Paper Mentors #2: Charlie Munger

Introduction

Charlie Munger influences my way of thinking more than any other public figure. He’s given me insights on everything from business decision making to living a good life. They are almost always accurate and actionable.

It is difficult to distill his worldly wisdom into a single blog post. Shane Parrish has a whole blog with insights on Charlie, and it still uncovers new nuggets of knowledge. Not to mention Charlie’s book on worldly wisdom, Poor Charlie’s Almanack, weighs over five pounds.

Nevertheless, it’s fun to talk about Charlie. His irreverence, piercing wit, and extensive repertoire of aphorisms make learning fun. His disdain for economists, surprising tenderness towards Warren Buffett, and attitude towards death are refreshing respites from modern echo chambers. Instead of being right or left, young or old, he’s just Charlie.

I would rather throw a viper down my shirt than hire a compensation consultant -Charlie Munger

Charlie Munger: Billionaire. Polyglot. Ben Franklin Lover.

Before we begin please listen to or read his speech: The Psychology of Human Misjudgment. Then read his UCSB essay here.

Done? I don’t believe you. Go back and eat your vegetables. It’ll take an hour or two, but you’ll learn much more from this article.

Ok. Let’s jump in.

Charlie on Success:

Charlie never defines success in obvious terms like “success is…” or “success means…” He prefers for people to work through the solution. But there is one theme on success that permeates all of his advice. That theme is avoiding stupidity.

Wesco continues to try more to profit from always remembering the obvious than from grasping the esoteric….It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. There must be some wisdom in the folk saying, `It’s the strong swimmers who drown.’

Avoiding stupidity seems obvious, yet most people don’t heed his advice. It means staying away from morally ambiguous situations, people who possess unsavory personalities, and avoiding drugs.

This macro-theme saved me a lot of strife. When an action makes me uneasy, I quickly ask myself “would a neutral, well-informed stranger think I’m acting like an idiot?” If the answer is yes, I change my behavior. Here are a few of the ensuing changes in my life:

1. I don’t display outward signs of frustration during customer support calls, check-out lines, or other small-but-aggravating hiccups.
2. I don’t take the risks I used to in martial arts and longboarding (e.g. bus tows).
3. I minimize my internal and external interactions with self-pity, envy, resentment, close-mindedness, and paranoia. This meant closing the doors on a few relationships people. I also stopped consuming certain products (i.e. social media).

If you think your IQ is 160 but it’s 150, you’re a disaster. It’s much better to have a 130 IQ and think it’s 120.

Avoiding Stupidity is Not Enough

It’s possible to go your whole life without being stupid and still live a mediocre existence. Even worse, we can still be miserable if we follow all of the steps above (e.g. becoming a doctor and playing it safe your whole life). So how do we go from stupidity avoidance to seizing opportunities?

It comes back to the first sentence of the above quote:

Wesco continues to try more to profit from always remembering the obvious than from grasping the esoteric.

The key is to take fundamental, simple ideas and interlock them into a workable framework. This is why Charlie’s mental heuristics dynamically blend and reshape into different frameworks for the task at hand.

This means reading, listening to audiobooks, interviewing professionals in your field, or some combination of the above. It doesn’t matter what blend you choose. These are just tools to learn powerful ideas with no expiration date.

To get you started, here’s Shane Parrish’s list of the most important concepts to grasp. Don’t get overwhelmed and close the tab. Conversely, don’t rush through and try to memorize them all like me. Pick one or two, and quietly search for examples of them in your daily life this week. After you have a vivid interaction or a moment that “clicks” move on to the next concept.

On Being an Autodidactic

How to self-teach yourself cognitive biases and other important concepts

3 Lessons from Charlie Munger: Teach yourself. Be an exemplar. Stay humble in thought.

Teach Yourself

Charlie is fond of saying that he never got an undergraduate degree and he turned out just find. He believes in lifelong learning via consistent reading. Over one, five, or ten years it might not pay off. But over a lifetime, daily reading is the only way to acquire “worldly wisdom.”

There is a nuance most people overlook concerning his didactic Mungerisms. When I first read From Darwin to Munger, I printed out the list of cognitive biases. They included memorable names like “The Lolapallooza Tendency” or “Twaddle Tendency.” However, I found it difficult to memorize them and apply them in my daily interactions.

