#286 Warren Buffett and Charlie Munger

Transcript from https://podmenti.com/t/6116565ad69be292

For the last five years, I've been writing a memo to myself.
I have found this to be an excellent way to learn.
The memo is in the form of a discussion.
Between four characters.
It's a story about a fictitious seeker.
And his visit to the library of wisdom.
Where he meets another fictitious character
The librarian.
Along.
With Warren Buffett.
And Charlie Munger.
What has been reinforced in writing this memo is the efficiency, simplicity, clarity, and common sense of judgment.
That are the hallmarks of Buffett and Munger.
Both have a remarkable ability to eliminate folly.
Simplify things.
Boil down issues to their essence.
Get right to the point.
And focus on simple and timeless truths.
They are the Einsteins of business and wisdom.
If there's one goal of this book
It is to better understand
How they think.
That is from the very brief introduction of the book and we talked about today, which is all I want to know is where I'm going to die, so I'll never go there.
Buffett and Munger a study in simplicity and uncommon common sense.
And is written by Peter Bevelin.
So I wasn't expecting to read this book right away. It was actually recommended
By my friend Eric Jorgensen. Eric Jorgensen
is also the author of the book that I covered on episode one ninety nine, which is the almanac of Naval Rabakant.
But any time Eric recommends a book, I immediately order it.
This book came a few days later.
I pick it up, crack it open, trying to take a peek, see what the book was all about.
I started reading it and I never stopped.
And I think the reason it resonated with me immediately is because when you read the book, it I feel it as if
Warren Buffett and Charlie Munger are speaking directly to you.
And I told you this before, but the reason I've read every single book I could find on Warren Buffett or Charlie Munger is because
I really feel like they're the
very wise grandfather figure that I never had.
One of my grandfathers died when I was too young to remember'em, and the other one was a psychopath and a monster and dumber than a bucket full of rocks.
And so when I listen to Munger and Buffett speak, or I read their writing, I really do view it as, hey, this is the wise grandfather figure that I never had.
They have six decades more life experience than I do. They've seen all kinds of different things.
And they've learned from that experience and then they push that knowledge and the information that they've acquired over their very long lives down to future generations.
And so almost all my highlights are Munger and Buffett talking directly to you and I. It is very surprising that they start the book.
On the subject of mistakes.
And so it starts off with Munger saying, Mistakes are a fact of life. I'm not gnashing my teeth over them or suffering or enduring them.
I regard it as perfectly normal to fail and to make bad decisions.
Buffett comes in. Remember, this is gonna be like a a dialogue between them. I guess I should tell you.
So the in what's interesting about this book
Uh, compared to the rest of the books that I've read on both Munger and Buffett.
is they quote heavily, so he uses obviously any of like the books written about Munger and Buffett.
But also a lot of it is from the annual meetings.
that Buffin and Munger both put on.
And so the author organized all this
So we can read it in like a conversational format. So you have Munger that says that, Buffett says
Everyone makes mistakes. I've made a lot and I'm gonna make more. That's the nature of making a lot of decisions.
Try to live your life totally free of mistakes is a life of inaction.
Stupidity is inevitable. It happens to everyone.
Wrong decisions are part of life. Being able to make them work out anyway
is one of the abilities of those who are successful.
And so that's one main theme that they repeat over and over again is the fact that since mistakes are inevitable, you have to structure your life and your business to be able to survive the inevitable bad decisions that you're going to make.
And Buffett has a funny little memorable way to describe
their approach to being able to survive mistakes.
Uh, he says the sign above the player's entrance to the field at Notre Dame reads
Play like a champion today.
I sometimes joke that the sign at the field in Nebraska reads Remember your helmet.
Charlie and I are remember your helmet kind of guys. We like to keep it simple.
And then they go into the fact that avoiding problems is better than being forced to solve them.
This is a really amazing way that Charlie Munger
Describes this idea.
He says wisdom
is prevention.
Then Buffett says it wasn't raining when Noah built the ark.
And he didn't even look that smart for thirty nine days.
But there are some things you have to think ahead on.
And prevention is enormously important.
And so if wisdom lies in prevention, how do you gain wisdom? And Munger says
If wisdom is what you want, you're gonna get it by sitting on your ass.
If you really want to be an outlier in terms of achievement.
Sit on your ass and read and do it all the time.
And then Mugger goes into the fact that because they spend so much time gaining wisdom
and preparing that allows them to actually make decisions really quickly
uh when you have the few great opportunities in your life that are presented to you. He says we actually make decisions very rapidly.
That's because we've spent so much time preparing ourselves.
By quietly sitting and reading and thinking.
Buffett chimes in.
He says unfortunately Bertrand Russell's observation about life in general
Applies with unusual force in the financial world.
Most men would rather die than think.
And many do.
And then Munger says, if you get into the mental habit of relating what you're reading to the basic underlying
Ideas being demonstrated.
You gradually accumulate some wisdom.
So then there's the question, but how do you guys have so much time to read?
I always believe that you were very busy.
Uh all the time and you had meetings all the time. Buffett says at Berkshire we don't have any meetings or committees
And I can think of no better no way to become
No better way to become more intelligent.
Then sit down and read.
I hate meetings, frankly. I have created something that I enjoy. He's obviously talking about his company.
I've created something that I enjoy. I happen to enjoy reading a lot and I happen to enjoy
Thinking about things.
Munger says we both hate this is something
that I've really uh adopted. I think it's one of the best ideas that they have.
And it's this idea that you have to schedule time to think and you cannot he's Munger's gonna say something funny where it's like most people, most business people schedule themselves like a dentist. He's like, Well, if you do that,
every single minute of your day from the time you wake up to you go to bed is accounted for. When the hell are you thinking?
And I'll get into why Jeff Bezos picked up on this is such an important thing.
In one second.
Munger says we both hate to have too many forward commitments in our schedules.
We both insist on a lot of time being available.
almost every day to just sit and think. I've heard various stories over the years.
About this.
But for example, like let's say you wanted to meet with Warren Buffett, you wanted to schedule something
And says, You know, hey, can you meet, you know, th the third week of next month? He's just gonna say no.
If you want to meet me Friday, call me Thursday and I'll tell you if I'm available.
I interact with a lot of founders. It's completely different than how most founders schedule their time. Maybe we should be learning from their experience. Munger says we schedule time to think. Most people schedule themselves like a dentist.
It's so easy to get so busy that you no longer have time to think, and you pay a huge price for that.
And so when I got to this part, I thought of something that I read that Jeff Bezos said one time. This is in the the book Invent and Wander, the collected writings of Jeff Bezos. I covered it all the way back on episode one fifty five.
But Bezos said, I need eight hours of sleep. I think better. I have more energy. My mood is better. And think about it.
As a senior executive, what do you really get paid to do?
You get paid to make a small number of high quality decisions.
If I make like three good decisions a day
That is enough.
And they should just be as high quality as I can make them.
Warren Buffett says he's good if he makes three decisions a year.
And I really believe that.
And I think what Bezos would tell you, what Buffett would tell you, what Munger would tell you is like how the hell do you expect to make high quality decisions if you're not spending any time
Deep in thought and your focus.
This leads to directly into one of my favorite parts.
something that they repeat over and over again, the dangers of multitasking. They say over and over again, what worries me and Charlie most is a lack of focus.
Munger says this modern generation, which has gotten so good at doing two or three things at once, multitasking.
All confidently predict will end up worse than people
uh more like Warren Buffett with solitary reading time and less trying to do three things at once.
I think people that are multitasking pay a huge price.
I think
Edwin Land.
uh founder of Polaroid somebody talk about over and over again on the podcast, that's Steve Jobs Hero. He would agree with exactly what they're saying. He talks about the powers of intense concentration hour after hour, who actually release things inside of people that they didn't even know existed.
I send this uh video of Johnny I to a bunch of my founder friends.
And in like three minutes, he talks about hey, Steve Jobs was the most remarkably focused person.
I knew.
And so this idea of the importance of focus appears over and over and over again. If you just pick up any of these biographies, you're gonna see it just jump out jump out at you. It's so obvious.
I think people that multitest pay huge price. I think when you multitest so much you don't have time to think about anything deeply.
You're giving the world an advantage you shouldn't.
Practically everybody is drifting into this mistake.
This is amazing that what Munger says.
I did not succeed in life by intelligence.
I succeeded because I have a long attention span.
