PoorCharliesAlmanack
Poor Charlies Almanack (Charlie Munger)
- Excellent. Beginning slow. Repetitive in places.
Any year where you dont destroy one of your best-loved ideas is probably a wasted year. "John Galbraith"
Charlies most fundamental guiding principles are: preparation, patience, discipline, and objectivity. Preparation: More important than the will to win is the will to prepare Objectivity: Its better to remember the obvious than to grasp the esoteric Dont overlook the obvious by drowning in the minutiae. Discipline: Reputation and integrity are you most valuable assets and can be lost in a heartbeat
"Track records are very important. If you start early to have a perfect track record in some simple thing like honest, you're well on your way to success in this world." Charlie Munger
- We dont claim to have perfect morals, but at least we have a huge area of things that, while legal, are beneath us. There should be a huge area between everything you should do and everything you can do without getting into legal trouble.
The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obviously good idea. But 90% of the investment wold doesn't think this way.
The ethos of not fooling yourself is one of the best you can possible have. Its powerful because its so rare.
- Organized common (or uncommon) sense – very basic knowledge – is an enormously powerful tool. There are huge dangerous with computers. People calculate too much and think too little.
Elementary Wordly Wisdom:
- You cant really know anything if you just remember isolated facts and try to bring them back. If the facts dont hang together on a latticework of theory, you dont have them in a usable form.
- The first rule is that you've got to have multiple models – b/c if you have just one or two that your using, the nature of human psychology is such that you'll torture reality so that it fits your models, or at least you'll think it does.
- The models have to come from multiple disciplines.
- You need basic probability theory (ala: Fermat/pascal)
- You have to know accounting: The language of practical business life. Very useful for civilization, "double-entry bookkeeping was a hell of an invention."
- Psychology is an ungodly important subject if your going to have any wordly wisdom. See: Psychology of misjudgment, a terribly important thing to learn
- Two track analysis: What factors really govern the interests, rationally considered? What are the subconscious influences where the brain is automatically doing things - which often lead to dysfunction?
- You must have the confidence to override people with more credentials than you, when their cognition is impaired by incentive-caused bias or some other psychological force that is obviously present. (But remember that there are also cases where you have no wisdom to add – here your best course of action is to trust some expert)
- Ultra simple, general problem solving notions:
- Decide the big "No-brainer" questions first
- Apply numerical fluency
- Invert (think the problem through in reverse)
- Apply elementary multidisciplinary wisdom, never relying entirely upon others
- Watch out for combinations of factors ("Lollapalooza effects")
If you always tell people why, they will understand better. The human mind is not constructed so that it works well without having reasons. You've got to hang reality on a theoretical structure with reasons. That the way it hangs together in a usable form.
I asked the guy who sold fishing tackle, "My God, they're purple and green. Do fish really take these lures ? " He says "Mister, I dont sell to fish"
- Heavy ideology is one of the extreme distorters of human cognition.
- Envy: It is a crime that envy is not discussed in academic psychology! Envy made it into 2 or 3 of the 10 commandments!
Its very very important to create human systems that are hard to cheat. Otherwise you risk ruining civilization b/c these big incentives will create incentive-caused bias and people will rationalize that their behavior is OK.
You have got to know what you know and what you dont know. What could possible be more useful in life than that ?
- Academic Psychology: Academic psychology departments are immensely more important and useful than other departments think. At the same time the psychology departments are immensely worse than most of their inhabitants think.
- "Not ignorance, but ignorance or ignorance is the death of knowledge" - Alfred Whithead
"There is no limit to what a man can do or where he can go if he doesn't mind who gets the credit" Robert Woodruff
- Meetings are indispensable when you dont want to get anything done. "John Galbraith"
- The only function of economic forecasting is to make astrology look respectable. "John Galbraith"
- Thomas Morgan banned the Friden calculator (computer substitute then available) from the biology department. When asked "what the hell are you doing?" He said will I am like a guy who is prospecting for gold along the banks of a river. With a little intelligence, I can reach down and pick up big nuggets of gold. And so long as I can do that, I'm not going to let any people in my department waste resources on panning for gold.
