Poor Charlie's Almanack: The wit & wisdom of Charles T Munger


(Donald Francis) #1

Poor Charlie's Almanack deserves a thread of its own!

This hard bound 532 page book was gifted to me by a friend in Oct 2008. A fascinating book - on Charles T Munger, his approach to learning, decision making, investing, his speeches, and more.

Munger is the silent "I have nothing to add" partner to Warren Buffet at Birkshire Hathaway since 1959. Buffet has the following to say about Munger, in the Foreword of this book.

"Look first for someone both smarter and wiser than you are. After locating him (or her), ask him not to flaunt his superiority so that you may enjoy acclaim for the many accomplishments that sprang from his thoughts and advice. Seek a partner who will never second-guess you nor sulk when you make expensive mistakes. Look for a generous soul who will put up his own money and work for peanuts. Finally, join with someone who will constantly add to the fun as you travel a long road together."

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"There was only one partner who fit my bill of particulars (the above) in every way - Charlie."

Needless to say, I was excited with the book on my hands. It is an amazing book and a very inspiring read every time I laid my hands on it. Atleast thrice I have spent 3-4 hours at a stretch, fascinated and inspired, even uplifted....but you ask me next day what I had retained of it, I am not able to offer much. Yet, I remain convinced this is another very practical book. If only I were smart enough to figure out how to apply the principles in every-day decision-making and investing, I would be King!

Yes, it is that valuable a book! Butone needs to make some special efforts to GET it!It's almost as if Munger has deliberately kept the fruits...just that bit out of reach...you need to work hard and smart to qualify.

This thread is dedicated to avid & passionate Munger fans! I am hoping some smarter and wiser (and kind) souls will come forward and help us unravel how to apply Charlie Munger's Decision-making methods - Mental models -as he likes to call them.

Meanwhile we will keep adding resources on this page, and there should be many, that can get us on that road! Illumination will not happen overnight, remember, we need to qualify!


(Donald Francis) #2

One of the first useful advise I got was from Arpit Ranka asking me to attempt a few more re-reads of the book. Now PCA is a 532 page hardbound tome, not easy to carry arround and revise at leisure, I had complained:).

So Arpit was kind enough to send me theArt of Stock Picking(A Lesson on Elementary Worldly Wisdom as It relates to Investment Management and Business) lecture by Munger link, to get me started again! Anyone who is intrigued by the above intro and hasn't yet started on the book (or want's to make another fresh start, like me) will find this a useful starting point!

He also said PCA is mostly a compilation of Charlie's lectures. Most of these lectures are available as standalone PDFs. Easier to digest in smaller lots:)


(Donald Francis) #3

To follow-up on that excellent and practical advise, I had searched and downloaded some of the lectures. Need to confess, didn't move on the reading and revising part! there's always so much to do:(

The Psychology of Human Misjudgement

Charlie Munger addresses the importance of recognising patterns to determine how humans behave, both rationally and irrationally. He shares with us his checklist of 24/25 standard cases of humanmisjudgment. he also emphasis the "lollapaloozza" power of psychologicalmisjudgmentsin combination.

The talk features Charlies original concept of "behavioral finance" which has now burgeoned into its own academic field of study!

Academic Economics: Strengths and Faults After Considering Interdisciplinary Needs

Charlie laments the lack of multidisciplinarianism in Economics and other soft sciences.

The Great Financial Scandal of 2003

This article details a hypothetical financial scandal in 2003 (so Munger is a little early), triggered by dishonest accounting, especially for options, at an imaginary tech company called Quant Tech (which appears to be a bit of Cisco, IBM and the like).


(Donald Francis) #4

By my 3rd attempt at reading PCA, I had understood this much. The crux of the book is about having some patterns, or Mental Models a la Charlie, hard-coded in your brain. Only when you have these models firmly in place, you can recognise the patterns and decision-making becomes easier, more spontaneous.

So what are these Mental Models and how do we get them into our head, deal with them often enough, so that they become ingrained and second nature? I thought we would capture the essence of Poor Charlie's Almanack well & truly, if we get comfortable with the mental models he talks about.