And then Mugger goes in. This is not rocket site. This is very obvious and yet people don't do it.
uh Johnny Ive in that video. The reason I send it around so much is he talks about listen, this seems really simple, but I'm shocked at how so few people do it.
So I always when I whenever I hear something like that, where it's like this is really important.
High priority, repeated over and over again.
And yet
it goes completely against human nature and you know g goes against human nature because most people don't do it. I'm like, okay that like l like uh alarms go off in my mind. It's like okay, that is extremely important. That's something you need to master, right?
And so Mauger goes into this. He goes, It's just this simple.
We've have enough good sense when something was working well, we keep doing it.
The fundamental algorithm of life.
Repeat what works.
Moving ahead, there's gonna be three main ideas spread across a couple of pages.
They're gonna repeat these ideas a lot, which is very surprising.
One is something that
I think you know of well, but it's it's worth repeating.
You should aim to be consistently not stupid.
Then they talk a lot about do not let the thoughts of others
Interfere with your own.
And then something that I talk about
that that comes up a lot in in conversations with other founders.
is it's so difficult to build a successful business, and then what happens
And what Munger and Buffett are always talking about. It's like, first of all, it's very difficult to build a uh a very successful business. And most likely the down your downfall once you're able to achieve something that's extreme extremely rare.
Is not that
You're gonna be taken over by a competitor or something like that.
It's that you're gonna mess it up.
And they talk about that people, there's something in human nature.
Where people are driven crazy by extreme success.
And of course, they're able to describe all these ideas in uh you know, just a few sentences. The first thing here is Munger saying, Hey
The one thing that surprised me all my life is how many people with high IQs do massively stupid things.
Someone once said what most distinguishes the foolish
And the intelligent
Is the foolish consistently commits the same stupidities.
While the intelligent always find new ones. So that's really funny, obviously.
Munger then continues While an excess of self regard
Is often counterproductive.
And its effects on cognition.
It can cause some weird successes from overconfidence.
that happens to cause success. So what does that mean? That's kind of a weird language there. This is he he breaks it down into a maximum.
that I've heard Munger repeat several times.
And he says, Never underestimate the man who overestimates himself.
Buffett chimes in. He says I would say if Charlie and I have any advantage,
It is because we're rational and we very seldom
Let extraneo factors interfere with our own thoughts.
And Munger say.
variations of this idea over and over again. Let me go back to what Buffett's saying. He's saying
Hey, we try to be rational. We don't let
the the we try to mute the outside world, right? We're not going to let the outside world interfere with our own thoughts. We do not let other people's opinion interfere with our own.
And then Munger goes back into this thing. Don't mess it up. You need patience and discipline and an ability to take losses in adversity without going crazy.
You need an ability to not be driven crazy.
By extreme success.
And then they go on from multiple, multiple pages.
about one of their favorite ideas. This is idea of inversion
I've covered this idea a lot in the other Munger and Buffett episodes. I will list all of them.
in the show notes down below in case you want to check out
uh, you know, I don't even know how many there are. There might be like eight or ten or something like that. You can also go to founders podcast dot com and see
like all the show notes in case it doesn't show up on your podcast player. But I'm gonna try to avoid covering things I've covered in past podcasts, because I just assume when I make the podcast that you're just like me, that you're a maniac.
And then when you find something that you're interested in.
Like I I was interested, you know, in Charlie Munger, Warren Buffett. I'll read every single and get my hands on. I would listen to every single podcast. So I will list them all.
And obviously if you're interested in learning more from War Buff and Charlie Munger, just listen to them and you know, listen to them again.
And so they're gonna talk about inversion throughout the entire book.
Munger starts off. That is very much my approach to wisdom.
I go around figuring out what doesn't work and then I avoid it.
Invert, always invert. I sought good judgment mostly by collecting instances of bad judgment.
than pondering ways to avoid such outcomes. So that is in his personal
Like his personal life, right? But he also talks about it's extremely useful in studying why other people fail in business. To examine how businesses become big and strong.
Charlie first studies how businesses decline and die.
Buffett says.
We have been a student of other people's folly.
And it has served us well.
And then Buffett has a great line on how do you actually practice this. This is in this is fantastic.
It is an inversion process. You start out with failure and then engineer its removal.
And this is one of my favorite ideas in the book. An another way to think about an idea I've already pre been previously exposed to. It's like oh
You should figure out what you don't like.
to get to what you do like.
And so says uh Munger says the mental process
That has really worked for me my whole life.
Uh, and I use it all the time, is turning everything into reverse.
I figure out what I don't like instead of figuring out what I like in order to get what I like.
And so they go on giving examples of inversion over and over again.
And yeah, and interspersed through
all these examples of inversion, they say stuff like this, hey, I think a lot this is buffet. I think a lot of people make things more complicated than they need to. Really think you should keep things simple. In both business and investments, it's usually far more profitable to simply stick with the easy and obvious.
than it is to resolve the difficult.
And then they end this section of the book with why they're saying this. This is something you and I have talked about for years.
Repetition is persuasive. They said some things may seem a little repetitious.
But repetition is the mother of learning. And so if you pick up this book and read it, and I hope I can encourage you to do so, you're gonna be
Maybe surprised.
But
A large part of this book is actually on
The human psychology
And then observable human nature throughout history. And if you think about this, like okay, why would some of the greatest
Founders and investors of all time in Munger and Buffett. Why would they be so obsessed with that? Because business is people, right? Your your business partners are people, your customers are people.
And so they just have a g a lot of it is like avoiding they talk about, you know, there's a lot of low quality traits in human beings and low quality people on this earth. You need to avoid them.
Again, I think they they give you a simple way to do this.
And so Buffett talks about like well when you're picking people to do business with, he just has this thing. He's like
You know, if you need like a fifty page contract
to protect yourself from the person you're dealing with, you need to walk away from that deal immediately, he says.
I like to deal with people where I feel a one page contract
would do the job.
And one apparent almost contradiction.
When you read they talk about hey, you know, we spent so much time studying history, reading biographies.
learning from the experiences of others. And then they keep repeating that most people do not learn from other people.
And Munger's got a great illustration at this point. He goes, You can tell that most people don't learn from uh
The the experience of other people because there's little originality in the disasters of mankind. We'll get there in one second. Buffett said the trick is to learn most lessons.
From the experience of others.
Munger says the more hard lessons you can learn vicariously rather than through your own hard experience, the better.
You can see the results of not learning from other people's mistakes by simply looking around you.
How little originality there is in the common disasters of mankind.
He goes on to lysum, drunk driving deaths, incurable venereal diseases.
Uh, conversion of bright college students into brainwashed zombies as members of destructive cults, business failures through this is such a great line.
business failures through repetition of obvious mistakes made by predecessors and so on. I just love that idea. It's like you can tell people are not learn or most people are incapable of learning from the experience of other people because there's no originality in the common disasters of mankind. They just repeat over and over again.
I think you'll learn a lot from other people. In fact I think you learn basic if you can learn basically
everything from other people, you don't have to get too many new ideas on your own.
You can just apply the best of what you see.
And then a few pages later, they essentially give an enthusiastic endorsement.
Of listening to Founders Podcast.

'Cause they say study.
Effective.
individuals.
Buffett says, look at effective individuals and try to figure out why they're effective. Munger says, I think history's very helpful.
It enables you to keep things in perspective.
So the history of civilization and the history of finance and investing, it is very useful.
Uh, Buffett says, I like history. I like financial history. It is useful to realize how extraordinary things
can happen occasionally. This is a great, great line.
Everything that needs to be said has already been said.
And but since no one was listening
Everything must be said again.
Now we got a couple of different ideas all centered around this one main idea. Focus on the essence.
The most important thing the core.
Always try to simplify things to their essence, the fundamental or most important aspect of something. The core is the way to think about it. Charlie's got the best thirty second mind in the world, Buffett said.
If I call him and describe a problem to him, any kind of situation, he gets to the essence of it immediately.
When we make decisions, we focus on the most important thing.
Something they preach over and over again is get into a good business and allow the miracle of compound interest to do me most of the work for you. I talk about this over and over again to you uh with you.
That
Time is carries most of the weight.
Uh, Buffy says compound interest is a little like rolling a s uh snowball down a hill. You start with a small snowball and if it rolls long enough, uh you'll have a real snowball at the end. Uh it's better if you're not in too much of a hurry and keep doing sound things.