- Often too much emphasis on macroeconomics and not enough on micro. Its like trying to master medicine without knowing any anatomy and chemistry.
- Delegating work: Even if a manager can perform the full range of tasks better himself, it is still mutually advantageous to divide them up.
- Ethical practices aren't good because they pay; they pay because they are good.
I feel that I'm not entitled to an opinion unless I can state the arguments against my position better than the people who are in opposition.
- Self-pity is always counterproductive.
- "To persuade, appeal to interest, not reason" - Ben Franklin
The Psychology of Human Misjudgment: "I sought good judgment by collecting instances of bad judgment, then pondering ways to avoid such outcomes."
- Reward and Punishment Super-response Tendency:
- Never, ever, think about something else when you should be thinking about the power of incentives
- Especially fear professional advice when it is especially good for the advisor.
- Learn to use the basic elements of your advisors trade as you deal with your advisor
- Double check, disbelieve, or replace much of what you're told.
- People who create things (like cash registers) which make dishonest behavior hard to accomplish, are some of the effective saints of civilization; bad behavior is intensely habit forming when it is rewarded.
- The extreme success of free-market capitalism owes much to its prevention of many bad effects from incentive-caused bias; most capitalist owners in a free market economy are selected for their ability to prevent all waste in their operation. Replacing these owners by salaried employees of the state and you will normally get a substantial reduction in overall efficiency.
- Dread and avoid as much as possible rewarding people for what can be easily faked.
- Liking/Loving Tendency Loving something can bias you.
- A man who loves admirable persons and ideas with a special intensity has a huge advantage in life.
- Disliking/Hating Tendency: Hating something can also bias you
- Doubt-Avoidance Tendency:
- Triggered by combination of puzzlement and stress.
- Both of these factors naturally occur in facing religious issues.
- Thus, the natural state of man is in some form of religion; and this is what we observe.
- Inconsistently-Avoidance Tendency
- Few people can list a lot of bad habits that they have eliminated. Instead practically everyone has a great many bad habits he has long maintained despite their being known bad.
- Curiosity Tendency: Man tends to be curious, this is a great benefit.
- Kantian fairness Tendency: Man displays and expects from others a lot of fairness
- Categorical imperative: humans should follow behavior patterns that, if followed by all others, would make the whole system work best for everybody
- Interesting how the worlds slavery was pretty well abolished during the last three centuries after being tolerated for a great many previous centuries during which it coexisted with the worlds major religions. Charlies guess is that Kantian fairness Tendency was a major contributor.
- Envy/Jealousy Tendency:
- Its not greed that drives the world, but envy. Warren Buffet
- Reciprocation Tendency
- Influence-from-mere-association Tendency
- Simple pain-avoiding psychological denial
- Excessive self-regard Tendency:
- Fixable but unfixed bad performance is bad character and tends to create more of itself, causing more damage to the excuse giver with each tolerate instance.
- Of all forms of useful pride, perhaps the most desirable is a justified pride in being trustworthy.
- Overoptimism Tendency
- Deprival-Super-reaction Tendency
- Social-proof Tendency:
- Learn how to ignore the examples from others when they are wrong, because few skills are more worth having.
- Contrast-misreaction Tendency:
- Stress influence Tendency
- Availability-misweighing Tendency
- One consequence is that extra vivid evidence, being so memorable and thus more available in cognition, should often be under-weighed while less vivid evidence should be over-weighed.
- Corollary: The special strength of extra-vivid images in influencing the mind can be constructively used in 1) persuading someone else to reach a correct conclusion and
- as a devise for improving ones own memory by attaching vivid images, to many items one doesn't want to forget.
- Use-it-or-lose-it Tendency: Skills attenuate with disuse
- Drug-misinfluence Tendency
- Senescence-misinfluence Tendency: Cognition declines with age
- Authority-Misinfluence Tendency: Bias to follow leaders
- Twaddle Tendency: People bullshit
- Reason-Respecting Tendency: Man loves reasons
- Lollapalooza Tendency
- Can get extreme consequences from confluences of psychological tendencies acting in favor of a particular outcome.
- Reward and Punishment Super-response Tendency:
- Dread and avoid as much as possible rewarding people for what can be easily faked.