Book Notes: Poor Charlie's Almanack
Insights and highlights from Charlie Munger's greatest speeches.
CG: This is a new series that I plan to use to keep my book influx in check. Each time I finish a new book, I’ll write a ~1000 (4-5 min) word summary on one big idea I took from the book, and then provide quick hitters on other concepts/quotes that stuck out.
You can find my library of books here.
One Big Idea - The Pursuit of Worldly Wisdom
I’ve always been drawn to the idea that the right book finds you at the right time, as if driven by some divine process of fate. It feels like magic sometimes - the words you need appearing in your hands at the exact moment you are ready to hear them.
I can count on one hand the amount of times this has happened to me - like in 2016 when I read David Epstein’s Range as a recent (and lost) college graduate. Or in 2020 when I found Marcus Aurelius’s Meditations as the world was grinding to a stop.
And nearly 4 years after the last, I found another ‘quake book’ in Poor Charlie’s Almanack - a collection of the renowned Berkshire-Hathaway founder’s greatest speeches. Because in its pages, I saw the thread of my life’s journey.
For me, life has been an exercise in duplicity. I’ve never fit neatly into one circle, dating back to my time in grade school - I was either the ‘nerdy jock’ or the ‘jocky nerd’, depending on whether you asked my teammates or my classmates. My college experience followed a similar arc as an athlete at a Liberal Arts Institution, and even up until today as I work in professional sports.
A lesson I’ve learned is that the world has an inertia that bends toward specialization; towards knowing a great deal about a little. It wants to push you into a box and force you to narrow your scope. To be a hedgehog, not a fox.
But having to pick one thing always felt inauthentic to me - as if I was selling a piece of my soul in the short term that would leave me hollow at the end of the road. It is much more natural - and fulfilling - for me to be a ‘Specialized Generalist’: to learn a great deal about a lot, and reflect that back into whatever it is I am choosing to work on.
And after reading Poor Charlie’s Almanack, I’d have to say the author would agree. Because if there is one consistent them that sticks out to me from the collection of Charlie Munger’s talks, it is the value of pairing range with depth - what he calls ‘The Pursuit of Worldly Wisdom’.
To Munger, this multi-disciplinary thinking is at the core of successful thinking. He sees the ability to borrow and apply concepts from a broad array of disciplines as what separates one from his or her peers. By building connections between these mental models, we can then create a ‘latticework of theory’ - one that provides the intellectual scaffolding upon which our worldviews can be built
So what does the acquisition of Worldly Wisdom look like in practice? It’s simpler than you might think. In fact, there is only one pre-requisite: a boundless curiosity.
Munger himself was a walking example - he was as widely read as any of his peers, constantly on the search for principles outside of Berkshire’s domain that he could reinvest within it in unique ways. So while many think of him as one of the world’s greatest investor, he was a true polymath at heart.
His behind-the-scenes technique was simple: rather than trying to find the most detailed, complex concepts from each domain - the equivalent of say, a 400 level astrophysics class - Munger was on the search for the elementary ones; the 100 level principles that provide the foundation for each domain.
To him, such a strategy is an example of leverage in action. In acquiring the elementary ideas from each subject, we are better able to create returns on our energy investment:
You’ve got to have models across a fair array of disciplines. You may say, “My god, this is getting way too tough.’ But fortunately, it isn’t that tough - because 80-90 important models will carry about 90 percent of the freight in making you a worldly-wise person. - P.86
This is the 80/20 Principle applied to knowledge acquisition: simply by grasping the easy-to-learn concepts from ‘freshman’ levels courses, you will get an overwhelming amount of value in return. Thus in order to bring home an A in ‘Worldly Wisdom 101’, all it takes is a mixture of the basics from the big domains - Biology, Mathematics, Physics, and so on.
The secrets of these fields are hidden in plain sight, available to any who wish to uncover them. As such, Munger viewed the pursuit of Worldly Wisdom as an equalizing force, one capable of accelerating anyone to the front of their class regardless of his or her academic background:
It’s kind of fun to sit there and outthink people who are way smarter than you are because you’ve trained yourself to be more objective and more multi-disciplinary. Furthermore, there is a lot of money in it, as I can testify from my own personal experience (p.59)
A playing field leveler, breadth of knowledge thus helps turn your mind into a weapon. The wider the array of knowledge you acquire, the more versatile you become. It is as if you evolve into an intellectual Swiss army knife, equipped with a variety of tools to solve the problems of the world. In a world of specificity, versatility becomes a separator.
Yet while Poor Charlie’s Almanack clearly defines the positive upside to the pursuit of Worldy Wisdom, it also makes careful mention of the negative repercussions representative of a life lived without it.
To Munger, overly-focused, one-lensed thinking is one of the great scourges of the world. He documents the detrimental consequences he has observed as a result of it heavily throughout his speeches.
There is a simple reason for why such an approach falls short: the world does not exist as an isolated set of systems. Instead, it is a complex combination; an interweaved web in which strands pieces blend together to form the whole. Knowledge of but a single component thus leaves us-short handed when tasked with understanding systems in their entirety.
So if we aspire to understand the the world and systems that give rise to it, the only path to doing so lies in becoming familiar with the pieces that make it whole. We must come equipped with a wide array of mental models, else we risk becoming the ‘Man with a Hammer’, where every problem looks like a nail:
The only antidote for being an absolute klutz due to the presence of man-with-a hammer syndrome is to have a full kit of tools.
