#295 I had dinner with Charlie Munger

Transcript from https://podmenti.com/t/ae5a657bf8f63d41

I can't believe this happened.
I still
I still cannot believe
This happened.
As it was happening.
I couldn't believe it was happening.
It reminded me
of a scene in one of my favorite documentaries. This is documentary you can watch on HBO. It's called The Defiant Ones.
It's about the partnership between Jimmy Ivine and Dr. Dre. That is the description that it'll say the documentary is about. What it's really about.
It's a documentary about entrepreneurship. It's documentary about chasing and running down a dream.
And one of my favorite scenes
In that documentary.
Is when Eminem is describing the very first time he met Dr. Dre. Eminem is completely unknown at this time. He's not assigned. He's not signed to any record label.
Doctor Dre's already a legend.
And he says, I'm looking at Dre like, dude.
I see you on TV all the time.
You're one of my biggest influences.
Ever.
In life.
This is the greatest producer.
And I'm at his house.
And I just re watched that clip from the documentary because that's exactly how I felt.
I got to spend over three hours with Charlie.
I got to see his library. I got to have dinner with him.
It was probably an hour into it.
Where it stopped feeling like an out of body experience.
If you would have asked me before this, out of everybody living, like who would you want most wanna have
Dinner with Charlie was at the top of that list.
I've said this before and I really mean it.
To mi Charlie is the wise grandfather.
I never had.
When my grandfathers died.
When I was too young to remember.
The other one
He's a psychopath and a monster and dumber than a bucket full of rocks.
And so that grandfather like mentorship happened
From afar. It's from me reading his books from
Watching his speeches.
From listening to him talk never in a milyen years.
What I think because I sit in a room by myself.
For half a decade.
Reading biography after biography after biography.
Every day for hours, and then record what I learned and put it onto the world.
Would I possibly there's no possible way.
I could think
That leads me to being able to meet him.
And not only meet him.
But I got to I I wrote him a letter in advance.
Meeting him and then being able to tell him in person, like
This is not hyperbolic, man. You changed my life.
Your words and your ideas
Shaped my thinking.
And this idea where people say
Don't meet your heroes, you know, you're gonna wind up being disappointed. I had the opposite experience with him.
Not only was he unbelievably smart, but he was unfailingly polite.
He was a gentleman with brains.
And so I've thank them privately, but it's important for me to thank them publicly as well.
Andrew Wilkinson and Chris Barling are the founders of Tiny. They're the ones that set up this dinner.
with Charlie Munger.
And so this episode that you're about to hear is going to be a little different.
What I did was
the week leading up to the dinner with Charlie, I reread the Tow of Charlie Munger, then I had dinner with Charlie, then I came back and recorded a podcast
On the book.
But as I was recording I added in commentary and other lessons and interesting stories that I learned at the dinner.
I hope you enjoy it.
And thank you for listening.
In the chronicles of American financial history, Charlie Munger will be seen
As an enigma wrapped in a paradox.
He is both a mystery and a contradiction at the same time.
Warren Buffett said Charlie's most important architectural feat was the design of today's Berkshire.
The blueprint he gave me was simple.
Forget what you know about buying fair businesses at wonderful prices.
And instead buy wonderful businesses at fair prices.
Consequently.
Berkshire has been built to Charlie's blueprint.
My role has been that
Of general contractor.
With the CEOs of Berkshire subsidiaries doing the real work as subcontractors.
How is it that Charlie, who trained as a meteorologist and a lawyer
And never took a single college course.
In economics.
Marketing.
Finance or accounting.
Became one of the greatest business and investing geniuses.
of the twentieth and twenty first centuries.
Therein lies the mystery.
Charlie spent much of his youth reading.
And that is where he discovered a larger world.
Than the neighborhood of Dundee, where Warren Buffett's family also lived.
The two boys attended the same grade school and high school.
So they were seven years apart in age.
In fact, one of Charlie's first jobs was working for Warren's grandfather at the Buffett neighborhood grocery store.
He learned about taking inventory.
Stocking shelves.
Pleasing customers.
The importance of showing up on time for work.
How to get along with others.
while accomplishing a joint task.
And running the cash register.
Where money
The lifeblood of the business flowed.
Omaha in the nineteen thirties had distinct ethnic immigrant neighborhoods.
Many immigrants worked for the railroad and meat packing plants whose operations were centered in Omaha.
Charlie went to public school with the children of those immigrants.
