This week we lost one of the greats.
Only one month shy of his 100th birthday, legendary investor and polymath Charles Thomas Munger departed this mortal coil.
He had a rich and varied life with pursuits spanning law, mathematics, architecture — and much more besides. He witnessed first hand incredible societal and technological change and, of course, amassed a giant fortune along the way.
It’s also fair to say that Warren Buffett and Berkshire Hathaway would probably have been a lot less successful without Charlie’s influence.
There’ve been lots of great obituaries to Charlie since his passing, but I wanted to pay a small tribute here by reflecting on what I regard as some of his best principles. Or, as they have come to be known, ‘mental models’.
All I want to know is where I’m going to die, so I’ll never go there
The principle of inversion is a simple, yet powerful idea. It suggests that some problems are best solved backwards. For example, by understanding what makes a terrible business, you can better identify a quality one.
As Charlie put it: “Turn a situation or problem upside down. Look at it backwards. What happens if all our plans go wrong? Where don’t we want to go and how do you get there? Instead of looking for success, make a list of how to fail – through sloth, envy, resentment, self-pity, entitlement, and all the mental habits of self-defeat. Avoid these qualities and you will succeed.”
Know the other side’s arguments
This is a core principle of Strawman and, I believe, a critical underpinning of any enduring investment success.
“I’m not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people do who are supporting it. I think only when I reach that stage am I qualified to speak.”
Put another way, if you can’t in good faith articulate the bear case of an investment, you have no right to be bullish.
Destroy your own ideas
Related to the above is the ability to destroy one’s own ideas.
“We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side.”
As I’m fond of saying, the best way to improve an investment idea is to challenge it. Either you’ll discover important flaws to your thinking, or build valuable conviction.
Take a multidisciplinary approach
“If you skillfully follow the multidisciplinary path, you will never wish to come back. It would be like cutting off your hands”
The best investors apply ideas from a wide array of different disciplines; psychology, economics, finance, accounting, politics, mathematics, sociology, history and more. As Charlie regularly preached, you didn’t need to be an expert in every field (in fact, a deep but narrow focus can be counterproductive) — but a collection of the big ideas from each domain can, when sufficiently understood, take you an extremely long way.
That’s why curiosity and a desire to learn are the best traits you can have as an investor. Which brings us to…
Read, read, read
There’s really not a lot of new big ideas out there, and all of the best ones were long ago committed to paper.
“I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading. I don’t think any one book will do it for you.”
“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.”
Speaking of reading, you could write a book on all the wisdom Charlie has shared over the years. In fact, many people have!
If you haven’t read it already, Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger by Peter D. Kaufman would have to be the best place to start. Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger by Janet Lowe is also highly recommended.
These days you can also find loads of great stuff from Charlie on Youtube. Be sure to add the following to your watchlist:
The Psychology of Human Misjudgment, 1995
USC Commencement Address, 2007
Ross School of Business interview, 2011
Charlie is not to be lauded simply because he was a rich, successful investor. Rather, he is to be admired for the nature of his character and the personal qualities he espoused — things like humility, practicality, patience, curiosity, generosity and frugality.
Indeed, as Charlie well knew, money alone does not bring any lasting satisfaction. As he said at the recent Berkshire Hathaway meeting, “I think the best road ahead to human happiness is to expect less”.
Vale Charlie.
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