obtuse about computers (like the one I'm using to write this review) on the one hand, yet look down on others for not thinking as rigorously as he does, is beyond me. Perhaps it just goes to show how no matter how hard we try to be objective (and Charlie is the most objective human being I've ever encountered), we're still constrained to view life through our own eyes.

Coming from a family of conceited intellectuals and know-it-alls, I can also see how Charlie enjoys looking down on people. He seems to like insulting people like money managers and accountants. I think it gives him a perverse kind of pleasure that is his unfortunate Achilles' Heel.

Be that as it may, it's obvious to me that the man's intentions are good. He's a generous (albeit selective, focusing on education) philanthropist; and as I've already observed, he's an intensely moral person whose primary filter for investing decisions is morality: are the people in the business I'm considering good and honest? Do they tell the truth? Do they admit their mistakes? Are they trustworthy? Do they rise to the level of fiduciary duty? Those are the kinds of questions with which Charlie is primarily concerned, and I agree wholeheartedly.

When you're as smart a guy as Charlie is, though, who is so adept at noticing inanities that others don't, you do feel exasperated now and then, and you find it necessary to resort to some comic relief. Sometimes it slips out at others' expense.

I get it. This is something I try to avoid, personally, but I can sure relate to the itch to take a good humored dig at others now and then. Like this coffee cup that I never use in public or in mixed company, it's a kind of passive microaggression.

And when you're a lover of wisdom (a Philosopher) who's squarely confronted by foolishness from time to time, sometimes there is no other option but cut to the chase and call a spade a spade, pulling no punches, which is exactly what Charlie has built his reputation doing. I really can't say as I blame him, especially when you consider the lives and fortunes that are at stake at his level of operations.

When he calls a fool a fool, or a crook a crook, he's not just being confrontational. He's being protective. He's fighting for what is right. One can only respect that. I certainly do.

Respectfully submitted,

Kris Freeberg, Economist
Making End$ Meet