Introduction by Peter D. Kaufman

• he knows that repetition is the heart of instruction.[cite: 1, 14]

Chapter 3: The Munger Approach to Life, Learning, and Decision-Making

• 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.[cite: 1, 14]
• To Charlie, successful investing is simply a by-product of his carefully organized and focused approach to life[cite: 1, 14]
• Charlie counts preparation, patience, discipline, and objectivity among his most fundamental guiding principles[cite: 1, 14]
• Charlie strives to reduce complex situations to their most basic, unemotional fundamentals[cite: 1, 14]
• Graham cautioned the investor to carefully use his own unemotional judgment of value instead of relying on the often manic-depressive behavior of the financial markets[cite: 1, 14]
• Charlie looks for an easy-to-understand, dominant business franchise that can sustain itself and thrive in all market environments[cite: 1, 14]
• Heavily promoted “deals” and IPOs earn immediate nos[cite: 1, 14]
• Charlie refers to a company’s competitive advantage as its moat[cite: 1, 14]
• sloppy preparation and decision-making are never excusable because they are controllable[cite: 1, 14]
• why some entities are nevertheless able to adapt, survive, and even dominate over time[cite: 1, 14]
• Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.[cite: 1, 14]
• Good ideas are rare—when the odds are greatly in your favor, bet (allocate) heavily.[cite: 1, 14]

Talk One: Harvard School Commencement Speech

• First, be unreliable. Do not faithfully do what you have engaged to do. If you will only master this one habit, you will more than counterbalance the combined effect of all your virtues, howsoever great[cite: 1, 14]
• My second prescription for misery is to learn everything you possibly can from your own experience, minimizing what you learn vicariously from the good and bad experiences of others, living and dead.[cite: 1, 14]
• Carson and was known for his constant repetition of one phrase: “Invert, always invert.[cite: 1, 14]
• It is in the nature of things, as Jacobi knew, that many hard problems are best solved only when they are addressed backward[cite: 1, 14]

Talk Two: A Lesson on Elementary, Worldly Wisdom as It Relates to Investment Management and Business

• Which models are the most reliable? Well, obviously, the models that come from hard science and engineering are the most reliable models on this earth.[cite: 1, 14]
• advantages of scale are ungodly important.[cite: 1, 14]
• So you have to figure out what your own aptitudes are. 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 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.[cite: 1, 14]
• So getting the incentives right is a very, very important lesson[cite: 1, 14]
• But the great bulk of the money has come from the great businesses.[cite: 1, 14]
• And most of the other people who’ve made a lot of money have done so in highquality businesses.[cite: 1, 14]
• And ideally—and we’ve done a lot of this—you get into a great business that also has a great manager, because management matters.[cite: 1, 14]
• So you do get an occasional opportunity to get into a wonderful business that’s being run by a wonderful manager. And, of course, that’s hog heaven day. If you don’t load up when you get those opportunities, it’s a big mistake[cite: 1, 14]
• betting on the quality of a business is better than betting on the quality of management[cite: 1, 14]
• you can find some fairly priced, great company and buy it and sit, that tends to work out very, very well indeed—especially for an individual.[cite: 1, 14]

Worldly Wisdom, Updated: Q & A with Charlie

• Work only with people you enjoy.[cite: 1, 14]

Talk Three: A Lesson on Elementary, Worldly Wisdom as It Relates to Investment Management and Business Revisited

• The advantage of low-tech stuff for us is that we think we understand it fairly well. The other stuff we don’t. And we’d rather deal with what we understand. Why should we want to play a competitive game in a field where we have no advantage—maybe a disadvantage—instead of in a field where we have a clear advantage?[cite: 1, 14]
• Each of you will have to figure out where your talents lie. And you’ll have to use your advantages. But if you try to succeed in what you’re worst at, you’re going to have a very lousy career. I can almost guarantee it. To do otherwise, you’d have to buy a winning lottery ticket or get very lucky somewhere else.[cite: 1, 14]
• we have said that common stocks generally have generated returns of 10 to 11 percent after inflation for many years and that those returns can’t continue for a very long period[cite: 1, 14]
• you’ve got to know what you know and what you don’t know. What could possibly be more useful in life than that?[cite: 1, 14]
• When you don’t know and you don’t have any special competence, don’t be afraid to say so.[cite: 1, 14]
• Nobody expects you to know everything about everything. I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge. To me, they’re like the bee dancing its incoherent dance. They’re just screwing up the hive.[cite: 1, 14]
• He failed to recognize that what works best in most cases is to appeal to a man’s interest[cite: 1, 14]
• But I’m always asked this question: “Spoon-feed me what you know.” And, of course, what they’re often saying is “Teach me how to get rich with soft white hands faster. And not only let me get rich faster, but teach me faster, too.”[cite: 1, 14]

Talk Three Revisited

• making human systems as cheating-proof as is practicable, even if this leaves some human misery unfixed. After all, the people who rewarded cheating on a massive scale leave a trail of super-ruin in their wake, since the bad conduct spreads by example and is so very hard to reverse.[cite: 1]

Talk Four: Practical Thought about Practical Thought?