The reason I read wanted to read you that paragraph is really for this next two sentences. Berkshire was a small business at one time.
It just takes time.
It is the nature of compound interest.
You cannot build it in one day or one week.
going back to this idea that once you're in a good business, stay in a good business, let time
Do the work.
Uh, Charlie Munger talks about this as staying on the wave.
So he says when new businesses come in, there are huge advantages for the early birds.
And when you're an early bird, there's a model that I call surfing.
When a surfer gets up and catches the wave and just stays there, he can go for a long, long time.
But if he gets off the wave, he becomes mired in the shallows.
People get long runs
when they're right on the edge of the wave. And so he uses the example.
Like Microsoft or Intel.
Stay on the way.
And then they give some ideas on both s that are effective for sales and effective for managing other people within your organization.
Mary Kay once said, It's so simple.
Yeah, take yeah, makes such a difference. Pretend that every single person you meet has a sign around his or her neck that says
Make me feel important.
All human beings work better if they get reinforcement.
If there are constant rewards for doing well.
You will be driven to do more of the same.
And then they have a theme that they repeat over and over again with different little stories, and a lot of it actually is
Related to uh ba like uh Buffett loves baseball stories.
But it's just this idea that there's just mo most of the world is by definition has to be mediocre.
in that if you can actually do the work necessary to turn yourself into a formidable individual
And then work with just the best
First of all, work with the best possible people and work in the best possible industries and businesses that will do most of the work for you.
And to be able to do that is you have to be kind of ruthless with cutting people that aren't up to your standards out of
Like you don't want to do work you don't you can't work with
you know, C players or even B players. So Buffett says the real issue is mediocrity. There are too many
two forty hitters. So he's he loves this baseball analogy. If you were a fantastic hitter, you'd be a four hundred hitter. That's something he's gonna repeat over and over again.
In this case you have somebody that may even think they're a four hundred hitter, but are actually a two forty hitter.
So what he's talking about, the real issue here is mediocrity. There are too many two forty hitters in business.
Businesses often settle for a notch or two above mediocrity.
There are strong human instincts at work.
And then they also give advice where it's like, listen, you you think you might be able to turn around a business or turn around a person
You're just better off.
Getting into a better opportunity.
This is something uh where I always say is like actions express priority. It's one of my favorite maximums.
People do what they actually wanna do and you can tell what people wanna do. It's just like how do you spend your time? What are your act it doesn't matter what you tell me.
Hey, this is important to me. It's like just
I can look at what you do.
And
This is great advice from Buffett.
People just do what they want to do.
And you're just better off just not trying to change their behavior because only they can do that. So he says, in almost sixty years of investing, we found it practically useless.
To give advice to anyone.
And this is even in situations where you figure, hey
They ha they should have a lot of influence and control here.
He says, Listen, Charlie and I have been on boards of companies in which we were among the largest shareholders. And even then, we had very little luck changing their behavior.
So we think that if you buy stock in a company, you better not count on being able to change the course of action.
And then they go back into the importance of understanding human behavior and then they touch a little bit on why so many founders
And investors
have a like they love history. They like studying history. They find it very useful for their careers. Buffett says you really should understand human behavior if you're gonna run a business. Munger says
Once you have the ideas, of course, you must continuously practice. Amen.
something you and I talk about over and over again. Once you have the ideas, of course, you must continuously practice their use. If you don't practice
you can't perform well. A wise man engaged in learning some important skill
will not stop until he is really fluent in it.
So more on this idea of it's really important if you're gonna run a business to understand human nature. Again, this is
All these ideas, these are not on the same page. So this is how you know it's important to them because what what's important to people, they will repeat.
And so this is
Really it's a it's a story about imitation is the note that I left myself when I read this, but no, w what Charlie's about to tell us.
He's telling us a story about human nature.
That's very fascinating. And if you think about like their bird's eye view that they've had
uh in the like the finance industry, which um, you know, it's been full of
Panics and bubbles and booms and busts, right?
This is just absolutely fantastic. So Charlie Munger says, One of my favorite stories is about the little boy in Texas. The teacher asked the class, if there are nine sheep in the pen and one jumps out, how many are left?
And everybody got the answer right.
Except this little boy who said
None of them are left.
And the teacher said.
You don't understand arithmetic.
And he said no teacher
You don't understand sheep.
And Buffett adds on to the story by saying it always amazes me how high IQ people mindlessly imitate.
And then Buffett describes
This phenomenon by this idea he calls the three eyes.
And so he says you get what I call the natural progression, the three eyes.
The innovators.
The imitators
And the idiots.
So skipping ahead, let's go back to this idea that they repeat over and over again.
Spend a lot of time thinking, reading, formulating your own thoughts, and mute the world.
And so Buffett says we do not read other people's opinions. We want to think.
We wanna get the facts and then think.
This was such a
Like a mind blowing
Uh, realization.'Cause you never know like when you're reading something when it just is gonna suddenly click or like kinda c um
interact with a maybe pr an idea that was previous in your mind or you didn't w weren't necessarily
Like completely understood how important it was.
When I was reading Buffett Cher Letters and then obviously uh this is like years ago. So this was probably like in two thousand nineteen, maybe.
And
listening to Charlie Munger speak, they kept bringing up this guy named Henry Singleton.
And I was like, what the heck is going on here?
You know, in my opinion Buffner Munger have studied the uh the people living and maybe people who've ever lived.
They've probably studied more different businesses and more company founders and managers and CEOs than almost anybody else, right?
Um, they've been at it since I've been Buffett's gate since he's a little kid and he's been doing almost for a hundred years, right?
And yet they kept bringing up Henry Singleton, Henry Singleton, they're like, Hey
this guy was uh Charlie Munger says Henry Singleton's the smartest person he ever met. Munger said that uh his returns in business were utterly ridiculous. Buffett said it's a literally a crime.
That business schools don't study this guy.
And the reason it's hard to study'em is
You actually have to, like there's not a lot written about'em.
Um, I've done two episodes on'em, but episode one ten, there's this book called Dissent Force.
Which is written by Singleton's like right hand guy. And it's really the history of the company Telodyne that they built together.
But what was so remarkable and just made I don't know why, just clicked when I started reading about Singleton is like how he spent his time. But the point uh of all this is like there's a description in that book.
they're really resonating with me that you have to do the work necessary to be able to trust your own judgment or none of this is gonna work.
And so I'm gonna read a quote from Distant Force. It's episode one ten.
I'm about to reread this and collect all the other information. In fact, a bunch of listeners actually sent me.
uh really valuable information about singleton.
Like old press articles and stuff they found in like public libraries and stuff.
But
I want to read this because I really think this is exactly what Buffett is saying here. Let me reread Buffett before I get there, right? He's like, listen.
We don't read other people's opinions, we wanna think, we wanna get the facts and then think.
In many ways
singleton was Buffett before Buffett, right? So it says quite often Henry simply talked about his philosophy of running a co uh a corporation and the various financial strategies that came that he came up with.
As he sat in his office each day, often working in his Apple two computer.
He was a brilliant strategist.
And he came up with many creative idas, ідеas that were sometimes
Contrary to the currently accepted methods of managing a large corporation,
That prevailed in those days. One of the things that blew my mind was the fact that
Henry Singleton was friends with Claude Shannon, the inventor of
Information theory.
a universal genius, one of the rare universal geniuses that the world is seeing, right? And Claude Shannon.
And Claude Shannon was actually on the board of Teledyne and an advisor. So when when Henry would go out and when he was building his conglomerate trying to buy through acquisitions,
You'd actually have
To be able to tap, imagine be able to like call up Claude Shannon and be like, Hey what do you think about this new technology?
It's just crazy to me.
Anyways, this is what Shana said. Check this out.
He all he Chann is talking about
Singleton, observing singleton, how he works. He says
He always tries to work out the best moves.
And maybe he doesn't like to talk too much because when you're playing a game, you don't tell anyone else what your strategy is.
Where did the strategy come from?
the same place that Buffett now in this book that I'm holding in my hand is saying.
Came from him sitting there in his room.
Thinking.
Singleton was obviously v extremely well read, just like Buffett as well.
Let me go back to Buffett and I'm gonna repeat this for the third time. We do not read other people's opinions. We wanna think. We wanna get the facts and then think.
Now we're many pages deep in the book and they go back to this theme.
