My views on the market, tech, and everything else

Will there ever be another Charlie Munger?


The short answer is: no. Every human is unique, but Charlie Munger is particularly unique. As just one example, he is rational in ways few people can emulate. He is also self-effacing and yet has a black belt in chutzpah. He is capable of being patient and yet pounce aggressively at the right time. Knowing what you do not know is a rare quality in a human. Rising to Munger’s level of mastery on approaches to life like circle of competence will not happen often, and even if it does happen that person will not have Munger’s other attributes. While there is no successful formula for investing, there are successful approaches that can often improve the outcome of your decisions. The points I just made remind me of this exchange between Munger and Buffett:

Munger: A foreign correspondent, after talking to me for a while, once said: “You don’t seem smart enough to be so good at what you’re doing. Do you have an explanation?” [Laughter]

Buffett: Was he referring to me or you? [Laughter]

Munger: I said, “We know the edge of our competency better than most.” That’s a very worthwhile thing. It’s not a competency if you don’t know the edge of it.

We nevertheless can learn from Munger’s methods and the way he thinks. When I first started learning about his methods he helped me make a better decision about selling stocks during the Internet bubble that completely altered my life financially. Did I make a perfect decision? No. Would he have made a better decision? Yes. But he helped me make a far better decision that I would have made on my own.  Even if people or reading books just help you make better marginally better decisions, you are better off.  Years later when I was driving to the hospital and the Munger approach to expected value helped me make a decision to continue to the emergency room even though the pain was gone, I did make a perfect decision but it was (1) a binary decision and (2) I had been studying Munger’s ideas for many years. Munger says: “People chronically mis-appraise the limits of their own knowledge. That’s one of the most basic parts of human nature. Knowing the edge of your circle of competence is one of the most difficult things for a human being to do. Knowing what you don’t know is much more useful in life and business than being brilliant.” If you don’t know the ways in which you do not have the same qualities as Munger, you have created significant risk for yourself. Munger says: “You are a disaster if you don’t know the edge of your competency.”

When I was writing my book on Munger Wall Street Journal columnist Jason Zweig described one of the essential challenges in investing in this way in an email to me:

“If it was easy to be like him and think like him, then there wouldn’t be just one Charlie Munger. Turning oneself into a learning machine with multiple mental models…is very hard work, and the few people who succeed at doing it may still fail to benefit from it if they don’t have the right temperament. This is why both Buffett and Munger keep going back to Graham: Being a true contrarian takes supreme courage and implacable calm. Buffett talks constantly about the “emotional framework” Graham provides; Charlie often says that most investors, no matter how smart, won’t succeed because they have “the wrong temperament.” I like to use a word from ancient Greek philosophy to describe this: ataraxia, or perfect imperturbability. You see it when Socrates goes on trial, when Nathan Hale is hanged, when Buffett invests in Goldman and when Charlie buys Wells Fargo the day before the bottom tick in March 2009.”

There is nothing I enjoy more than thinking. And thinking about thinking is probably my favorite type of thinking. And my favorite people to read and listen to are people who think about thinking like Charlie Munger, Warren Buffet, Daniel Kahneman, Richard Thaler, Michael Mauboussin…

The book I wrote about Charlie Munger is about the way he thinks. Janet Lowe wrote the biography of Munger and Poor Charlie’s Almanack collected most all the speeches and related material in a scrapbook format.

At a recent event about the BRK 50th Anniversary Seth Klarman said:

“WB is not about giving you a formula. “Business is hard. Everything is overlaid with judgment.” WB has been fortuitous to invest at a time when you could get quality inexpensively. He has built on certain advantages. No one else gets the calls that he gets. Some people are overly focused on him as opposed to understanding how he thinks.”