• simplify problems by deciding big no-brainer questions first.[cite: 1]
• The second helpful notion mimics Galileo’s50 conclusion that scientific reality is often revealed only by math as if math was the language of God. Galileo’s[cite: 1]
• think problems through forward. You must also think in reverse, much like the rustic who wanted to know where he was going to die so that he’d never go there[cite: 1]
• You must think in a multidisciplinary manner. You must routinely use all the easy-to-learn concepts from the freshman course in every basic subject.[cite: 1]
• The best way to avoid envy, as recognized by Aristotle,54 is to plainly deserve the success we get.[cite: 1]
• Einstein said that one of the four causes of his achievement was self-criticism, ranking right up there alongside curiosity, concentration, and perseverance.[cite: 1]

Talk Six: Investment Practices of Leading Charitable Foundations

• biological creatures ordinarily prefer effort minimization in routine activities and don’t like removals of long-enjoyed benefits[cite: 1]
• most of the money-making activity would contain profoundly antisocial effects[cite: 1]

Talk Nine: Academic Economics: Strengths and Faults after Considering Interdisciplinary Needs

• I think you’d have to believe in the tooth fairy to believe that you could easily outperform the market by 7 percentage points per annum just by investing in high-volatility stocks.[cite: 1]
• It took me 20 years to figure out how and why cult conversion methods worked. But the psychology departments haven’t figured it out yet, so I’m ahead of them.[cite: 1]
• . I don’t think it’s necessary to spend your life selling what you would never buy. Even though it’s legal, I don’t think it’s a good idea.[cite: 1]
• Keynes said, “It’s not bringing in the new ideas that’s so hard. It’s getting rid of the old ones.” And Einstein said it better, attributing his mental success to “curiosity, concentration, perseverance, and self-criticism.” By self-criticism, he meant becoming good at destroying your own best-loved and hardest-won ideas. If you can get really good at destroying your own wrong ideas, that is a great gift.[cite: 1]
• My inspiration again is Keynes: Better roughly right than precisely wrong.[cite: 1]

Talk Ten: USC Gould School of Law Commencement Address

• safest way to try to get what you want is to try to deserve what you want[cite: 1]
• The same requirement exists in lower walks of life. I constantly see people rise in life who are not the smartest, sometimes not even the most diligent. But they are learning machines.[cite: 1]
• Once you have the ideas, of course, you must continuously practice their use. Like a concert pianist, if you don’t practice you can’t perform well. So I went through life constantly practicing a multidisciplinary approach.[cite: 1]
• My advice to you is to be better than I was at keeping insights hidden. One of my colleagues, who graduated as number one in his class in law school and clerked at the US Supreme Court, tended as a young lawyer to show that he knew a lot. One day, the senior partner he was working under called him in and said, “Listen, Chuck, I want to explain something to you. Your duty is to behave in such a way that the client thinks he’s the smartest person in the room. If you have any energy or insight available after that, use it to make your senior partner look like the second-smartest person in the room. And only after you’ve satisfied those two obligations do you want your light to shine at all.”[cite: 1]
• Generally speaking, envy, resentment, revenge, and self-pity are disastrous modes of thought[cite: 1]
• The correct persuasive technique in situations like that was given by Ben Franklin. He said, “If you would persuade, appeal to interest, not to reason.[cite: 1]
• You should often appeal to interest, not to reason, even when your motives are lofty.[cite: 1]
• You particularly want to avoid working directly under somebody you don’t admire and don’t want to be like[cite: 1]
• I could force myself to be fairly good in a lot of things, but I couldn’t excel in anything in which I didn’t have an intense interest[cite: 1]
• Some people recover and others don’t. There I think the attitude of Epictetus helps guide one to the right reaction. He thought that every mischance in life, however bad, created an opportunity to behave well. He believed every mischance provided an opportunity to learn something useful, and one’s duty was not to become immersed in self-pity but to utilize each terrible blow in a constructive fashion[cite: 1]
• One higher form is a seamless, non-bureaucratic web of deserved trust. Not much fancy procedure, just totally reliable people correctly trusting one another. That’s the way an operating room works at the Mayo Clinic. If lawyers would introduce a lot of lawyer-like process, more patients would die. So never forget, when you’re a lawyer, that while you may have to sell procedure, you don’t always have to buy[cite: 1]

Talk Eleven: The Psychology of Human Misjudgment

• If you would persuade, appeal to interest and not to reason.”[cite: 1]
• important rule in management is “Get the incentives right.”[cite: 1]
• Nonetheless, Skinner was right in his main idea: Incentives are superpowers[cite: 1]
• Granny’s rule, to be specific, is the requirement that children eat their carrots before they get dessert. The business version requires that executives force themselves daily to first do their unpleasant and necessary tasks before rewarding themselves by proceeding to their pleasant tasks[cite: 1]
• What Keynes was reporting is that the human mind works a lot like the human egg. When one sperm gets into a human egg, there’s an automatic shut-off device that bars any other sperm from getting in. The human mind tends strongly toward the same sort of result.[cite: 1]
• In advanced human civilization, culture greatly increases the effectiveness of curiosity in advancing knowledge.[cite: 1]
• Indeed, E. O. Wilson once waggishly suggested that if ants were suddenly to get atom bombs, all ants would be dead within 18 hours.[cite: 1]
• And the very best part of human life probably lies in relationships of affection wherein parties are more interested in pleasing than being pleased—a not-uncommon outcome in display of reciprocate-favor tendency[cite: 1]
• Berkshire, there is a common injunction: “Always tell us the bad news promptly. It is only the good news that can wait.” It also helps to be so wise and informed that people fear not telling you bad news because you are so likely to get it elsewhere[cite: 1]
• Therefore, some of the most useful members of our civilization are those who are willing to clean house when they find a mess under their ambit of control[cite: 1]
• Of course, some high self-appraisals are correct and serve better than false modesty. Moreover, self-regard in the form of a justified pride in a job well done, or a life well lived, is a large constructive force[cite: 1]
• If only one lesson is to be chosen from a package of lessons involving social-proof tendency and used in self-improvement, my favorite would be: Learn how to ignore the examples from others when they are wrong, because few skills are more worth having.[cite: 1]
• The final revision was made from memory over about 50 hours by a man 81 years old, who never took a course in psychology and has read none of it, except one book on developmental psychology, for nearly 15 years[cite: 1]