Default to no, keep an open calendar so you can actually think. The difference between successful people and very successful people is that very successful people say no to almost everything.
Munger that was Buffett. Munger says both Warren and I have amazingly open calendar.
And we're very reluctant to put new commitments in there.
I like flexibility and it has worked for me.
And so Buffett takes this so seriously that
You know, at this at the point they're talking about this, I think he owned like eighty different businesses.
And so he would actually every few like years, he would write uh the managers of his business.
A a letter.
And it all it's all about the fact that Buffett
Ruthlessly.
Guards his
Time.
This is what the letter says.
Please turn down this is buffet writing, right? This is two
All of the the CEOs and the managers of all the subsidiaries in Berkshire.
Please turn on all the proposals for me to speak, make contributions.
Uh, et cetera. Sometimes these requests for you
for you to act as an intermediary will be accompanied by, Oh, it can't hurt to ask.
It will be easier for both of us if you just say no.
And he means no right away.
As an added favor, don't suggest that they instead write or call me.
Multiply eighty or so businesses by the periodic
Oh, I think he'll be interested in this one and you can understand why it's better to just say no firmly and immediately.
And then they touch on a main theme in the history of entrepreneurship, the importance of frugality, guarding the resources that you have.
Not spending foolishly no matter how much money you have.
Uh, Charlie and I have always been big fans of living within your income and if you do that you'll help you'll have a whole lot more income later on.
If you Munger says, if you want to get rich, you've got to understand your understand your income. You've got to intelligently invest the money that you haven't spent.
uh spent the money will work for you for a longer period of time. You have to save. And so I actually found
Um, I'm gonna reread his biography and if I I got another book on him too.
uh actually found uh this guy because
Buffet. It's another uh
entreprene that Buffett and Munger talk about uh from history is this guy named James J. Hill.
And I covered him all the way back on episode number ninety six. And he's one of the
maybe the greatest railroad builder in history.
And there's something that he stu he talks about and he would repeat in
His work you know this is
eighteen hundreds, probably let's see, mid to late eighteen hundreds when he says this.
And he said, If you want to know whether you are destined to be a success or failure in life, you can easily find out. The test is simple and it's infallible.
Are you able to save money?
If not.
Drop out.
You will lose. You may you may think not, but you will lose as sure as you live.
The seed of success is not in you.
So then they spend some time talking about the dangers of debt.
That debt is a r uh is an easy way
a common way for really rich people to go broke. Munger says smart men go broke in three ways, liquor, ladies, and leverage.
Buffett says, Whenever a bright and rich person goes broke, it's usually because of leverage.
Any series of positive numbers, however impressive the numbers may be, evaporate evaporates.
When multiplied by a single zero. History tell us
That leverage all too often produces zeros.
Even when it's employed by very smart people.
One of the things you will find this is still Buffett talking.
One of the things you will find which is interesting
And people don't think of enough.
Uh, with most businesses and with most individuals, life tends to snap you at your weakest link.
You can have somebody whose aggregate performance is terrific.
But if they have a weakness, maybe it's with alcohol, maybe it's a s uh susceptibility to taking a little easy money.
It's the weak link that snaps you.
And frequently in the financial markets.
The weak link.
Is borrowed money.
And so the other side of the coin of this idea is like, hey, they they tell you over and over again, we gotta be real careful with debt.
Be real careful with leverage.
they will preach the fact that you should try your business should have mountains and mountains of cash. Cash is a lot like oxygen. You don't notice it ninety nine percent of the time, but when it's absent, it's the only thing that you notice.
We uh have maximum financial flexibility to face both hazards and opportunities.
Buffett says we keep our l our cash largely in US treasury bills.
And avoid other short term securities yielding a few more basis points.
Somebody sent me and this is not my world, so I don't know.
But somebody said that they right now they have a hundred billion in cash, earning four percent risk free.
We agree with investment writer Ray DeVaux' observation, more money has been lost reaching for yield than at the point of a gun.
And why do they say that? Because cash ensures your for survival, something you and I talk about over and over again. You have to stay in the game long enough to get lucky.
Buffett says it pays
to conduct your affairs so that no matter how foolish other people get, you're still round to play the game the next day, Munger says.
I am NATO victim, I am a survivor.
And then they start giving advice on just interpersonal relationships. You're going to like people you're gonna deal with bad people throughout your life. That's inevitable.
But how you can't control what they do other than you can avoid them, obviously, but you can control your reactions. And so then buff it
In the middle of this he talks about hey
This is some of the best advice I ever got in my life.
And so he says forty years ago, Tom Murphy, who was the former um CEO of Cap Cities and ABC, gave me one of the best pieces of advice I've ever received. He said, Warren, you can always tell someone to go to hell tomorrow.
You haven't missed the opportunity.
Just forget about it for a day.
If you feel the same way tomorrow, then you could tell them.
But don't spout off in a moment of anger.
And then this is one of the most important fundamental insights into human nature that I've learned personally from Charlie Monger, and he's like, Listen,
Everybody thinks that the world is driven by greed.
But it's the world's not driven by greed, it's driven by envy. And your life will be a lot better if you can just eliminate envy from your life.
And so Charlie says, I've heard Warren say
Half a d and I I guess he would learn this from Warren.
I've learned uh I've heard Warren say half a dozen times, it's not greed that drives the world, but envy.
Buffett says our experience is that envy
Is what really drives people.
You can give someone
a two million dollar bonus and they're happy until they see the next guy got two point one million.
And then they're miserable.
And Munger illustrates why this is so ridiculous.
If you're comfortably rich and someone else is getting richer faster than you
So what?
Someone will always be getting richer faster than you. This is not a tragedy.
Someone else is always going to be doing better at any human activity you can name.
Let me go back to this idea, something that I believe
With my whole heart that time is the best filter.
Buffett says Gianni Angellelli, maybe?
is the former chairman of the car company Fiat.
Uh so it says Johnny once told me
Uh, one time told me when you get older, you'll have the reputation that you deserve.
You can fool some people.
Some of the time, but not forever. I believe the same is true for companies.
And now when I read that, that's probably like what, the third or fourth time. Uh I think the fourth time I've read
That particular highlight, something el just jumped at me.
Where he says, Hey
you know, with time, you can't fool people, uh you can fool people some of the time, but not forever.
Over time you're gonna have a the the personal reputation that you deserve and your company will have the reputation you deserve.
Buffett says something in this book that's that's fantastic, where he describes what a actual brand is, and he says a brand is a promise.
So I'm not sure why, but when I re read that section just now.
That's the uh the idea that jumped it that popped in my mind.
And so then Charlie adds to this.
the w best way to get a reputation for yourself and your business
is to actually work backwards. He is going to
quote so
Bu uh Buffett and Munger are both fans of Soul Price. I did an episode on him. It's episode one oh seven. My
I would
make the argument that Sol Price is the most influential retailer to ever live.
Sam Walton, Trader Joe, Jim Sinegal, Bernie Marcus from Home Depot, Jeff Bezos.
They all used to be.
ideas in their business, variations of sole prices ideas in their business.
And so we have Munger talking about like, Okay, well
You should decide.
what kind of business that you do not want.
Right. So I says so price used to say success in business came from deciding which business you could intelligently do without.
He had a list of businesses
That he did not want. He didn't want business from people who wrote bad checks.
Uh he didn't want
business of people who clogged up his parking lot without buying very much. He carefully invented a system
Uh, he's the one that came up with the the idea, like w everybody knows Costco. That Costco idea is Sol Price's idea.
It was just actually uh brought to life by Jim Sinegal, which is
Sole prices uh meanti.
Jim when he was real young.
uh actually work for sole price. He
greatly admired him. In fact the autobiography the biography of Sol Price
That I read for one o episode one hundred seven.
Jim Sinegal wrote the the forward or the introduction of that book, and he says, like when people would interview him, I was like, Oh, you you knew Sol for fifty years before he died.
You must have learned a lot from'em. He's like, No, no, I didn't learn a lot.
I learned everything.
everything from him. So that's what Charlie's talking about. He's like, Well, he just designed a business.
You know, how many businesses do you have to
Pay a membership.
For you to shop at. Like that was that's extremely rare. But why is he or unusual. Why is he doing that? Because he's designing
A bit he's he's
Getting to the business he
He wants to be a little bit more.
By avoiding things he does not want, and that membership fee, that barrier to entry, eliminates a lot of the things that Charlie's talking about here.