And as a result

Not only f of their cultures.
But also of the commercial aptitude.
And the willingness to work unbelievably hard.
To give their children a better life.
That's actually something that Charlie's gonna talk about later in the book as well.
Where he talks about the difference between the work ethic of like up and coming countries, like people with immigrant mentality, compared to people born in like rich countries.
And when comparing the two different approaches to like their work ethic, he says something funny. He's like
Uh, the only people that are surprised when they lose to people like that are idiots.
Back to this overview of Charlie's early life. After high school, seventeen year old Charlie enrolled in the University of Michigan to study mathematics.
He turned nineteen a year after Pearl Harbor.
dropped out of college and joined the US Army.
The army sent him to Caltech in Pasadena, California.
To study meteorology.
There he fell in love with the sunny southern California weather.
While the teenage Warren Buffett was busy learning about odds and probability at the horse racing track in Omaha,
Charlie was learning
This important investment skill.
While playing poker with his army buddies.
And there's actually two maxims that I've heard repeat that I've never forgotten that tie into this.
He says if you don't learn elementary
Probability.
That you go through life like a one legged man in an ass kicking contest.
And another thing that he repeats is that you should remember that good ideas are rare and when you find one you
To bet heavily.
So back to this, that's where he learned.
to fold his hand when the odds were against him and bet heavy when the odds were with him, a strategy he later adapted to investing.
After the war, Charlie, who did not have an undergrad degree.
applied to Harvard Law School.
He was rejected.
After a phone call from Harvard Law's retired dean,
Who was a Nebraska and family friend.
He was admitted.
He has never forgotten the importance of
of having friends in high places.
After law school, Charlie moved back to Los Angeles, where he joined a prestigious corporate law firm. One of my favorite quotes that I've ever heard Peter Thiel say.
is he says most people systematically undervalue their time.
As we're about to see, Charlie did not. I just wrote so smart next to this paragraph about to read to you.
Charlie thought a lot about business during that time.
He made a habit of asking people
What was the best business they knew of. He longed to join the ri the rich elite clientele.
His law firm served.
He decided this is the part about not undervaluing your time.
He decided each day he would devote one hour of his time
at the office to work on his own real estate projects.
And by doing so he completed five.
He has said that the first million dollars he put together was the hardest money he ever earned.
It was also during that period that he realised.
He would never become really rich practicing law.
He would have to find something else.
And we're gonna see that he has perfect timing because he is about to find
something else. This is actually something that Charlie and I a question I got to ask him.
And Charlie and I talked about Ben Franklin, what Ben Franklin, Andrew Carnegie, and we're gonna see Warren Buffett and Charlie Munger had in common. I'll get there in one second, in the summer of nineteen fifty nine, while in Omaha to settle his father's estate.
He met two old friends for lunch.
The two men had decided to bring along a friend of theirs who was running a partnership
they had invested in and whom they thought would enjoy meeting.
A young man
By the name of Warren Buffett.
The two began to talk about business and stocks. The conversation became so intense.
That Charlie and Warren barely noticed when their two friends got up to leave.
That was the beginning of a long and very profitable relationship.
Charlie asked if Warren thought it would be possible for Charlie to open an investment partnership like Warren's.
In California. This is way before Berkshire.
There's two actually questions I asked Charlie about this. Or around this, rather.
Warren said he couldn't see any reason why not.
And in nineteen sixty two, Charlie finally started an investment partnership with an old poker buddy.
He also started a new law firm.
Within three years he stopped practising law to focus
On investing full time.
Okay, and so I have so many notes and thoughts about
this part of Charlie's life and I'm so glad I got to talk to him about this.
So one of the things that we were able to talk about all the way back on um episode two fifty one, I read
This incredible biography of Ben Franklin and George Washington. It's called Franklin and Washington The Founding Partnership.
And so Charlie hadn't read that book.
But he knew the story. He knew the relationship between Ben Franklin and Washington. And of course he did. I guess I should pause here to to just point out.
Something that was just incredible.
Absolutely incredible was
The power of
Even at ninety nine years old.
How powerful Charlie's mind and his recall.
All I could think about was
Imagine.
Imagine
Trying to compete.
With this guy with that mind.
When he was fifty.
Or sixty.
And it's not like he was working off any notes. Everything just came directly from his mind. So
When we were talking about the fact that
He was talking about one of the best things that uh that Ben Franklin did, and you see it in that entire book.
