Poor Charlie's Almanack

He enjoyed challenging the conventional wisdom of teachers and fellow. students with his ever-increasing knowledge gained through voracious reading, particularly biographies.

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.

The successful practice of law was by then a backstop rather than an ending objective for Charlie. At about the time that he was launching his new law firm, he was carefully crafting his exit plan.

Well, one time, some attractive woman sat next to Charlie and asked him what he owed his success to, and, unfortunately, she insisted on a one-word answer. He had a speech prepared that would have gone on for several hours. But, when forced to boil it down to one word, he said that he was “rational.” You know, he comes equipped for rationality, and he applies it in business. He doesn’t always apply it elsewhere, but he applies it in business, and that’s made him a huge business success.

Always doing more than his share and not complaining

Charlie continues to influence the firm’s attorneys, reminding m, “You don’t need to take the last dollar” and “Choose clients as you would choose friends.”

Much of Franklin’s success was due to the essential nature of the man-most especially his appetite for hard work but also his insatiable curiosity and patient demeanor.

To Charlie, successful investing is simply a byproduct of his carefully organized and focused approach to life.

Charlie counts preparation, patience, discipline, and objectivity among his most fundamental guiding principles.

Charlie generally focuses first on what to avoid-that is, on what NOT to do-before he considers the affirmative steps he will take in a given situation. “All I want to know is where I’m going to die, so I’ll never go there” is one of his favorite quips. In business as in life, Charlie gains enormous advantage by summarily eliminating the unpromising portions of “the chessboard,” freeing his time and attention for the more productive regions.

Poor outcomes are excusable

Sloppy preparation and decision making are never excusable because they ARE controllable.

Price is What You Pay, Value is What You Get

“No wisepilot, no matter how great his talent and experience, fails to use his checklist.”

Objectivity and rationality require independence of thought Remember that just because other people agree or disagree with you doesn’t make you right or wrong-the only thing that matters is the correctness of your analysis and judgment Mimicking the herd invites regression to the mean (merely average performance)

Preparation-‘the only way to win is to work, work, work, work, and hope to have a few insights” Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day More important than the will to win is the will to prepare . Develop fluency in mental models from the major academic disciplines . If you want to get smart, the question you have to keep asking is “why, why, why?”

Above all, never fool yourself, and remember that you are the easiest person to fool

Use of the scientific method and effective checklists minimizes errors and omissions

Think forwards and backwards-Invert, always invert

“Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily

Focus-Keep things simple and remember what you set out to do o Remember that reputation and integrity are your most valuable assets and can be lost in a heartbeat

Be careful to exclude unneeded information or slop: “A small leak can sink a great ship” Face your big troubles; don’t sweep them under the rug

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.

His fundamental philosophy of life: Preparation. Discipline. Patience. Decisiveness. Each attribute is in turn lost without the other, but together they form the dynamic critical mass for a cascading of positive effects for which Munger is famous (the “lollapalooza” ).

‘If you tell the truth, you don’t have to remember your lies.’

On occasion, Charlie will pose a challenging question to his audience, or receive one, and leave it unanswered. By so doing, he says, he encourages his listeners to “reach” for the answers themselves and, as a result, better learn and retain the information they discover. Charlie says his father routinely used this same technique with him, with results that still benefit him today.

It never ceases to amaze me to see how much territory can be grasped if one merely masters and consistently uses all the obvious and easily learned principles.”

We try more to profit from always remembering the obvious than from grasping the esoteric. It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.

Remember Louis Vincent’s rule: Tell the truth, and you won’t have to remember your lies. It’s such a simple concept.

Ours work because we don’t try to do acquisitions-we wait for no-brainers.

The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obviously good idea. But ninety-eight percent of the investment world doesn’t think this way. It’s been good for us-and you-that we’ve done this.

We have to have a special insight, or we’ll put it in the “too tough” basket. All you have to look for is a special area of competency and focus on that.

I think that, every time you see the word EBITDA [earnings before interest, taxes, depreciation, and amortization, you should substitute the words “bullshit earnings.”

People who have loose accounting standards are just inviting perfectly horrible behavior in other people. And it’s a sin, it’s an absolute sin. If you carry bushel baskets full of money through the ghetto, and made it easy to steal, that would be a considerable human sin because you’d be causing a lot of bad behavior, and the bad behavior would spread. Similarly, an institution that uses sloppy accounting commits a real human sin, and it’s also a dumb way to do business.

You must know the big ideas in the big disciplines and use them routinely-all of them, not just a few. Most people are trained in one model-economics. for example-and try to solve all problems in one way. You know the old saying: To the man with a hammer, the world looks like a nail. This is a dumb way of handling problems. You need a different checklist and different mental models for different companies.

We read a lot. I don’t know anyone who’s wise who doesn’t read a lot.

A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.

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 in life and work better in education. It’s way better than just being given the basic concepts.

Unyielding patience, discipline, and self-control-Charlie just doesn’t crack or compromise on his principles, no matter how stressful the situation.

The theory of modern education is that you need a general education before you specialize. And I think, to some extent, before you’re going to be a great stock picker, you need some general education.

The first rule is that you’ve got to have multiple models-because if you have just one or two that you’re using, the nature of human psychology is such that you’ll torture reality so that it fits your models, or at least you’ll think it does.

One of the advantages of a fellow like Buffett, whom I’ve worked with all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations.

If you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply. Even if they don’t understand your reason, they’ll be more likely to comply.

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. And this knowledge, by the way, can be used to control and motivate other people.

The elementary part of psychology-the psychology of misjudgment, as I call it-is a terribly important thing to learn. There are about twenty little principles.

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.