I’ve heard this book recommended a number of times by a number of people over the past few years. I never really knew what it was about, other than that it contained wisdom from Charlie Munger, Warren Buffett’s right-hand man at Berkshire Hathaway. It’s an obvious reference to the yearly reports Benjamin Franklin put out under Poor Richard’s Almanack.
This book starts with tidbits of wisdom from others describing Charlie Munger and from Charlie himself. Then, around 150 pages in (by the way, this is an enormous book, as in the biggest physical book of the project so far, and also the most expensive at $60+), eleven full talks that Charlie has given over the years are printed in full. These speeches are from commencement speeches, roundtables, and keynote addresses at charitable foundations. The 11 talks cover the next 350+ pages of the book.
The eleventh talk is titled “The Psychology of Human Misjudgment” although it’s not a speech like the other 10. It was more of a paper written my Munger. The frustrating thing is that it covered a lot of content from the rest of the book. In fact, you could almost get the main gist of the book from that final “talk.”
Here are some of the key takeaways from the book. The things that stuck out to me the most:
- Munger talked about Warren Buffett’s hypothetical idea that young investors should be given a card with 20 slots. Every time they make an investment, one slot is punched. Once they reach 20 investments, no more investments. It would really make people think deeply about their investments. This idea is really important because Munger says Berkshire Hathaway’s investment results would be mediocre were it not for 15 really good investments.
- Munger’s entire approach to life is a multidisciplinary approach. His goal is to take the mental models from each of the main disciplines and utilize them in the problem at hand.
- The importance for legislators to create human systems / laws that make it hard for people to cheat.
- Munger likes to invert problems. He thinks them through forward and then thinking about them in reverse.
- Munger believes in the power of checklists. If professional pilots do it before every flight, we should do it before major decisions.
- In discussing the common investment practice of purchasing index funds – “Indexing can’t work well forever if almost everybody turns to it. But it will work all right for a long time.“
- A good and dangerous observation – “…a great many people conclude that something can’t be evil if they are profiting from it.“
- Warren Buffett spends about half of his time reading. Munger says – “Viewed up close, Warren looks quite academic as he achieves worldly success.“
- Great quote – “I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I’ve reached that state.“
- Incentives are superpowers.
One thing that struck me was Munger’s obsession with psychology. It was amazing to read this book after reading Kahneman and Taleb earlier this year. This year is quickly becoming the year of behavioral psychology. This version of Poor Charlie’s Almanack came out in 2005/06, around the same time as Kahneman’s Thinking, Fast and Slow. There is a lot of similar content, which is quite amazing since he only dabbles in psychology and never even took a psychology course in his life. Kahneman’s name is never mentioned in the book, but there had to be some cross-pollination. Throughout this book, I wrote Kahneman and Taleb’s names in the margins.
Munger says the following:
“To this day, I have never taken any course, anywhere, in chemistry, economics, psychology, or business.”
That is quite amazing because this book is full of wisdom gathered from a variety of disciplines. Munger’s a renaissance man of sorts and Poor Charlie’s Almanack was a joy to read. I got a number of comments on social media while reading this book of shock at the cost of the book. It was $61.99 on Amazon. But the wisdom contained in this book is sure to quickly recover that $62 and compound quite generously, like Berkshire stock.