1. “I think if you look at people, whether in business or government, who haven’t had any moral compass, who’ve just changed to say whatever they thought the popular thing was, in the end they’re losers.” Charlie Munger: The culture now is that anything that can be sold for a profit will be. ‘Can you sell it?’ is the moral test, and that’s not an adequate test.” Munger is unrestrained on this point: “I think we have lost our way when people like the [board of] governors and the CEO of the NYSE fail to realize they have a duty to the rest of us to act as exemplars. You do not want your first-grade school teacher to be fornicating on the floor or drinking alcohol in the closet and, similarly, you do not want your stock exchange to be setting the wrong moral example.”

2. “In 1981, at the age of 39, I was fired from the only full-time job I’d ever had—a job I loved. But I never let myself look back, and the very next day I took a big risk and began my own company based on an unproven idea that nearly everyone thought would fail; making financial information available to people, right on their desktops.” Many people are thrust into a situation with significant optionality by losing a job. When you are already in a position where you have little to lose taking a risk with a potentially big upside can be easier to do. Munger has said that he “developed courage when I learned I could deal with hardship. You need to get your feet wet and get some failure under your belt.”

3. “Persistence really does pay off.” Charlie Munger agrees: “Be persistent: Slug it out one day at a time.” On the subject of persistence, venture capitalist Mark Suster has said: “Tenacity is probably the most important attribute in an entrepreneur. It’s the person who never gives up—who never accepts ‘no’ for an answer….what I look for in an entrepreneur when I want to invest? I look for a lot of things, actually: Persistence (above all else), resiliency, leadership, humility, attention-to-detail, street smarts, transparency and both obsession with their companies and a burning desire to win.”

4. “The most powerful word in the English language is ‘Why.’ There is nothing so powerful as an open, inquiring mind. Whatever field you choose for starting a business—be a lifelong student. The world is full of people who have stopped learning and who think they’ve got it all figured out. Their favorite word is ‘No.’ They will give you a million reasons why something can’t be done or shouldn’t be done. Don’t listen to them, don’t be deterred by them, and don’t become one of them. Not if you want to fulfill your potential—and not if you want to change the world for the better.” People who get ahead most in life are invariably lifelong learners. They read, study and are inquisitive. Charlie Munger puts it this way: “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero.”

5. “I’m a very lucky guy.” “You can’t control how lucky you are, you can’t control how smart you are, but you can control how hard you work, so that’s the first thing.” Charlie Munger has similarly said: “Well, some of our success we predicted and some of it was fortuitous. Like most human beings, we took a bow.” Michael Mauboussin points out: “Skill is ‘the ability to use one’s knowledge effectively and readily in execution or performance.’ You can think of skill as a process, or a series of actions to achieve a specific goal. Luck is the events or circumstances that operate for or against an individual.” “Luck, in this sense, is above and beyond skill. Consider luck as a distribution that has an average of zero. By this definition, luck tends to be transitory. Note that many common phrases, like ‘you make your own luck,’ ‘luck is what happens when preparation meets opportunity,’ and ‘the harder I work, the luckier I get,’ do not fit with our definition. In each of these cases, luck is conflated with skill. Think of luck as something in addition to skill.”

6. “Being a plumber is a great job because you have pricing power.” [The plumber father of one of my employees has] got six plumbers working for him, he’s a scratch golfer, he goes around playing golf courses I only dream about. He’s built a business, he’s had a chance to do that. He never went to college.” A business that can raise prices and demand for the product does not drop significantly has pricing power. Some firms have so much pricing power that they can raise prices and demand goes up. If a business must hold a prayer meeting to raise prices it does not have a moat. A business may have factors that may create a moat in the future, but the best test for a moat is in the end mathematical. Munger believes:

“There are actually businesses, that you will find a few times in a lifetime, where any manager could raise the return enormously just by raising prices—and yet they haven’t done it. So they have huge untapped pricing power that they’re not using. That is the ultimate no-brainer. … Disney found that it could raise those prices a lot and the attendance stayed right up. So a lot of the great record of Eisner and Wells … came from just raising prices at Disneyland and Disneyworld and through video cassette sales of classic animated movies… At Berkshire Hathaway, Warren and I raised the prices of See’s Candy a little faster than others might have. And, of course, we invested in Coca-Cola—which had some untapped pricing power. And it also had brilliant management. So a Goizueta and Keough could do much more than raise prices. It was perfect.”

7. “I always give the most difficult and complicated assignment I have to the most overworked person in the company. There’s a reason they don’t have time — work is a marketplace, and it’s telling you this person is good.” What a market does is drench people who want something or make or sell something with feedback says Charlie Munger. Without feedback it is not only hard to respond and adapt to changing conditions, but to figure out who has talent and who is willing to work hard.

8. “None of you are going to be Mark Zuckerbergs. It’s just not going to happen.” As Charlie Munger says about investing: “It’s not supposed to be easy.” If it was easy anyone could do it.” The magnitude of financial success of someone like Zuckerberg or Gates happens extremely rarely. This must be so simply due to the top down math involved. There is only so much profit and revenue to be captured in any given economy given the normal workings of competitive capitalism. Financial success follows a power law distribution.

9. “If you say, ‘Look, my father never existed, my mum had cancer, I’m working five shifts at McDonald’s,’ that’s the person I’m going to hire.” Charlie Munger: “Life will have terrible blows in it, horrible blows, unfair blows. And some people recover and others don’t. And there I think the attitude of Epictetus is the best. He said that every missed chance in life was an opportunity to behave well, every missed chance in life was an opportunity to learn something, and that your duty was not to be submerged in self-pity, but to utilize the terrible blow in constructive fashion. That is a very good idea. You may remember the epitaph which Epictetus left for himself: “Here lies Epictetus, a slave maimed in body, the ultimate in poverty, and the favored of the gods.”

10. “Capitalism works.” Munger has similarly said, after giving the hat tip to Allen Metzger: “I regard it as very unfair, but capitalism without failure is like religion without hell.” Innovation and progress requires failure. Lots of failure. As Warren Buffett said in his 2015 shareholder letter: “Nothing rivals the market system in producing what people want – nor, even more so, in delivering what people don’t yet know they want.” Capitalism isn’t a perfect system, but it is the best one available by far. Markets sometimes fail, but that can be dealt with wise regulation.

11. “I don’t believe that government is good at picking technology, particularly technology that is changing. By the time you get it done and go through democracy, it’s so outdated.” What a politically driven process lacks is the ability to get real feedback in a timely way about the nature of a given decision. Many political systems are created with a set of “checks and balance” which work against efficiency. Munger: “The constant curse of scale is that it leads to big, dumb bureaucracy—which, of course, reaches its highest and worst form in government where the incentives are really awful. That doesn’t mean we don’t need governments—because we do. But it’s a terrible problem to get big bureaucracies to behave.”

12. “Life is too short to spend your time avoiding failure.” Munger puts it this way: “The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time they don’t. It is just that simple.”

Notes:

Mike Bloomberg: https://www.mikebloomberg.com/about/

The Venture Capital Power Law – Analyzing the Largest 100 U.S. VC-Backed Tech Exits https://www.cbinsights.com/blog/venture-capital-power-law-exits/ 

WSJ on Bloomberg: http://topics.wsj.com/person/B/Michael-Bloomberg/4365

 

 

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