He didn't want business uh businesses of people who clogged up his parking lot without buying very much. He carefully invented a system where he kept those people out and succeeded by deciding.
What he would be better off without
And avoiding it.
This is a very good way to think, and it is not common.
And so then Buffett goes into something that he repeats over and over again.
In fact,
One of the best gifts I've ever gotten.
It is
Uh, for Father's Day, my wife got me this mug and it says like the wisdom of Warren Buffett, and all it is is
Warren's face with a bunch of quotes that he said, and all he do is like fill up this cup.
Multiple times a day with with espresso.
And then read, right?
And one of my favorite things is because it's like
These ideas are in the book and they're in the podcast.
And yet th this like physical item brings that out and like serves as like a reminder every day. And on one of the things that he says
on this this coffee mug is the best thing I did was to choose the right hero. This is something that
Him and Munger repeat over and over again. I'm gonna read this section real quick.
And then tell you something Munger also says
I think it's very important to have the right heroes.
Choose your heroes carefully and then figure out what it is about them that you admire.
Then you figure out how to do the same thing. It is not impossible and then
I've actually seen clips
from Warren saying this at the shareholder meeting.
And then Charlie adds
You also should not relegate your selection of heroes to the living.
That the eminent dead, obviously a main theme of this podcast, right?
The eminent bet dead.
Provide some of the best models.
Around.
And then they have some more advice for our career, for our work, that you really should try to maneuver yourself, get yourself in a position.
where you can do la uh work that you have an intense interest in.
If you listen to my three part series of the about Paul Graham's essays, two seventy five episode two seventy five.
Seventy six and two seventy seven.
This is a main theme of his writing as well. The big thing you want to do is you wanna enjoy every day.
So you want to have a job.
That you love.
And you want to work with people that you like, admire, and trust. Munger says, in my whole life, I have never been good at something I wasn't very interested in.
It just doesn't work.
There is no substitute for strong interest.
They also talk about a very common mistake that smart people make, that successful people make, is because they were successful in one domain that they can act that knowledge actually transfers to other domains.
The best example of this is like uh I always say, you know, Henry Ford's one of the the

Henry Henry Ford's one of the entrepreneurs I most admire professionally, not personally.
And um I l I really like his philosophy of company building, but you see this illustration if you read about Henry Ford. Like he was a master at building the Ford Motor Company.
But then he he thought like he could
control like the morals of his uh like his employees. He thought he could like he he could figure out a way to stop World War One from happening. He had all these things where he
failed spectacular at where he thought, Okay, well, I I have some kind of knowledge I derive from my business and it's
applicable to this domain and it definitely wasn't.
Buffett says for us to think that because we've made a lot of money, we're going to be better at giving advice on every subject, well, that just doesn't make sense. That's crazy. I'm very suspect suspect.
of the person who is very good at one business who starts thinking they should tell the world how to behave on everything.
They start repeating this idea.
you really should try to be seeking out and working with and associating only with first class people.
Munger says our basic rule has has always been that we do not deal with assholes.
I have turned down business deals.
that were otherwise decent deals because I didn't like the people that I'd have to work with.
You have to you want to avoid other people who are total rat poison.
And there are a lot of them.
You want to associate with first class people.
And they go back into the more most important asset.
One of the most important assets in running a business is passion. That is very interesting.
Uh, let's say that you wanna they're asked uh a hypothetical question.
by a fictitious character in this book. So that question says
Let's say I want to hire somebody, what is important to think about? Buffett says
You look for the logical things.
Passion.
An interest in running the business.
Honestly.
Or honesty, excuse me.
Uh do they love the business or do they love the money?
This is the first filter. Do they love the business or do they love the money? This is the first filter. I mean real passion.
If temperament is the most important personal asset.
and managing money.
In business, it's passion.
It's also why Jeff Bezos says that
uh missionaries.
make the best products. Missionaries, not mercenaries. He says mercenaries are in it just for the money. Missionaries actually care about what the business is doing. What service is that business giving to the world?
You wanna try to hire people that are complete in alignment with you.
and look at it like you do, like it's a mission.
They also spend a lot of time talking about company culture.
The fact that you have to be very intentional how you build the culture
uh at your business that once the culture's in place, it is nearly impossible.
You're better off just d starting a different company than trying to change the culture.
So says we try to provide an environment for them, meaning the managers and the CEOs of their businesses.
Which is exactly like we'd want if we were running a business.
We would like to run our own business in our own way. So they're like, Hey, we try not to mess with them, right?
We're only working with A players. A players don't like to be micromanaged and
If I had to micromanage him, why did I buy the business to begin with? That doesn't make any sense.
We will never allow Berkshire to become some monolith.
that is overrun with committees, budget presentations, and multiple layers of management.
Instead, we plan to operate as a collection of separately managed, medium sized and large businesses.
most of whose decision making occurs at the o at the operating level.
All of the businesses that we own are run autonomously to an extraordinary degree.
In most cases, the managers of important businesses
We have owned for many years have not been to Omaha Omaha.
Or even met each other.
We adapt to their methods rather than vice versa.
So then Buffett talks about like his own strategy. Like what is Buffett's stinks, like what is his competitive advantage, right? He is
Trying to be a like not trying to be he does this.
He's a buyer of businesses.
I would argue that Buffett shareholders letters is the greatest single example of content marketing that the world has ever seen.
I talk about this more on episode two twenty seven, which is the essays.
Of Warren Buffett.
Where it talks about like he he publishes a letter.
that he shows like he was interested in buying this person's business, he sh he actually publishes the letter that he sent
uh the buy the the person he uh the owner of the business.
I feel it's like a master class in product differentiation.
And so he touches on
How he thinks about this and how he positions himself.
And so he says our long avowed goal is to be the buyer of choice for businesses.
Particularly those built and own by families.
The way to achieve this goal is to deserve it.
That means we must keep our promises.
Avoid leveraging up acquired businesses.
Grant unusual autonomy to our managers.
And hold the purchase companies
Through thick and thin.
Our record matches our rhetoric.
Most buyers competing against us follow a different path.
For them.
Acquisitions are merchandise.
We have a decided advantage.
When we encounter sellers who truly care
about the future of their businesses. So if you truly care about your business
And the future of it, it's not a merchandise too. It's not just a big
uh, you know, a a big exit. It's like you actually care. Like if you are gonna sell your business, like you care what happens what happens after you leave the business. And so Buffett's like, Well, if you're one of those people, of course
But Berkshire would be if you look at our track record.
Berkshire would be your first choice.
So it says the reverse is apt to be true also when an owner auctions off his business.
Exhibiting a total lack of interest in what follows.
You will frequently find that it has been dressed up for sale.
And therefore what Buffett's saying, it's not a high quality like
If somebody truly cares, most likely they truly they built a like a wonderful business. Somebody's just in it to start, scale, and sell, they probably don't give a shit. And so therefore
the long term prospects of a business like that are very suspect and Buffett's not interested in buying those kind of businesses.
There is a great line in the Anthony Bourdain biography that I read for episode two nineteen that jumps out at this next when I read this next uh sentence.
It says life isn't a green room for something else. Go for it.
Buffett says, We're here on the earth only one time.
So you oughta be doing something that you enjoy as you go along.
And you can be enthusiastic about.
Then we have two great quotes. The first one is from Buffett. When a problem exists, whether it's in personnel or in business operations.
The time to act is now.
Munger says, Wise people step on big and growing troubles early.
There's several times in the book that Munger talks about his ability to make decisions very rapidly. We heard
Buffett say earlier that Munger has the best thirty second mind that he's ever encountered.
And so and to this point like they have a an idea of the businesses that they're interested in, they're in their mind.
uh the characteristics of the stuff they're interested in. So even like he'll get a phone call.
And within like fifteen seconds like nope and he'll just like hang up the phone. He's like, I there's no point
I know I don't want this business. There's no point us
Like we have limited time on this earth, like I'm not gonna waste
sit here and just be polite for fifteen minutes just to give you a no that I can give you in uh a no in thirty seconds.
And so Munger says spend no time arguing with people whose idea you know to be stupid.
I think a main theme that comes up again and again these life stories that you and I go over is the fact that
Future opportunities are unpredictable to you. Like i like you just have to trust in something.
um obviously do as good job as you can with whatever's in front of you, but like there's going to
If you keep going along and you keep getting better, that's going to unlock opportunities you can't possibly predict.
