Charlie Munger’s life story is a version of the classic American Dream: a hard-working young man builds a billion-dollar fortune through hard work and honest business deals, all the while raising eight children with the help of an intelligent, devoted wife. Author Janet Lowe brings this story and Munger’s personality to life with well-chosen anecdotes from family, friends and business associates.
These include, most notably, Warren Buffett, with whom she already enjoyed a rapport thanks to her work on a previous bestseller, Warren Buffett Speaks. Because Munger’s business history is so complex, the chapters are organized thematically rather than strictly chronologically, which can be a bit confusing. Thankfully, Lowe provides a handy timeline in an appendix. getAbstract.com suggests this book to investors, Buffett fans (who may underestimate the contributions others such as Munger have made to the Berkshire Hathaway empire) and to those dismayed by corporate corruption who could use this tale of honest success to renew their faith in capitalism.
Basically as I go through any book that I read, I underline interesting ideas/quotes/paragraphs and then later come back through the book to get the lessons gleaned from these underpinnings and try to figure out what they mean to me and apply them to my own life.
Here were the most interesting lessons in the book for me:
*Self-Education: Charlie believed so much in the value of “plowing through written material” by himself. He also said he “frequently likes the dead better than the live teachers.” This translated to me to read lots of old books and not shun, but be weary of the new-age ‘business’ type of books. The older the book, the more tested it’s been over time and if it still holds up as wise it must have a few good things in it.
*Keep Investing In Yourself: Charlies wife Nancy Munger is an absolute phenom. Charlies daughter molly said “she’s a great self-investor. She never gives up on working on herself. “She does very beautiful watercolor painting which she began in her 50’s and she cooks French food at a gourmet level, plays golf etc. This constant striving to invest in yourself, new skills, new knowledge is what keeps us young mentally and makes us feel alive. Once you stop investing in yourself, you’re screwed.
*Be Interesting: I’m fascinated by interesting people. People who so many different things, have so much energy, and are constantly curious about the world. This description of Nancy Munger’s dad hooked me: “He was in the insurance business and was also involved in various real estate ventures. Among other things he was interested in botany and built greenhouses where he crossbred rare plants, particularly palms and bromeliads.” Just reading about someone like that gets me excited for the possibilities in my own life, if I don’t waste a lot of time, I can do a lot if I nurture my curiosity.
*Motivations Matter: The rabbit runs faster than the fox because the rabbit is running for his life while the fox is only running for his dinner says Richard Dawkins. This is absolutely true, and I’ve felt it personally, when my back is against the wall, I’ve operated 10x as effective than when I wanted something to happen but didn’t necessarily need it. Turn the anxiety of fighting for your life (metaphorically) into a newfound energy that will propel you forward.
*Thinking Independently: Charlie was looking to acquire new property, and his partner opted out because the property was not owned, but came with a 49-year lease from the city. While other people were deterred by this, Charlie wasn’t because he knew the bank State Mutual recently raked in $60 million and quickly wanted to get their cash out and make returns. This showed his partner that Charlie could “think through a future event and come to a conclusion different from others assumed it would be.” He used first principles rather than letting others opinions deter him. He has perspectives that others simply don’t.
*Do Things Others Aren’t: Charlie was talking to a friend who just entered the legal field and said to him “You guys were first in your class at Harvard, Yale, and Michigan; many of you clerked in federal court. Do things that other people aren’t doing. Why do you insist on being a traditional lawyer?” This applies to anything, why do you want to be the typical real estate developer, build a resort apartment complex (link), why do you want to be the typical coffee shop owner, open a Creativity Heaven. (Link).
*Own Something: Three years after Charlie started his law practice, he dropped out. He could see it was a rat race and that he would only make money per hour when he was working. He needed to own something, when you own something the value builds even when you’re not working, otherwise you’re a slave to the hour. He got inspiration from Benjamin Franklin and all the contributions he made to society and wanted to do the same. He came to realize that a person needed to build ownership in a business to become wealthy. As a lawyer he realized that the clients he was serving were building capital where, as an attorney he wasn’t. So when you retire one day your income disappears. You have nothing other than maybe a house.
*Where Is The Edge?: Charlie wasn’t interested in gambling in business, he wanted to make as sure as he could that he would come out a winner, and with each new interaction he would ask himself where the edge was. Maybe a seat on the stock exchange, ability to get an option on land where the zoning could be changed, whatever. Your edge can be found in a new book you read, a new person you meet, always look for the edges…
*Why Be Rich?: Charlie wanted to be rich so he could be completely independent, “like Crusoe on his island, and not have to do what anybody else said.” I resonated with this immensely.