Sure enough some kind soul, Richard M Rockwood in the Munger Network of Mental Models has given us a very good starting point.

For the first time something that had seemed quite abstract and sort of out-of-reach, seems like we CAN touch and feel!


(Donald Francis) #5

http://www.thinkmentalmodels.com/

This website, inspired by the work of Charles Munger, provides over 100 models that can be brought consciously to mind to aid the thinking process.

Some excerpts from the home page that may inspire you to explore for more.

aThe better decision maker has at his/her disposal repertoires of possible actions; checklists of things to think about before he acts; and he has mechanisms in his mind to evoke these, and bring these to his conscious attention when the situations for decision arise.a
(Herbert Simon, Nobel Laureate)

How the exceptional mind works?
According to Warren Buffett, his business partner, Charlie Munger has athe best 30-second mind in the world. He goes from A to Z in one move. He sees the essence of everything before you even finish the sentencea (Forbes, January 22, 1996).

How does he do it?
Well, fortunately, Mr. Munger has explained his approach in lectures and books. Essentially, he thinks by using the BIG IDEAS from disciplines as diverse as physics and psychology. He has a list of these ideas (mental models) in his mind and quickly picks the one(s) applicable to the given situation, much as a pilot automatically goes through a checklist prior to take-off.


(Donald Francis) #6

Before you get lost in 100s of mental models, here's a small and neat list by Eric Napier on Munger's mental models, categorised by subject. might be useful.

http://www.ericnapier.com/mungers-mental-models/


(Abhishek Basumallick) #7

Keep getting surprised and impressed by your diligence smile

I wasn't lucky enough to have a nice friend gift me a copy, so had to buy my own (along with Seeking Wisdom - which is another book I highly recommend). I have read PCA once and am planning to read it once more. But the weight of the book keeps putting me off!! I would have loved a paperback version of the book.


(Hitesh Patel) #8

I am suffering from the problems facing by donald while first perusal of the book.

Looks quite interesting while reading it but next day when I think what useful things I got then it all boils down to practically nothing.

i have read around one third of the book and then halted. I had been sent a link to ebook of pca so i dont have a hard copy which is another reason why its taking more time to read.

For now I have relegated it to the next read after finishing reading the pat dorsey book, the hard copy of which i will receive in next couple of days.

After that i plan to follow donald's advice and go thru the links also to simplify things and get a better grasp at PCA.


(Raj Panda) #9

You are absolutely right about the book Donald. While i found the book an absolute pleasure to read, but, at the same time the principles laid out in the book are not really easy to follow into one's own investing practice.

For example, as suggested in the book, i would love to to buy shares of 20, just 20 companies in my life time and hold them for ever. But it's not easy and requires lots knowledge and conviction. So, in the meantime am just buying many companies to understand about different business models.

Another link i have found is http://www.farnamstreetblog.com/mental-models/. The list of mental models is li'l more exhaustive.

Regards

Raja


(Akhil) #10

I am one of those lucky guys who read the book before I ready any other investment books. So I seem to have an edge in explaining the impact on me. Basically it reinforced in me that it is more than OK to be a contrarian and generalist.

And subsequently rewired my brain.

Looks like most of you guys were already rewired smile so probably the impact seems minimal.


(Arun S) #11

Fully agree with Akhil. I think most of the concepts in PCA are already incorporated in so many other books that the original may not offer any new ideas now smile

Just finished reading "More than you know" by Mauboussin. It is also an interesting book but gives the same feeling.


(Soham Das) #12

Read "latticework" by Hagstorm after reading that lecture on Wordly Wisdom by Munger. I think, there are some problems in applying the mental models as easily as he mentions it- or perhaps its just me. Think about the concept of "surfing"- its almost akin to actually knowing how the future trends will evolve.

One of my own most powerful mental model is that of "non-linear effects"- and I consistently (or atleast try to) conduct thought experiments about companies with this.