To highlight what this looks like in reality, academia serves as a cautionary tale. While research is a vital component to making sense of the world around us, it is not secret that findings often fail when put to the test of reality. To Munger, the rationale for why is clear: narrowness is often a pre-requisite for theory. Variables are isolated and controls established, in the hope that we can reduce the world to a focused band capable of understanding.
But such a strategy often fails to deal with the realities - and complexities - of the world. Theory thus stalls in the real world because it arises from specialization - each researcher digs their own trench, but rarely stands up to look into the next one over. They become what Munger says is akin to the ‘truffle hound’: an animal so trained and bred for one narrow purpose that it is no good at anything else.
I don’t find it a stretch to say that his line of thinking extends far beyond the domain of academia. How many of us are using a shovel aimed on a singular path, digging deep when we may in turn be better suited by branching out? How many more problems could we solve if only our toolboxes were better equipped?
Worldly Wisdom may thus be one of the world’s few panaceas. It is at the same time an antidote and a booster; a protector from the downside and exposer to the upside. Acquiring a breadth of knowledge means gaining leverage alongside it, solving two problems at once. We become better positioned to both avoid the pit-falls of narrow minded thought and bring a wide variety of tools to bear on the problems of the world.
And as Munger advises, the recipe to acquire it is simpler than one might think: read, and read broadly. Ignore jurisdictional boundaries - develop a mind that can jump from subject to subject. Isolate the core concepts from each. And then tie them back to the problems you face.
After all, why only carry a hammer when so few of the problems in the world are nails?
Other Standout Ideas
Small Details Properly Leveraged Create Big Advantages
Advantages can be crafted out of the small, detailed aspects that no one wants to do. Find the equivalent of golf’s short game or tennis’s put away volley in your own field.
While he certainly wanted the children to groove their groundstrokes, there was a bit more to it than that. For it was Father who was out on the court more than anyone, with the machine positioned so he could endlessly practice-volley close by the net. Before long, he mastered the well-placed east put-away volleys, the kinds of shots everyone else instinctively tried to kill but usually hit into the net or 10 feet out. By working on the tennis version of golf’s short game, which few others could be bothered to practice, Father, as he’s done throughout his life, gave himself a fair if maddening competitive advantage. - David Borthwick, Stepson to Charlie Munger (p. 44)
Simple Decisions > Complicated Decisions
Humans are processing machines. As such, we often make things harder than needed - either as a function of losing ourselves in the details or needing to prove something to our ego. Resist the urge to make complicated decisions just to seem smart. Victory is often on the other side of simplicity.
We have no system for having automatic good judgement on all investment decisions that can be made. Our is a totally different system. We just look for no-brainer decisions. As Buffett and I say over and over again, we don’t leap 7-foot fences. Instead, we look for 1-foot fences with big rewards on the other side. So, we’ve succeeded by making the world easy for ourselves, not by solving hard problems. (p. 137)
Invert, Always Invert
The path to figuring out X often lies in determining how to avoid the opposite of X. If you run into a wall looking for a proper solution to your problem, try working backwards instead. Sometimes the best way to illuminate the path forward is to eliminate the ones not worth traveling.
I had long looked for insight by inversion in the intense manner counseled by the great algebraist Jacobi: ‘Invert, always invert’. I sought good judgement mostly by collecting instances of bad judgement, then pondering ways to avoid such outcomes (p. 288)
Less, But Better
A consistent theme throughout the book - know where your edges are, and bet heavily on them. Be willing to say no to the illusions outside of your circle of competence. Do less and you’ll do it better.
These advantages of scale are so great, for example, that when Jack Welch came into General Electric, he just said, ‘To hell with it. We’re going to be number one or number two in every field we’re in or we’re going to be out’. I don’t care how many people I have to fire and what I have to sell. We’re going to be number one or number two or out. (p. 93)
Scientists and Chauffeurs
The famous physicist Max Planck once had a chauffeur who had attended so many of his speeches on quantum mechanics that he asked if he could give the lecture instead. After the chauffeur’s presentation, he was unable to answer any questions from the audience. Hilariously, he needed support from his ‘chauffeur in the audience’, Max Planck.
The lesson: Knowing the words is not enough. You must also know what they mean.
In this world, I think we have to kinds of knowledge. One is Planck knowledge, that of the people who really know. They’ve paid their dues, they have the aptitude. Then we’ve got chauffeur knowledge. They have learned to prattle the talk. They may have a big head of hair. They often have a fine timbre in their voices. They make a big impression. But in the end, what they’ve got is chauffeur knowledge masquerading as real knowledge.
Identify Your Edge
The world is full of intelligent, hungry people. ‘Winning in everything’ is not on the table. Lean into the areas that you have competitive advantages. Know both what you do know and what you do not know.
And the Berkshire method is not bonkers. It’s so damned elementary that even bright people are going to have limited, really valuable insights in a very competitive world where they’re fighting against other very bright, hardworking people. And it makes sense to load up on the very few insights you have instead of pretending to know everything about everything at all times. (p. 110)
Concentration vs. Diversification
The idea that most surprised me in this book. Where modern wisdom tends to recommend ‘diversification’, Munger argues for the opposite. When the odds are skewed in your favor, don’t be scared to push your chips into the center.
It’s not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a mispriced bet - that they can occasionally find one. And the wise ones bet heavily when the world offers them that opportunity. They bet big when the have the odds. And the rest of the time, they don’t. It’s just that simple. (p. 104)
Raw Book Notes
If you’d like to dive further into my raw book notes on Poor Charlie’s Almanack, you can find those here.