My Key Learnings from Richer, Wiser, Happier

Some life lessons that especially resonated with me

I heard of Richer, Wiser, Happier when it first came out. I saw that it had received high praise, only recently did I hear on a podcast that Charlie Munger had described it as one of the best investment books ever written. So, being a huge Munger fan, I bought it immediately!

Having read a lot of books over the pandemic, I’ve become acutely aware of Herbert Spencer’s insight that “The great aim of education is not knowledge but action.”

It’s fun to learn for learning’s sake. You also can’t be sure how what you learn will later show up randomly to help you (what Richard Hamming was talking about when he said “luck favours the prepared mind”). But knowledge doesn’t stick around if you read a book once, give it no reflection or revisiting and then move on with your life. Unless of course, you have an exceptional memory, or there was a particularly poignant story in the book that stuck with you.

To that end, I’ve started writing summaries of the key ideas that resonated with me from recent books (I’ve also shared my thoughts on How To Win Friends and Influence People). These summaries put a strong emphasis on practical implementation of the ideas.

Habits

“Every action you take is a vote for the type of person you wish to become.” — James Clear

All of the investors mentioned in the book have an abundance of positive habits:

• Most are hardworking (though a minority pride themselves on how little work their investment strategies take)
• They’re invariably voracious readers
• Most reflect on life and have consciously struck a balance between their health, family, friendships, work, and learning.

I’ve separately put together a short behaviour change playbook largely off the back of my reading about habits and behavioural economics, so I won’t touch on that further here.

However, as per the section further down on humility, it would be unwise to think I’ve learned all I can about habits and behaviour change. As such, The Power of Habit is next on my reading list.

Directional improvements

Along the line of habits, making small, even minuscule changes across multiple dimensions can all have a compounding effect on each other and eventually add up to make you much better off than when you started.

Dave Brailsford popularised this philosophy when he employed it to make a number of minor improvements to all aspects of the British road cycling team. He implemented changes from heated outfits that keep muscles at the perfect temperature, to having the riders take their own pillows on trips to improve sleep quality. Anything that could lead to any improvement in performance, big or small, was implemented.

These many changes added up and led to the British team dominating road cycling for a number of years afterwards, winning 6 of 7 Tour de France competitions between 2012 and 2018. This has since become used across a wide variety of other disciplines both in and outside the world of sport. It has since become known as the theory of marginal gains.

We can harness the theory of marginal gains by making a list of dimensions that are important to us and:

1. Checking that we’re regularly moving the ball forward in each of them, or at the very least not moving backwards. Better still would be to make it a habit, say every Monday morning, of doing this.
2. Seeking out new opportunities for minor improvements from the experience of others, or by using our other mental models such as from behavioural economics.

Cloning

This was one that I had already internalised after reading Mohnish Pabrai’s The Dhandho Investor and since repeatedly seeing how many easy wins there are to be had simply by copying a good solution that already exists.

Just as it would be insane to try and invent all of the physical products you wish to use in life yourself, it’s ridiculous to think we can invent all of the mental models or processes we wish to use. Finding what successful companies or people do and copying that can have a huge impact by taking away the guessing game of figuring out what works and why.

Obviously, we shouldn’t copy everything we see successful people do, but by experimenting with their methods by copying them to try them out and trying to understand the underlying rationale, we can slowly build a better intuition around what works and why, whilst capturing a lot of the benefits in the meantime.

The other benefit of cloning is that it completely takes away a dimension on which someone else can beat you. Let’s say you have slightly more raw talent than someone else at darts- if you simply matched their work rate then you’d almost guarantee your sustained victory.

Cloning can also be used in more creative ways than just copying a solution that worked:

• Architects and engineers often look to nature for innovative designs to solve problems (the genetic algorithm being applied over millions of years is pretty hard to beat).
• We can also utilise cloning by taking the methods of something and applying it (within the law, and within what we deem moral) to a new landscape such as copying a business model from another country or industry and putting it to work in your own domain.

A final note when thinking about who to clone is to ask what’s at stake for the person you’d be cloning. Charlie Munger spent time studying how pilot schools teach because the cost of them getting it wrong are so high and therefore he believed would be a good source of expertise (this then led him to understand the importance of checklists for making good decisions; no matter how good a pilot is, they’d never try to operate a plane without a checklist).

Whenever we are faced with a decision to make or a problem to solve, we should add the question “Is there any person/organisation/idea that I can clone to address this problem?” to our own checklists.

Avoiding stupidity

If we want to be good at something in life, the first thing we need to do is stop being bad at it.

The Pareto principle states that in most human affairs the majority of the outcome is due to a small number of inputs (e.g. 80% of the bugs come from 20% of the code, 80% of the assets are owned by 20% of the people).

In many instances the majority of failures will come from a small number of causes. We should seek to identify these causes and avoid them religiously. In investing, for instance, using debt to fund investments is the most common way to go bust and should be avoided.

To avoid stupidity, we would do well to include the following ideas in our approach to solving most problems:

• Start with a premortem (imagine the decision being made went terribly, then ask ourselves “why did it fail?” to come up with a list of reasons it could fail and then figure out how to avoid those).
• Study successes and failures that relate to the situation at hand. Those of big names in the industry, but equally importantly, those that we ourselves have made.
• Seek out disconfirming evidence in order to avoid one of the most powerful cognitive biases- confirmation bias. Search for opposing facts, hypotheses, and arguments as opposed to just ones that agree with our current beliefs in order to open ourselves up to a much broader (and less biased) body of evidence.
• Consult a list of mental biases and other mental models to check whether we’re making any obviously stupid decisions.
• Assess our mental state to ensure we’re not in a state where we will make predictably bad decisions (HALT-PS: hungry, angry, lonely, tired, in pain, stressed). If we are, or if we are unsure whether or not we are, then delay the decision.
• In addition, if this is a repeatable decision, we should design and make use of a checklist in order to ensure we don’t miss anything.

