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Poor Charlie’s Almanack contains the wit and wisdom of Charlie Munger: his talks, lectures and public commentary. And, it has been written and compiled with both Charlie Munger and Warren Buffett’s encouragement and cooperation. So pull up your favorite reading chair and enjoy the unique humor, wit and insight that Charlie Munger brings to the world of business, investing and life itself. With Charlie himself as your guide, you are about to embark on an extraordinary journey toward better investment, decision making, and thinking about the world and life in general. Charlie’s unique worldview, what he calls a ‘multidisciplinary’ approach, is a self-developed model for clear and simple thinking while being far from simplistic itself.

Throughout the book, Charlie displays his intellect, wit, integrity, and rhetorical flair. Using his encyclopedic knowledge, he cites references from classical orators to eighteenth- and nineteenth-century European literati to pop culture icons of the moment while simultaneously reinforcing the virtues of lifelong learning and intellectual curiosity.

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1-Page PDF Summary of Poor Charlie's Almanack

Charlie Munger is Warren Buffett’s long-time partner at Berkshire Hathaway. Content to being the lesser known of the two, Munger is no less impressive. Bill Gates says that Charlie Munger “is truly the broadest thinker I have ever encountered,” and Buffett calls him the ideal partner who is “both smarter and wiser.”

Poor Charlie’s Almanack is a collection of Charlie Munger’s best advice given over 30 years, in the form of 11 speeches given as commencement addresses and roundtable talks. He covers a wide range of topics, including rationality and decision making, investing, and how to live a good life. You’ll learn why Charlie considers multidisciplinary learning vital to success, his checklist for investment criteria, and how to build a trillion dollar company from scratch.

Poor Charlie's Almanac Pdf

(continued)...

The best way to guard against biases is to learn what they are and how they affect cognition, then construct a checklist to go through each one and think about whether it’s affecting your current judgment.

Build a Latticework of Mental Models

Charlie Munger has learned a lot about the world, and he calls the main ideas from the major fields “mental models.” He stresses the importance of multidisciplinary learning and connecting the major ideas together in a latticework, where the ideas can interact with each other.

The inferior way to learn is to learn isolated facts that exist entirely in separate silos. You can recite the facts, but you don’t know the ideas underlying them, and you can’t apply those ideas to solve problems in real life. This is a failure of rote learning, which is common in many national education systems.

Munger argues that the superior way to learn is to learn lots of mental models, then assemble them into a connected latticework (or a network).

What are Mental Models?

You can think of “mental models” as important ideas in a field that have broad relevance outside the field itself.

For example, the idea of “critical mass” comes from physics. Within the field of physics, the idea of critical mass relates specifically to the mass needed to sustain a nuclear chain reaction—if you have less than the critical mass, a chain reaction won’t perpetuate itself. But this concept applies generally outside of physics—metaphorically, it can apply to the minimal mass needed to start any virtuous cycle, like the minimum number of users needed to get a social networking app off the ground.

Other examples of mental models include “margin of safety” from engineering, “compound interest” from math, and “feedback loops” from biology.

Learn Models from Different Fields

The best ideas in the world exist in each of the major fields. No single academic department has all the answers to all the problems. To become the most versatile problem solver, you need to collect mental models from every major field of study.

Modern academia tends to silo fields of study into isolated departments. Ideas stay narrowly defined, and experts within the field stay largely within their lane. Munger argues this is why a literature professor can be esteemed in her field but be considered unwise in other aspects of life.

When you have models from different fields working together, this can yield surprising results that other people don’t see.

A Latticework of Mental Models

As you collect more of these ideas, you will start relating them together. For example, you might see how stock market swings are a combination of psychological biases (loss aversion, social proof), feedback loops from biology, critical mass from physics, and random walks from math. These connected ideas form a latticework of mental models.

On Investing

In Poor Charlie’s Almanack, Munger doesn’t talk directly about Berkshire Hathaway’s decisions much, but he does share the general investment philosophies and practices that have made them successful over decades.

Be Patient But Decisive

Warren Buffett and Charlie Munger make successful investments because they’re able to wait patiently for great deals. Unlike many investors, they don’t mind staying inactive, even for years at a time, when they don’t see great opportunities. However, when they do see great opportunities, they bet big.