And there's a theme I I I feel like there's a current, yeah, running through
The thinking of Buffin and Munger that
that talks about this. It's like listen, we're not really big into master plans.
Uh, we know we want to own wonderful businesses. We know we want to uh uh you know, own pieces of wonderful business in public markets.
But essentially like instead of going deep in this uh inflexible master plan, like we're just gonna keep reacting to the game that's on the field.
And so it says, Munger says, I have a deep distrust in master planning. There has never been a master plan. Anyone who wanted to do
uh master plane we fired because it takes on a life of its own and doesn't cover the new reality.
Buffett says we do have a few advantages, perhaps the greatest being that we don't have a strategic plan.
Thus we feel no need to proceed in an ordained direction.
But can instead simply decide what makes sense for our owners.
Charlie and I don't sit around and talk about the future of industries. We have no reports or staff.
We just review what comes in.
And look for companies with a durable competitive advantage at an attractive.
And so think about that. That is a rather simple plan.
We're just gonna review.
What comes in?
We constantly get people
offering to sell our b like we have inbound requests to to buy their businesses.
We just review it.
Does it is this a company with a durable competitive advantage and attractive price? If it is, okay, we'll buy it. And if it isn't, we'll just sit on our ass and we'll read and we'll think and we'll pile up money.
Really hard to lose.
That's the two different modes that you have in your business, right?
This goes back into the futility that people just the futility of trying to change other people's minds.
better to just select different people to work with. That you know, people just do what they want to do.
And Buffett says I'd say that the history
the uh that that Charlie and I have of persuading
decent intelligent intelligent people who we thought were doing unintelligent things
to change their course of action has been poor.
When people want to do something
They want to do something.
We don't try to change people. It doesn't work well.
We accept people the way they are.
And then Charlie passes on
uh a bit of wisdom that he thought was very valuable in running a business. It's from this guy named Carl Braun, who was an engineer
And an entrepreneur.
And it says few practices are wiser than not only thinking through reasons before giving orders, so orders to people in your company, but also communicating these reasons to the recipient of that order.
No one knew this better than Carl Braun, who designed oil refineries with spectacular skill and integrity.
He had a very simple rule.
You had to tell who
Was to do what?
Where, when, and why?
If you wrote a communication leaving off
Your explanation of why the addressee was to do what you what was ordered, Braun was likely to fire you.
Because Braun knew well Braun well knew that ideas got through best
When reasons for the ideas were meticulously laid out, people have to know why is what Charlie's telling us.
Or even simpler way to think about that is always tell the other person why.
Charlie just told us that there's no that you should spend no time arguing with people whose idea you know to be stupid.
There's another great line in this regard. You do not have to attend every argument that you're invited to.
So then they talk about Charlie's orangutan theory, which I absolutely love. The first time I was introduced to this theory is actually um
I read the autobiography of Catherine Graham. It was obviously uh episode one fifty two.
And she talked about that.
Um, in her case, her the way sh like uh Warren Buffett was helping her learn how to run her business.
And that um she
She thought that
Warren was her version of the orangutan.
And so Mongers orangutan theory is this. If a smart person goes into a room with an orangutan,
and explains whatever his or her idea is.
The orangutan just sits there eating his h his banana.
And at the end of the conversation, the person explaining comes out smarter.
There's something about smart people explaining ideas to an orangutan.
That makes their decision making better.
And it's this idea that you're just speaking this is actually forces you to organize your thought.
It clarifies your thinking, it's very helpful.
Remember at the beginning of the book they said
Uh repetition is the mother of learning.
Charlie Munger goes back to this idea that
It's so hard to get rich and yet most likely when you get rich you're going to mess it up.
Just don't mess it up.
The problem is not getting rich, Munger says. It is staying sane.
For whatever reason, extreme success.
war is to it tends to warp people's minds. They cannot handle it.
And then I absolutely section'cause it talks about like, you know, we talk about this like
history doesn't repeat human nature does.
that there's ideas in history books that are worth, you know, billions of dollars.
I'm about to read you something, right? That sounds like Warren Buffett said it today.
We just went from this zero interest rate environment.
Rates are going up.
Valuations are, you know, being in flux.
And yet what I'm about to read you
He said in nineteen ninety four, I just had a weird experience where
You know, I I share a lot of like highlights and stuff from books I read, uh, on Twitter.
And on LinkedIn.
I tweeted this out.
And Elon Musk responded back to it.
Basically agreeing with what Buffett said.
Again, in nineteen ninety four, from this book.
But c is just as accurate as today.
Buffett says the value of every business, the value of a farm.
An apartment.
or any other economic asset is one hundred percent sensitive to interest rates.
That's because all you're doing when you're investing is transferring money to someone now.
in exchange for a stream of money which you expect to come back in the future.
And the higher the interest rates are.
the less that present value will be.
Interest rates.
or to asset prices sort of like gravity is to an apple.
When interest rates are low
There is little gravitational pull on asset prices.
Intri This is a crazy sentence, right? And I wish
I didn't understand this, you know, maybe I
wasn't like something that was n relatively important to like
My business, right?
But
It's just amazing where I just wish I understood.
I wish I understood this before now.'Cause if you understood this in nineteen ninety four and you knew that this entire time, you could have profited heavily
off of this transition back and forth between
high interest rates to low interest rates and now from low interest rates to highest higher interest rates. So that's like
There's like ideas really will put money in your wallet, if there's a way to think about it.
So I'm gonna re repeat this second paragraph'cause I interrupted it, but it this is very fascinating and it'll tell you the punchline at the very end.
Interest rates are to asset prices sort of like gravity is to Apple.
When interest rates are low, there is little gravitational pull on asset prices. This is the punchline.
Interest rates power everything in the economic universe.
Another thing they repeat is the importance, always go for quality. Wonderful businesses are so rare.
So if you get into a wonderful business, do not leave it. It is just a rare thing to happen.
Uh, if you are in a wonderful business for a long time, even if you pay
a little bit too much going in getting into the business, you will get a wonderful result if you stay in that business for a long time.
Buffett talks about early in his career, he did not really understood the power of brands. It's like this weird abstraction, right?
It it came from his purchase of C's candy many, many years ago. He's like, Oh
Brands are extremely valuable. They're they're valu uh they're they're extremely powerful and valuable.
And so this leads to other
investments.
Uh profitable investments.
in the future.
And so he says additionally through watching C's uh Candy in action I gained a business education
About the value of powerful brands.
That opened my eyes to many other profitable investments.
And this is an example of why I think Buffett's one of the w the world's greatest communicators that has ever lived.
'Cause he can communicate things that are, you know, s relatively complex, make'em simple.
Uses humor, talk tells talks to us in stories.
But this was really interesting. I don't think I've heard this before anywhere in any of the book, too. And he talks about like
There is
Sometimes uh there like you can be inexact.
And there's just times when further analysis is actually a waste of time.
And it sounds crazy because of the giant numbers.
that he is throwing out here in this investment, but
He'll tell the story and I think it'll make sense to you at the end.
Uh with something like Petro China.
My reaction is similar to seeing somebody who weighs
Somewhere between three hundred and three hundred fifty pounds.
I might not know how much they weigh, but I know that they're fat.
And that's all I'm looking for.
Knowing if an opportunity is financially fat.
And whether Petro China weighted billion dollars or a hundred and five billion dollars, she's talking about the true valuation.
Of it.
If it's ninety five or one hundred five, right?
It did not make much difference. Why didn't it make much difference? Because at the time it was selling for thirty five billion dollars.
Any further refining of analysis.
would have been a waste of time in that case he's saying just jump on it. You know it's a good opportunity. It doesn't matter. You're paying thirty five billion, whether it's worth ninety five or a hundred and five, it doesn't matter. It is a financially fat opportunity.
We are so we were very inexact.
You'd be amazed at how inexact we are.
Using precise numbers.
Із інфект фуллиш.
Working with a range of possibilities.
is the better approach.
Now this
This is one of my favorite
This is where it just clicked for me.
Right. Um i we're in the middle. Well, I you can't see this because you can't see the book that I'm holding.
We're in the middle of the book where
At this part they're all talking about like the
uh like the irrational behavior
that occurs in bull markets.
And that just happens over and over again, right? And I I I'll pull out a couple quotes'cause I think that's very interesting. I think you and I can learn from that.