Stoicism

When dealing with anything uncertain in life, which is essentially all of life, we need to be able to make rational decisions and maintain a healthy level of detachment from the outcomes. (A good poker player is one who can stick with their proven strategy in the face of a recent downswing rather than going ‘on tilt’ and wiping out their previous earnings with irrational play.)

The stoic philosophy is a popular philosophy practised by a lot of successful business people, leaders, and investors to help them deal with the uncertainty in life.

One of the most notable stoics was Roman Emperor, Marcus Aurelius. He wrote a private journal which was later published with the title Meditations.

This short book should serve as a good entry point to the stoic philosophy for most and as such is now high up my reading list.

Welcoming and acknowledging change

While stoicism will help us maintain a pragmatic mindset, we also need to ensure we understand the world as well as we can.

Our environment, culture, the economy, technology, and the geopolitical order of the world are all constantly shifting. We need to take time to recognise these changes and adapt to them rather than thinking of ourselves as an entity acting on a static world.

For example, what were acceptable political views in some countries 15 years ago would easily be condemned by the majority of people in that same country now. President Obama’s record on same-sex marriage is a good example showing how quickly things can change. He publicly opposed same-sex marriage in 2008 before later changing his mind and openly supporting it in 2012. According to polls, the majority view of the US shifted in favour of same-sex marriage in 2011 and people close to Obama have since claimed he always supported same-sex marriage but was merely following pragmatic advice in trying to get elected by a voter pool who still opposed the idea. Regardless of Obama’s reasons for changing his mind, this stands as a clear example of how the same opinion held within the space of four years put you either in the minority or the majority of people. Only by maintaining awareness of the changing landscape we live in, not relying on facts we learned a long time ago, can we expect to understand the world and the culture we live in.

As a side note on the importance of understanding the environment you are in, a study was commissioned on the topic of pluralistic ignorance which showed that people often publicly claim views with the mistaken belief that others hold those same views. This public/private dissonance can result in entire communities taking actions they don’t believe in. In Saudi Arabia, husbands get to decide whether their wives go to work, but most chose not to allow this due to a misconceived idea that other people felt that it shouldn’t be allowed. A poll finding that the majority were in favour of their wives working was shared with some of the men, which led to a substantial increase in positive outcomes for the wives in terms of application and interview rates for jobs.

From an investing perspective, we can keep Buffett’s advice in mind to force ourselves to “be fearful when others are greedy and be greedy when others are fearful”, changing our investing approach to be more defensive or aggressive depending on the market sentiment. Although, in most instances outside of the extremes (e.g. not during a market crash, industry meltdown, or speculative bubble), we can avoid much of this issue entirely by using opportunity cost to guide our investment decisions.

In addition, we can adopt the philosophy of factfulness- only sharing and acting on opinions for which we have strong supporting facts. This useful mental model prevents us from arguing over opinions with no evidence and ensures we don’t stray far from our circle of competence by making decisions in domains we don’t understand.

Focus

There are only so many things we can juggle at the same time. Although most of the investors in the book have balance in their life between the things that matter to them (their family, business, health, and education), they almost all have a very rigorous filter that prevents them from being distracted by less important matters.

There’s already a great model for dealing with this by Buffett. He calls it the 5/25 rule.

In short:

• Find your top five priorities in life,
• Find the longer list of things you care about but which aren’t as important as the top five.
• Rather than giving those items a little less attention than your top picks, actively avoid them. Be ruthless with spending no time on them until you achieve what you want to with your top priorities.

Self-awareness and Humility

“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.” — Charlie Munger

“Our knowledge can only be finite, while our ignorance must necessarily be infinite.” — Sir Karl Popper

People almost always overestimate their own abilities. 90% of drivers think they’re in the top half, and in MBA classes almost nobody thinks they’ll graduate outside the top 20%.

In investing, if you don’t honestly assess your own circle of competence and skills, you’re going to pay for those mistakes with your capital.

An easy defence to this is to have humility and use systems. Accept that you are ignorant, flawed, irrational and that making ad-hoc decisions will result in inconsistencies and mistakes.

Even the best investors are said to only have a success rate of around 60%, so accepting that mistakes will happen (and ensuring we manage our portfolio such that we can’t be destroyed by these mistakes) is critical, as is putting in place systems that help us deal with our flaws.

Humility also comes into play because in investing there are no called strikes, so it’s a lot harder to lose money by underestimating your intelligence and being cautious than overestimating your intelligence and being reckless.

I know that when I think I’ve found a good investment, I can become excited and quickly convince myself that I need to buy the shares immediately to capitalise on the opportunity. Forcing myself to talk someone else through the investment idea and putting in place a self-imposed time delay on my decision would be an easy system to help me deal with this flaw.

Reflect on your actions and your character, then put in place systems to deal with the flaws you find, this will pay handsomely in investing.

Thank you William Green for writing such a terrific book which introduced me to so many brilliant minds!