One of my favorite memories in life is of getting into my very first job at 6AM in the early 1980s and sitting with Bill Gates Sr. in the coffee lounge reading the Wall Street Journal. He was my first professional mentor and I think the world of him (he just turned 90). That he and Munger would become friends was natural. It was fun to trade sections of that newspaper with him as we finished them. We would talk about important business and political issues of the day as we read. It was a fun time to talk and more importantly just think. This carried over to the many times over the years we met for breakfast or lunch. Writing about this reminds me of a great story about his son, known as Trey to many people:

“As a young boy, Trey probably read more than many other kids and he often surprised us with his ideas about how he thought the world worked. Or imagined it could work. Like other kids his age, he was interested in science fiction. He was curious and thoughtful about things adults had learned to take for granted or were too busy to think about. His mother, Mary, and I often joked about the fact that Trey sometimes moved slowly and was often late. It seemed like every time we were getting ready to go somewhere everybody else in the family would be out in the car — or at least have our coats on. And then someone would ask, ‘Where’s Trey?’ “Someone else would reply, ‘In his room.’ “Trey’s room was in our daylight basement, a partially above ground area with a door and windows looking out on the yard. So his mother would call down to him, ‘Trey, what are you doing down there?’ “Once Trey shot back, ‘I’m thinking, mother. Don’t you ever think?’” Both parents were far too active to have time for much reflection, and so “we answered in unison, ‘No!’”

At the BRK 50th Anniversary event Byron Trott said about Buffett:

“He thinks very long term and Berkshire will still be intact a century from now. “Warren, you can’t control things from below the ground.” “Maybe not, but I can try.” The term “investor” is not quite expansive enough to describe Warren. He’s also a great acquirer, manager and owner of businesses. Matt Rose of Burlington Northern told me that Warren knows more about the railroad now than I do. And he can interconnect it to everything else. He makes the complex seem simple. When I talk to Warren, I feel like I’m 2 steps behind him.”

Who does that sound like? Munger of course. Warren Buffett says Munger has “the best 30 second mind in the world. He goes from A to Z in one move.”

The best investors and entrepreneurs are system level thinkers. They have a knack for understanding how everything fits together even though the world is composed of multiple systems feeding back on each other. That people like Gates and Buffett or Munger and Buffett bonded immediately should surprise no one, since they share a love of thinking and learning.

Returning to the original question, the best general answer Munger has given to this question is as follows:

“How do some people get wiser than other people? Partly it is inborn temperament. Some people do not have a good temperament for investing. They’re too fretful; they worry too much. But if you’ve got a good temperament, which basically means being very patient, yet combine that with a vast aggression when you know enough to do something, then you just gradually learn the game, partly by doing, partly by studying. Obviously, the more hard lessons you can learn vicariously, instead of from your own terrible experiences, the better off you will be.”

“Neither Warren nor I is smart enough to make the decisions with no time to think. We make actual decisions very rapidly, but that’s because we’ve spent so much time preparing ourselves by quietly sitting and reading and thinking.”

One can easily compile another twelve ideas that capture Munger’s views on better thinking:

1. “Tune out the standard stupidities. We’ve left a lot of more talented and diligent people in the dust, just by working hard at eliminating standard error.”

2. “Basic mathematics, basic horse sense, basic fear, basic diagnosis of human nature making possible predictions regarding human behavior…. If you just do that with a certain amount of discipline, I think it’s likely to work out quite well.”

3. “Organized common (or uncommon) sense — very basic knowledge — is an enormously powerful tool.”

4. “People calculate too much and think too little.”

5. “Be able to tune out folly, as opposed to recognizing wisdom. If you bat away many things, you don’t clutter yourself.”

6. “I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.”

7. “Avoid being a perfect idiot.” “The trouble with making all these pronouncements is people gradually begin to think they know something, it’s much better to think you are ignorant.”

8. “Accountants as a whole have been trained with too much math and not enough horse sense.”

9. “In the corporate world, if you have analysts, due diligence, and no horse sense you’ve just described hell.”

10. “I think it’s dishonorable to stay stupider than you have to be.”

11. “You have a limited amount of time and talent and you have to allocate it smartly.”

12. “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.”




Categories: Uncategorized