When Warren Buffett lectures at business schools, he’s known for saying that everyone would make better investments if they were given a punch card with twenty slots in it and were restricted to only twenty investments throughout their entire lifetime. Once they punched all twenty holes, they would be able to make zero additional investments. Under these conditions, investors would be much more discerning about which investments to pursue, and they’d bet big on the few investments they found.

Find High-Quality Businesses

Beyond just looking for cheap deals, Munger looks for high-quality businesses. In sum, these are profitable businesses that have a sustainable competitive advantage and good growth prospects.

The quality of a company may even override cheapness—”a great business at a fair price is superior to a fair business at a great price.” A company that returns 18% on capital over twenty years can get amazing results, even if you pay a price that looks expensive at first.

Moats and Competitive Advantage

Munger and Buffett consider the primary factor of a great business to be an enduring competitive advantage—what they call a “moat.” Like a moat protecting a castle, the competitive advantage allows a business to resist being made obsolete by competitors or changing markets. Examples of moats include loyal branding (such as See’s Candies) or a massive distribution system that is hard to rival (such as Coca-Cola).

Berkshire Hathaway thus counsels its companies to widen their moats every year. This doesn’t necessarily mean earning more profits each year, but rather growing a company’s strategic position to weather the long term.

Management Matters

The father of value investing Ben Graham never accounted for management quality in his value investing principles, partially because he was writing to a mass audience who wouldn’t have the opportunity to talk to and assess management, and partially because he had an intrinsic distrust of management.

But Munger and Buffett believe management can make a big difference. For example, famed CEO Jack Welch made a big difference for General Electric, in ways that the manager of Westinghouse didn’t. Munger looks for management that is 1) unusually skilled and 2) trustworthy.

Valuing Companies

Of course, to earn great returns, it’s important not just to find great businesses, but also great businesses at great prices. Even a fantastic business can be a terrible investment if the price is too high.

Consider betting on a horse race. The best horse is often obvious, based on its track record, weight, health, and so on, and it’s clearly better than a sickly horse with a bad record. But the odds already reflect that—the best horse might have odds of 2 to 1, while the bad horse has odds of 50 to 1. Which is the better deal? It’s not immediately clear.

On Character and Living a Good Life

In all, Charlie Munger is said to be a man of solid character—hard-working, humble, and always learning. In his speeches, he talks often about the traits leading to a happy and productive life.

Poor Charlie's Almanack Pdf

How to Live Happily

• Have low expectations.
• Have a sense of humor
• Surround yourself with the love of friends and family.
• Figure out the lifestyle that you want most. You might indeed work eighty hours a week for fifteen years to make partner at a law firm, just to get the right to do more of the same. But if you don’t, this might not be the right life for you.
• To get what you want, try to deserve what you want.
• Avoid self-pity. It’s counterproductive and doesn’t change your situation. If you don’t feel self-pity, you’ll have an advantage over many people, since it’s a common response. Munger had a friend who carried a stack of business cards, and when he heard a self-pitying comment, he’d give the person a card; the card read, “Your story has touched my heart. Never have I heard of anyone with as many misfortunes as you.”
• Be around people you admire. Don’t work under someone you don’t want to be like.
• Work hard. Munger likes the word “assiduity” because it informally means, “Sit down on your ass until you do it.”
• Anticipate trouble. You’ll better know how to avoid it.

Moral Character and Honesty

Munger cares a lot about reputation—the reputation of Berkshire Hathaway, of its owned companies, and of himself. He desires integrity from people he works with and managers of companies he wants to acquire. Companies that have a trusted brand name have a competitive advantage that can persist over time. Trust takes a long time to build, and an instant to vanish.

• “When you borrow a man’s car, you always return it with a full tank of gas.” People notice these little things.
• Track records are important, and if you develop one in an integral trait like honesty, you’ll have a big advantage in the world.

Constant Learning

Munger and Buffett are both famous for their curiosity and their voracious reading.

• “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. You’d be amazed at how much Warren reads — and at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”
• “You need to have a passionate interest in why things are happening. That cast of mind, kept over long periods, gradually improves your ability to focus on reality. If you don’t have that cast of mind, you’re destined for failure even if you have a high I.Q.”
• Spend each day trying to be a little smarter than when you woke up.

Work Hard

Success doesn’t come without hard work.

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• Munger thinks that passion is more important than natural talent or brain power. Berkshire has many companies with people who are fanatics about their business.
• Munger and Buffett are both famous for reading a lot. But reading isn’t enough—you need to have the courage to choose the right ideas and do good things with them.

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