And yet
What sticks out the most to me
clicked is I'm gonna read this first, and I have no idea why.
I finally like had a deeper understanding. So Bove says, Charlie and I do not expect to win you over to our way of thinking.
We've observed enough human behavior to know the futility of that.
But we do want you to be aware of our personal calculus. And I was like, Oh
My God, sometimes I read.
Uh and you probably do this too.
We're like y you know, that's
Two sentences, you know, three three lines in a book.
And yet you just sit there and you stare at it.
And like you read it again and you like really think about what the hell he's talking about.
And I was like
Okay.
That's actually really interesting.
Charlie and I don't expect to win you over to our way of thinking. We've observed enough human behavior to know
The futility of that
But we do want you to be aware of our personal calculus. What I wrote to myself and this clicked to me.
Learning is not memorizing information.
Learning is changing your behaviour.
There is no point for you and I to spend all this time reading.
Listening to educational podcasts.
If it doesn't change what we do.
And if it doesn't change what we do, we didn't
Actually learn it.
He's telling you.
We've seen enough human behaviour.
You're not going to actually do anything with this information that we're giving you. Very few people, obviously some some people were.
And so that's what they talk about. Like most people.
They don't say all people.
But they're saying most people cannot learn from the experiences of other people. They're ex saying the exact same thing here.
That we've seen enough human behavior, we could tell you not to do this.
A lot of people are gonna do it.
The smart ones, the ones that are able to learn from other people's behavior, are going to have a massive advantage because they know that learning is not memorizing information. Learning is changing your behavior.
That's a m like
I love that whatever clicked right there.
That's super important for me.
And hopefully for you as well.
It's not memorizing information.
Did the book that I read, the podcast I listen to, did it change my behavior? Did it actually have an effect in the real world?
Ooh, okay.
So then they go into like this irrational behavior that you see in bull markets. The the sheep story that he told earlier is like a good indication of that. And he's got funny ways. Buffett's got a funny way.
Um
of reminding you uh about this, like when you should feel that you're in danger.
Because it says like
The the the problem is it looks so easy.
So that's what attracts you to it.
And so he says, but remember the late Barton Briggs observation.
A bull market is like sex. It feels best just before it ends.
And so Munger says, How do you take advantage of that?
If you stay rational
Yourself, the stupidity of the world helps you.
Wall Street never changes.
The pockets change.
The suckers change, the stock change.
But Wall Street never changes because human nature never changes.
Then it goes back to this idea of
They don't have a master plan. They are opportunity driven. That's a great way, uh that's like a great uh use of language by them really gets this idea into our brains.
We don't have a master theory of capital allo al allocation, we or shouldn't of asset allocation. We simply we're simply opportunity driven.
individual opportunity driven. Our acquisition technique at Berkshire is simplicity itself. We answer the phone.
Something I love about
uh doing the podcast is getting to read these stories, this idea where multiple people
There we cover.
have figured out the the the idea of having the value of having a personal motto, right? So Stan Lee, the founder of um
Of Marvel.
had like I I can't even pronounce it but it means like ever upward
Uh Shackleton says, By endurance we conquer. One of my favorites is actually Teddy Roosevelt, and he says get action.
It was actually a personal motto of his father that he
adopted for his own life.
Very similar to what Munger's saying here. Do not be too timid.
Go at life with a little courage.
So in the past few episodes and really I mean this is a main theme.
Throughout founders.
But it has been especially pronounced in
Actually, uh it's episode two uh two eighty three of Andrew Carnegie.
And two eighty four.
Of Andrew Carnegie and Henry Clay Frick, and now that I'm looking at all the episodes, actually two eighty two of Jeff Bezos talks about this quite a bit.
Um He Sho Horo Letters Two.
And there's two twin themes that run throughout the history of entrepreneurship that I think are most pronounced in the books and
I s observe less frequently in like modern day.
uh meaning they're obviously very valuable because they're very hard f for people to do and that's it this idea of extreme focus and extreme frugality.
I love what Buffett does here. And so he's talking about the fact that
If you really think about it, like two different founders, two different business managers, one is
unbelievably gifted at cost conscious frugal culture.
Uh they're watching their costs over and over again.
And one is not like they're not even if they're
in the same industry. They're completely different businesses. This is really interesting as use of language here.
She says one of the best modes in many respects is to be a low cost producer.
Being a low cost producer of something that's essential to people is going to be a very good business.
It is like comparing a copper producer whose costs
Or two
Dollars and fifty cents a pound.
with a copper producer whose costs are a dollar a pound.
This next sentence is crazy.
to would be crazy to most people. I don't think it's gonna be crazy to you and I.
Those are two different kinds of businesses.
But we're like, No wait, they're both producing copper and he's like
And Buffett's point is like, no, this advantage means it's just completely the other business.
Why?
One is gonna go broke at a dollar fifty a pound and the other one is going to still be doing fine.
This idea that there

completely different businesses.
regardless, same product, same same industry, doesn't matter. They're completely different, just the way they're managed.
So let's go back to something that's above this.
Why does the business have an edge against its competitors? You're asking yourself questions, right?
Ask why can't company A do what company B does?
What stops some competitor from entering the market?
And so Buffett's answer to these this hypothetical question is the best way to understand this, meaning
Why does that
company have an edge, whether it's a company that you're running yourself or a company you want to invest in. Why do they have an edge? The best way to understand this is to study businesses that have achieved it.
The question then is how does a company get its edge and the way companies it talks about building up the moat. And it's this idea of focus and frugality.
leads into his copper story.
The moat is not the pro in this case, the moat is not the product, the moat is not the industry.
The moat is the management of the business in regards to its costs. This is a very old idea. This is something Buffett is saying in 2009.
And yet it's something that Andrew Carnegie knew in eighteen sixty five.
And then this is what I mentioned earlier, my favorite definition of a brand I think I've ever read.
A brand is a promise. That is a quote from Warren Buffett.
Then he goes into the important part. Buffett's gonna talk a lot about here. It's just like, you know, business can be fundamentally simple.
It's you should be really obsessing over your customers.
This is uh, you know, one of my favorite maximums in the history of entrepreneurship comes from Jeff Bezos.
says obsessed over customers, I don't have any tattoos, but if I did, I almost feel like it'd be beneficial if I like tattooed this on my forearm.
Just obsess over customers.
There's just so much hard earned knowledge.
In those three words.
Buffett is going to agree with Bezos here and he says in the end
Nobody that's ever taken good care of the customer has ever lost.
Like Sam Walton once said, there's only one boss.
The customer.
And he or she can fire everybody in the company from the chairman down on down simply by spending his or her money elsewhere.
And a few pages later, look how this actually ties together, right? This what the these two quotes I'm reading here.
The ones I just read and this one are, you know, separated by maybe twenty pages or something.
This is crazy.
Warren Buffett said this about Amazon.
In two thousand twelve.
He says Amazon could affect a lot of businesses who don't think they will be affected.
For Amazon, it is very hard to find unhappy customers.
A business that has millions and millions of happy customers
can introduce them to new items.
It will be a powerhouse.
And could affect a lot of businesses.
And this is where you really get excited, right? When you think about this. Okay, Warren identified that.
Cizo, this is very unusual.
Since then in two thousand twelve.
That is after because Jeff is writing, you know, in the in the late nineties, I think ninety seven is his first um
This is for shareholders letter.
Fifteen years separating.
From the first shareholder letter.
uh you know, he'd er been practicing that in the the the few years that he'd been running Amazon before that. But this idea is like
That is the end result.
Of what
What Bezo set out from day one.
He's like, No, we're gonna obsess over customers. We're gonna build the most the world's most customer centric company.
tw fifteen, twenty years later.
And you're seeing Buffett's like, Oh, this is this dude's gonna be a problem.
And he's gonna be a problem for other businesses because he's got millions of happy
and satisfy customers and how do you get millions of happy and satisfied customers, you build the world's most customer centric
company and you obsess over customers. This is
How could that not excite you? I love when I see these ideas. They just stick together and what makes me or that they fit together, rather.
And what makes me even more excited is like you have a g another genius. You got two geniuses there. You got one other genius realizing, oh, what this other genius is doing is genius.
All we have to do I'm not a genius. All I have to do, all you have to do is just copy them.
Like, hey, that's a good idea. Thank you very much. I'm gonna apply it to my business.
This is not rocket science.