Quite recently, I read a piece on a writer named David Foster Wallace, and how his mother would help him invent words for concepts that didn’t exist in the English language. At this point, Munger’s true lesson hit me like a bolt of lightning.

I focused on the product (his list of cognitive biases) while he embedded the lesson in the process. Munger never intended for others to copy his back-of-the-napkin naming system. He simply understood the power of inventing memorable terms for everyday concepts. Remember, the latticework of knowledge I described earlier is supposed to organize information an a manner that can be used in the everyday world.

My first opportunity to do this occurred during my internship. While reviewing best practices for creating surveys, I rediscovered the Hawkins Effect (the phenomenon where test subjects behave differently when being observed). There’s a great story behind the effect’s discovery, but the name is sorely lacking.

So I renamed it “The Piano Recital Effect.” Why? Because I used to be a competitive musician, and I’ve watched dozens of musicians perform perfectly in practice and then flub the competition (and yes, I’m one of those musicians).

Here’s where things get weird. Ever since that time, I’ve been noticing everyday occurrences of The Piano Recital Effect. I notice it when watching user testing videos. I notice it when employees interact with their boss in front of others.

Stop using the esoteric, boring nomenclature assigned to you by professors and textbooks. Make up your own words. Your knowledge is useless if you don’t learn concepts in an applicable manner.

Exemplar

Being an exemplar relates directly to the psychology discussed above. Have you ever heard the expression “do as I say, not as I do?” In reality, due to cognitive biases and other hardwired mental shortcuts, we say what the leader says and do what the leader does.

So if the CEO tells everybody to be frugal at a company and then flies on a private jet, the other employees will admonish each other for opulent expenditures while continuing their self-indulgent behavior. Hypocrisy begets hypocrites.

This is nice anecdotally, but how do luxury jets relate to Charlie?

One, he flew coach until he was a billionaire. For all I know, he could still be.

Two, he donates time and energy in addition to money to nonprofitable ventures. This is best seen through his work with education and healthcare in Southern California.

When he donated money to build out a new science wing at a local school, Charlie helped the architect create the building design. When he donated money to a hospital in So Cal, he also joined its medical board to provide advice on incentive structures at the university. He even included an example of compensation plans from the hospital (on how to attract the right kind of people) in Poor Charlie’s Almanack.

Simply put: practice what you preach.

Staying Humble

If you’re a duck on a pond, and it’s rising due to a downpour, you start going up in the world. But you think it’s you, not the pond.

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. If you can’t state arguments against what you believe better than your detractors, you don’t know enough.

Charlie is not a humble person. He is opinionated and brash at times. But, intellectually he is one of the most humble people alive. Rather than talk about how openminded he is, he constantly seeks to disprove his own hypotheses.

He uses his training as a lawyers as an example. Before presenting a case, law students have to argue the opposing side first. This taught them how to be radically empathetic. It is impossible to fully understand the nuances of a court case without comprehending how the opposition pieces the puzzle together. Respect your opponent enough to consider their side.

This radical empathy was common for Cicero, a Roman statesman. He would passionately argue for one side on a political issue. Then, after convincing everybody to follow his lead, Cicero would switch sides and launch into an equally impassioned and convincing speech for the exact opposite course of action. This doesn’t come naturally to humans. We wouldn’t live happy, productive lives if we had to consider all the options available all the time.

Intellectual humility is of paramount importance if you want to learn a lot over a lifetime. You simply cannot internalize an alternative perspective if you have all the answers. So take a step back to look at all sides in important situations (for example, in marital spats, major professional decisions ). Even if you’re the smartest person in the world, acting like you aren’t will energize you to search for that last, critical piece of missing information.

Summary

• Avoid stupidity: Don’t worry about achieving excellence. Give a wide berth to the common problems people ensnare themselves in.
• Teach yourself: School’s always in session. Although it seems like a frivolous habit, it’s the only way to achieve domain expertise over many areas.
• Exemplar: Act like other people are watching and copying you. Do what you say and say what you do.
• Stay humble: You don’t have all the answers. When the stakes are high, you need to use your ears more than your mouth to fully understand what’s going on.