*Don’t Deal With People You Can’t Trust: Charlie said “never wrestle with a pig because if you do you’ll both get dirty, but the pig will enjoy it.” You can never beat a pig at a game they love to play, so opt out of the game entirely.
*Don’t Be Lured By Good Deals: Just because a company is selling for a good price doesn’t mean you buy it and just because a company is selling for a bad price doesn’t mean you don’t buy it, it’s all about quality. Charlie bought See’s Candy over the book value price and it’s still doing well, whereas Hochschild, Kohn, a department store was bought at a discount price and it didn’t work. Charlie changed his thinking pay higher prices to buy better businesses. Quality trumps all.
*Simplicity Is Key: Charlie thinks simplicity is way underrated and says “people underrate the importance of a few simple big ideas.” And that the chief lesson of Berkshire Hathaway is that a few big simple ideas really work. It’s not always about doing the most technical investment, or the reading the most scientific journals, sometimes the answers are right in front of you and they’re really simple but you’re off looking for what’s extremely complicated.
*Leaders Have To Move Quickly: There was a huge problem with a company that Charlie was invested in that involved a financial scandal and Charlie said they just tried to sweep it under the rug instead of facing the big problem head on. If you deal with things right away it’s always 10x easier than dealing with it later, we all know that.
*Specialization: Charlie says that young people decide to specialize way too early and never learn some subjects they can’t live well without. They need to find out more about the world. He doesn’t believe the notion that the scope of knowledge has become so massive that few people can become multi-disciplinary and still have enough time for a career.
*Have Mentors: Charlie is a huge admirer of Ben Franklin. He says “I’ve tried to imitate Franklin. when he was 42, he quit business to focus more on being a writer, statesman, philanthropist, inventor, and scientist. That’s why I have diverted my interest away from business. Find someone’s life you truly admire and let it guide you a few steps and see where you like it and where you don’t, tweak accordingly. Mentors can help save us many steps in the process of progress, whether dead or alive…
*Don’t Fool Yourself: Charlie often quotes the brilliant late physicist Richard Feynman when he says “the first rule is not to fool yourself, and you are the easiest person to fool.” It’s so easy to deceive ourselves into believing something we just wish was true, but we know if we took even a little step back would uncover that we know it’s just wishful thinking. Self-deception is a huge detriment to success.
*Why, Why, Why: Charlie says “if you want to get smart, the question you have to keep asking is ‘why’, ‘why’, ‘why’ then you have to relate the answers to a theory.” If someone tells you something can’t be done in a certain way ask why, then they’ll give a perfectly conceivable answer as to why they can’t, then you ask why again and it’ll repeat, eventually you’ll get to “well its just never been done that way” that’s when you’ve found what you’re looking for.
*Physicists: Physicists have taught Charlie two things. The best way to solve a problem is by seeking the simplest, most direct answer. And he also learned to turn problems upside down or to look at them backward—“invert, always invert.”
*How To Invest: Charlie prescribes two ways. He says first in order to be a good investor you must know yourself. You have to understand what your risk tolerance is, how uneasy you’ll get it if you lose money initially etc. Then you pair knowing yourself with gathering information. Charlie reads tons of business magazines, old books, financial reports and says “I don’t think you can become a great investor without reading a massive amount.” So self-awareness, and knowledge accumulation will put you on the path to becoming a great investor.
*Determining A Businesses Long-Term Success: Charlie says he’ll be looking at a business with amazing results and he’ll ask himself “how long can this continue?” Well to answer that he asks himself what is causing these results to occur right now—-and to determine success of the business in the future you have to figure out the forces that could cause these results to stop occurring.
*Life is Full of Up’s and Down’s: One of Charlie and Warren’s first investments See’s Candies had failed at least once, and had seriously failed. “But if a person just keeps going on the theory that life is full of vicissitudes and just does the right thinking and follows the right values it should work out well in the end. So I would say, don’t be discouraged by a few reverses.” This reminds me of Max Levichin from PayPal and his “I was prepared to start as many companies as it took until I succeeded” after he failed many of his first start-ups.
*Turning Weakness Into Strength: Charlie said “I’ve had kids in both moderate and immoderate circumstances and to be honest my children that were raised when we had less money have worked harder.” I appreciate his honesty and we’ve heard this narrative over and over again, things that are generally perceived as ‘weaknesses’ or ‘negatives’ can be flipped right into someone’s greatest strength.