And it gets even better because on the next page, Munger gives us a tactic.
It's like, oh, you like that idea? Here's how you actually implement it.
Uh, one of the directors of the Daily Journal said very simply, We should make a list of everything that irritates our customers, and then we should eliminate those defects one by one.
Then I love this idea by Buffett. Like this is how you find the best operator in your industry.
When I interview managers I ask uh what their business nightmare is.
If you had a silver bullet and you could put it through the head of one competitor, which competitor and why?
You will find out who the bet asking this question.
You will find out who the best guy in the industry is. He continues. Ask the management.
of each company, which competitor they would be willing to this is the other side of that, right? It's like okay
If you could knock out of the game.
uh only one of your competitors who that is. The other side is what if you had to bet all of your net worth and you could like you invested all your net worth in one of your competitors who's who is that? Ask the management of each company which competitor they would be willing to put their net worth in.
for the next ten years. Then ask which of their competitors they were short.
This will provide important insights into the industry, into your industry, that even those who work their whole life in the industry would not realize.
Two pieces of advice, one from Munger, one from Buffett.
This is something you and I talk about all the time. If you go to sleep on a win, you wake up with a loss. Charlie Munger says successful
Places tend to get blown. He's talking about successful companies.
Successful companies tend to get bloated, fat, complacent.
It's the nature of human life.
Most companies when they get rich get sloppy.
Warren Buffett. This is one way to avoid that.
Widen your moat, build an enduring competitive advantage, delight your customers, and relentlessly fight costs.
And Munger and Buffett both know this because they have this this crazy uh like historical base of knowledge in the history of business.
Munger says, It is the nature of things that most big businesses eventually fall into mediocrity or worse. Look at the history of big companies in the world, and the record is not good.
Almost all great records eventually dwindle.
I think that's the natural consequence of competitive life.
And then Munger talks about one of the fiercest competitors.
that the business landscape has ever seen. Something somebody you and I have talked about over and over again, the latest episode I did on him.
Which will not be the last.
It's episode two thirty four, Sam Walton.
I've never heard this before. It's absolutely fantastic. It is Charlie Munger's Northern Pike.
Model
And his point is if you're running up against somebody like this, you should just get out of the business.
He says one of the models in my head is the Northern Pike model.
You have a lake full of trout.
But if you throw in a few northern pike
pretty soon there aren't many trout left, but there are a lot of northern pike.
Walmart
In its early days was the Northern Pike. It figured out how the customer could be better served.
And just gallop through the world like Genghis Khan.
So then there's a few ideas here. This is on passion.
intense interest and working only with winners. This is another this is one of my favorite of his this is probably my favorite of Buffett's business uh baseball stories when it regards to p business
First, Munger says, I cannot put passion into someone. They either have it or they don't. There's nothing you can do about it.
And Buffett goes in the importance of working with winners. My managerial model is Eddie Bennett. So he's talking about this is I'm just going to copy.
Eddie Bennett, who was a bat boy, his idea
for how I run Berkshire. This metaphor is fantastic.
My managerial model is Eddie Bennett, who is a bat boy.
In nineteen nineteen, Eddie began his work with Ch the Chicago White Sox.
who that year went to the world series.
The next year he switched to the Brooklyn Dodgers and they won their league title.
However, our heroes
meaning Eddie chain uh smell trouble. He changed Burrows and joined the New York Yankees in nineteen twenty one.
And they promptly won their first title in history.
Now Eddie settled in
Shrewdly seeing what was coming.
In the next seven years.
The Yankees won five American League titles.
What does this have to do with management?
It is simple.
To be a winner.
Work with winners.
In nineteen twenty seven.
Eddie seven hundred dollars.
For his share of the World Series
Uh winnings.
This sum
Which Edd earned by working only four days because New York swept the series.
was roughly equal to the full year pay
Then earned by Bat Boys.
who worked with ordinary associates.
So just what he made
from working four days in the World Series is what
the per a person with his same job
would make all year because they were working with
ordinary players, right?
Eddie that how he lugged bats was unimportant.
What counted instead was hooking up with the cream
Of those on the playing field.
I've learned this from Eddie.
At Berkshire.
I regularly hand bats
To many of the heaviest hitters in American business.
And then just one more thing from Buffett on passion. He says passion adds to your productivity.
Manger says the secret to being successful in any field is getting very interested in it.
I could never excel in anything which which I didn't have an intense interest.
Now these next two pages are so good. It's essentially saying
Unusual records are a result of high levels of talent
In low competition environments.
Buffett says, I don't want to play a game where the other guy has an advantage.
Somebody asked how do you beat Bobby Fisher?
The answer was you play'em in any game except chess.
He continues, one of the boats in many respects is
is sometimes just having more talent.
And then once you have the talent, he says, you want to work where there is little competition.
One of the secrets of life is weak competition.
The unusual records
Have been achieved by those who have worked
relatively neglected fields in which the competition was light.
Munger now jumps in.
Competence is a relative concept.
I realised what I needed to get ahead was to compete against idiots.
And luckily for me, there was a large supply of idiots.
And then I love how much Charlie Munger talks about the importance of practice.
in uh in this book. This is something obviously that really stuck in my mind from reading the biography of Michael Jordan on episode two twelve.
So Margaret says, obviously if you want to get good at something, which is competitive, you have to think about it and you have to practice a lot.
You have to keep learning because the world keeps changing.
And your competitors keep learning. You have to go to bed wiser than when you got up.
As you try to master what you're trying to do, people who do that almost never fail utterly.
Very few have ever failed with that approach, meaning just trying to be a little wiser every day, right?
Very few have ever failed with that approach. You may rise slowly
But you're sure to rise.
And so then they go back to this and they go on this for quite a while. The idea is like
We're not listening to the opinions and the predictions of other people. That is just absolutely useless.
Forming macro opinions or listening to the macro or market predictions of others is a waste of time.
It is dangerous because it may blur your vision to the facts that are truly important.
I pay no attention to economic forecasting. I worry about being in a good business with but good people.
That is all I focus on. This is Buffett that speaking about this entire time.
In the fifty four years that we have worked together, we have never forgot an attractive purchase because of the macro or political environment.
Then Munger says.
People have all and he's talking about like the futility of trying to predict the future and uh forecasting.
Uh, people have always had this craving to have someone tell them the future. Long ago, kings would hire people to read sheep guts.
There's always been a market for people who pretend to know the future.
Listening to today's forecasters.
is just as crazy as when the king hired the guy to look at the sheep guts.
It just happens over and over and over again.
And this is an absolutely fantastic line.
Uh still about forecasters.
And it says this is Buffett, Market forecasters will fill your ear.
But they will never fill your wallet.
And then Munger goes into the important role.
That continuous education
seeking of knowledge that him and Buffett have dedicated their lives to, why that was so influential with the record that Berkshire was able to achieve.
What people mean when they say a man has common sense.
is uncommon sense.
We don't have any new tricks.
We just know the old tricks better.
Berkshire loves education and it loves people who like to learn.
I think the one thing that we did that worked best of all
We were always dissatisfied with what we already knew.
We wanted to know more.
If Warren and I had stayed frozen in time,
Berkshire would have been a terrible place.
It's only that we kept learning that made it work.
And I don't think that'll ever stop.
Had Warren not been learning all this time,
Our record would be a mere shadow of what it is.
And he's actually improved.
Since he passed the age.
at which most other people retire.
Most people don't even try this.
It takes
Practice.
And that is where I'll leave it for the full story. Highly, highly recommend buying the book.
The great thing about this book is it's you don't have to read it all at once.
You don't even really have to read it in order. That's the way I did. But I think it's just a great thing to keep out
You pick up
Maybe read five, ten minutes, maybe read, you know, a few pages.
To me, it's really a tool, uh a way to download the thinking of Buffett and Munger into your brain consistently.
So if you buy this book using the link that's in the show notes.
on your podcast player, you'll be supporting the podcast at the same time.
Another great way to support the podcast is to sign up for to the founders premium feed. The founders premium feed.
Yeah, contains AMA Ask Me Anything episodes, subscribers to that feed, get to ask me questions directly, which I then
Answer those questions on
AMA episodes on the founders premium fee.
If that sounds interesting to you, that link is down below in the show notes and of course available at founderspodcast.com.
That is two hundred and eighty six books down.
One thousand ago?
And I'll talk to you again soon.