25iq

My views on the market, tech, and everything else

A Dozen Ways Charlie Munger Thinks like Philip Tetlock Suggests in his New Book Superforecasting

    Philip Tetlock has written a fantastic new book entitled: Superforecasting: The Art and Science of Prediction that I strongly suggest you read. In the book Tetlock identifies a “rough composite portrait” of a what he calls a “superforecaster” and to me it looks like a picture of Charlie Munger. In my post this week I identify statements from Charlie Munger which I believe fit the Philip Tetlock profile. […]

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A Dozen Things I’ve Learned from Charlie Munger about Moats

    1. “We have to have a business with some inherent characteristics that give it a durable competitive advantage.” Professor Michael Porter calls barriers to market entry that a business may have a “sustainable competitive advantage.” Warren Buffett and Charlie Munger call them a “moat.”  The two terms are essentially identical. Buffett puts it this way: “The key to investing is not assessing how much an industry is going to […]

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A Dozen Things I’ve Learned from Charlie Munger about Capital Allocation

  1. “Proper allocation of capital is an investor’s number one job.” Capital allocation is not just the number one job of an investor but of anyone involved in any business. This is a core part of why Buffett and Munger say that being an investor makes you a better business person and being a better business person makes you a better investor. Making capital allocation decisions is core to any […]

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A Dozen Things I’ve Learned from Charlie Munger About The Berkshire System

1. “There are two main reasons Berkshire has succeeded. One is its decentralization. Decentralization almost to the point of abdication. There are only 28 people at headquarters in Omaha. The other reason is our extreme centralization of capital deployment. Our centralization is just as extreme as our decentralization.” Systems are important in Charlie Munger’s world. I have already written a blog post in this series about one system called “the […]

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A Dozen Things I’ve Learned from Charlie Munger about Mistakes

1. “There’s no way that you can live an adequate life without many mistakes.” “Of course, there’s going to be some failure in making the correct decisions. Nobody ‘bats a thousand.’” “I don’t want you to think we have any way of learning or behaving so you won’t make mistakes.” Everyone makes mistakes sang Big Bird on the first episode of Sesame Street. Albert Einstein said once that anyone who […]

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A Dozen Things I’ve Learned from Charlie Munger about Inversion (including the Importance of being Consistently Not Stupid)

  1. “Think forwards and backwards — invert, always invert.” “Many hard problems are best solved when they are addressed backward.” “The way complex adaptive systems work and the way mental constructs work is that problems frequently get easier, I’d even say usually are easier to solve, if you turn them around in reverse. In other words, if you want to help India, the question you should ask is not […]

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A Dozen Things I’ve Learned from Charlie Munger about Risk

“Risk to us is 1) the risk of permanent loss of capital, or 2) the risk of inadequate return.” Risk has many different dimensions that must be considered including sources, magnitude, outcomes and decision making inputs. In terms of a definition, Seth Klarman writes that risk is: “described by both the probability and the potential amount of loss.” Charlie Munger emphasizes an important point in his quotation since it is the permanent […]

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A Dozen Things I’ve Learned from Charlie Munger About Benjamin Graham’s Value Investing System

Charlie Munger has developed a powerful system that is useful in making any type of decision. One notable application of this system by Munger relates to investing and involves another system developed by Benjamin Graham. It is useful to understand what is known as “value investing” not just for its own sake, but to understand how Munger thinks and makes decisions. Even if you find value investing boring or have […]

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A Dozen Things I’ve Learned from Charlie Munger about Mental Models and Worldly Wisdom

1. “I think it is undeniably true that the human brain must work in models. The trick is to have your brain work better than the other person’s brain because it understands the most fundamental models: ones that will do most work per unit.” “If you get into the mental habit of relating what you’re reading to the basic structure of the underlying ideas being demonstrated, you gradually accumulate some […]

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A Dozen Things I’ve Learned from Charlie Munger about Making Rational Decisions

  I have written a book about Charlie Munger. While the book is written in the context of investing, understanding what Charlie Munger teaches will help you make rational decisions about anything in your life.  Everyone must make decisions and by understanding how Charlie Munger thinks you can improve your decision making skills. Even people who have decided to use an index fund-based approach must chose index funds and allocate between asset […]

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