What Charlie Munger Taught Me

Charlie Munger, Warren Buffett’s long standing business partner, died last month, aged 99. Aside from being a very successful investor, he was known for his sharp wit and deep understanding of human psychology. Charlie believed in using a latticework of mental models to empower problem solving and creativity. He rose above many hardships including, the death of his father when young, financial problems, divorce, the death of his son and personal health problems. Charlie went through hell, but through grit and determination achieved a great deal. An inspiring individual.

?? Charlie’s quotes

At company annual general meetings, Charlie Munger addressed audience questions. Here are some of my favourite responses:

• The general system for money management requires people to pretend they can do something that they can’t. And to pretend that they really like it when they don’t. I think it’s a terrible way to spend your life, but it’s very well paid.
• You are mixing something that is wretched and irrational and has bad consequences with something that has very good consequences. If you mix raisins with turds, they’re still turds.
• I can’t give you a formula as I don’t use them. If you want formulas then go back to graduate school. They’ll give you lots of formulas that don’t work.
• It’s extraordinary how resistant people are to learning anything.

Here are more Charlie Munger quotes.

?? Charlie’s mental models

What you need is a latticework of mental models in your head. And, with that system, things gradually get to fit together in a way that enhances cognition. - Charlie Munger

Key mental models that Charlie Munger used include:

• Inversion principle: It is easier to understand something by thinking about it’s opposite. If you want to understand what makes a good investment, also think about what makes a bad investment. Charlie invested in tangible assets and was not a big fan of crypto currencies.
• Take multiple perspectives: Consider multiple perspectives when making decisions. No single perspective is complete or accurate. This is a Lateral Thinking Technique.
• Get incentives right: Incentives are a powerful force in human behaviour. Understand the incentives of the people involved in any situation to make sound decisions.

?? Charlie’s advice

Acknowledging what you don’t know is the dawning of wisdom. - Charlie Munger

I try to apply the following Charlie Munger advice:

• Recognise limitations. Be honest with ourselves about limitations and avoid making decisions outside of our circle of competence. I am often happy to admit that, I don’t know.
• Think independently. Listen to others, but ultimately make your own decisions. There is a lot of noise and misinformation.
• Be open to changing one’s mind. As we learn new information, our perspectives should evolve. Don't be afraid to change your mind when the evidence suggests that we are wrong. Shane Parrish explored our default thinking habits in his book Clear Thinking.
• Look to the long-term. Compound interest is a powerful concept. The best way to achieve success is to consistently make positive steps forward in the right direction.
• Control emotions. Emotions are a powerful force in our lives. They can lead us to make poor decisions. Learn to control our emotions so they don’t control us.

? Other resources

Charlie Munger Wisdom by Shane Parrish

What Steve Jobs Taught Me post by Phil Martin

What Richard Branson Taught Me post by Phil Martin

Typical of his wit, Charlie Munger said, I want to know where I would die so I can never go there.

RIP Charlie.

Phil…