To have an idea, consider an amplifier which amplifies a simple wave 100 times... so you apply an electrical signal of 5milli-units ( I am not using any scientific formula or units), the output is 500milli units. You say, wow! I love that

So you ramp up the input, you apply a signal of strngth 500milli units, it ramps up to 5 units and so on...Will it continue ad infinitum?

At one point, the "non-linear effects" of the amplifier will kick in, and say when you apply a 100 unit signal to it, it wont burn itself, the non linearity of the amplifier will make itself far more prominent- you wont get a proper output at the other end.

So this explains in a huge way, or rather puts into perspective , human propensity to draw "linear conclusions" ...

500milli unit -> 5units => 100units -> ?

How does it apply in real life investing, think NOKIA. 5 years back nobody could think NOKIA can be removed from its dominant position in cellphone industry in India, but a search engine developing company released something so totally different that a cellphone company in Finland lost an important share. Thats non linear effect!

Think about competition as the simplest of the non-linear effect- its a kind of a business war, and in business war economic incentives and psychological disincentives interact in strange ways(meaning NOKIA should have realized right at the beginning that Android is a much "sweeter" mobile OS than the existing ones, though it might have its own shortcomings, yet it didnt look twice at it. Or understand that as PC has become a commodity, so will mobile handsets be one day, and being purely handset making company is inviting commoditification. But the management didnt think about it- was it ostrich mentality? I guess we will never know)

So coming back to surfing, we dont know where the next tidal "wave" is going to come from.

My 2cents,

Soham


(Manish Kulkarni) #13

One of the lectures from PCA on Psychology of Human Misjudgments is a real classic, full of wit and wisdom.

Sharing herewith link to audio file of that lecture: http://www.skrinak.com/kris/2003/audio/MungerMono.mp3


(T Anil Kumar) #14

Excellent discussion on Charlie Munger thoughts is happening herehttp://www.safalniveshak.com/wit-wisdom-charlie-munger-part1/#comment-13273.

Puneet Khurana will be publishing a post every fortnight.


(Donald Francis) #15

Thanks Anil,

That's a wonderfully written article ...simple...educative...easy for folks to get it. Puneet is a ValuePickr member since long:).

Maybe he is the best person to simplify things for us ...in our quest to apply Munger's mental models. Have written to him.

-Donald


(bagdu) #16

The Best of Charlie Munger: 1994-2011: A collection of speeches, essays, and Wesco annual meeting notes


(T Anil Kumar) #17

Charlie Munger always says :Invert always invert". Excellent discussion of this idea herehttp://www.cookandbynum.com/our-investment-approach/how-we-think/%E2%80%9Cinvert-always-invert%E2%80%9D/


(Subash Nayak) #18

As usual, I started reading Munger bit late (I am almost 50% through it). I just loved the book.

What I understood from it is a single word - "Wisdom", which is nothing but bunch of mental models hard-wired inside your brain because of experience, which can never ever be substituted by knowledge, how much it be. He seems to concentrate on the models which is much more useful in investing world, mostly from applied psychology, that no one teaches in schools.

PCA has bunch of repeating models in each and every talks, like man with a hammer syndrome, physics envy, various psychological models to analyze human behaviors (like social proofs, Pavlov association, lollapalooza effect), limitations of academic research, and lack of multidisciplinary study.

The problem lies in imbibing them inside your brain as wisdom (as knowledge won't help much) and know when and where to apply them. That is where it get really tough. I can say I learn 2-3 things by reading from Dhandho investor, or little book that beat market, which I can apply straightforward in my investing. Same is not true for PCA.

It is a difficult book to use, but once you master it, You can synthesize many of ideologies that are given in 10 different books.


(Ashish Goyal) #19

I am unable to find this book in Flipkart /Amazon (Out of stock). Any other sources?

thx,


(Gaurav Bhagwat) #20

Poor Charlie's Almanack is not on Flipkart. I tried Flipkart & Indiaplaza & Junglee (Amazon franchise in India). I scouted bookstores here in Pune. But none has it. Can somebody tell me the place.site where I can get it?