Uh, was Ben Franklin was like forty eight years old when he sought out and tried to build a relationship with George Washington. George Washington I can think was like twenty or twenty one years old at the time. And so Charlie said one of the best things that Ben Franklin ever did, and this is advice to you and I, right?
Uh, the one of the best things that Ben Franklin ever did was that he sought out other impressive people like Washington, but a ton of others, like A players only. He intentionally built relationships with these people.
And while we're having this discussion, Charlie mentioned the fact that Andrew Carnegie did this as well.
And I just went into great detail of how Andrew did that on episode two eighty four,'cause one of the people, one of these A players that he
That he sought out was Henry Clay Frick.
And so after Charlie explained this to us, I asked him a follow up question. I was like, Well, is this something that that you did in your life?
Immediately. His answer was immediate. He goes, absolutely and still do.
So let's go back to where we are in the book right now. He starts this investment partnership.
Starts a new law firm three years in
He's like, Okay, I'm gonna stop practicing law and I'm gonna focus on investing full time.
Charlie is forty one years old.
forty one years old when he makes that decision and so when I got to this part of the book
And I'm gonna follow up with another question I I got to ask Charlie about this part of his life.
was this is w the thought that came to my mind when I was reading this, right?
We are in this stage of our lives.
Right now.
The book about your life, the book about my life is being written
Right now.
It's so important to think about the younger version of Charlie Munger, the younger version of Warren Buffett. Because the decisions that that Charlie and that that Warren made at this point in their lives.
The the the pa literally the pages I'm looking at.
The decisions they're doing on these pages will affect
Everything that happens after
The same applies to you and I.
And I think reading biographies and thinking about the younger versions of not only Charlie and Moore and just everybody that you and I talked about in this podcast.
Like that is going to motivate you and I to make the most of what we're doing right now because we know the effect that it's gonna have.
On the multiple decades
In the future.
And so let's go into what forty one year old Charlie was doing. Charlie's investment partnership was different from Warren's.
And that he was willing to take on a lot of debt to do some of his trades.
He was particularly fond of stock arbitrage.
One arbitrage deal involved British Columbia Power, a company
that was being taken over by the Canadian government.
The takeover price was twenty two dollars a share. B C P
was selling for nineteen dollars a share. Charlie brought all the shares of B C P
he could get his hands on and ended up putting all of his partnerships money
All of his own money and all that he could borrow into B C P
The trade worked out.
B C P was taken over at twenty two dollars a share.
And Charlie made out like a bandit.
And so that was obviously a risk that Charlie would take early in his career when he didn't have a lot of money that he wouldn't take now, right? In the mid uh nineteen sixties, Charlie and Warren were busy scouring over the pink sheets. So that's like a
Pre internet daily publication of the prices of stocks that were printed on pink paper. They're they're looking for deals, right?
Uh, they're looking for a bargain price on a good company.
One of the companies they found was Blue Chip Stamp. So this is really important. The reason I'm pulling this out.
Is because this is an important idea that they are gonna use forever.
Charlie at this point is in his mid forties. Warren is in his late thirties.
So it says Bluechip was a trading stamp company. Other businesses would buy trading stamps from Bluechip to give them to their customers.
We would then redeem them for prices
that blue chip was offering, this is gonna be confusing to our modern day
Uh David Clark.
The author.
does a great job. He's like l listen, just think of this as an early form of a rewards program.
What made the company interesting to Charlie was that Blue Chip had a pool of money
Called
float. Again, this is an important idea that they're gonna use forever.
They had a pool of money called called Float.
That was created by the lag time between
The selling of the stamps
And the customers redeeming them.
What made blue chips stock attractively priced was the fact that the US government have filed an antitrust action against the company.
That's why they're getting a deal.
Charlie as a lawyer thought the lawsuit would be resolved in favor of blue chip, which it was.
Charlie through his partnership and Warren through Berkshire eventually took control of the company and Charlie became its chairman by the late nineteen seventies.
The float at blue chip.
Had grown to approximately a hundred milyen dollars, money that Charlie and Warren could invest.
Bluechip's business model eventually became obsolete. Under Charlie's direction, Bluechip used its surplus capital
To purchase a hundred percent of C's candies.
And eighty percent
Of a finance company called Wesco.
Just as warned this is the important part.
Just as Warren had taken capital out of Berkshire's failing textile operation,
To buy a thriving insurance company.
Charlie took the excess capital out of blue chip stamp
and invested it in profitable businesses.
So that is one good idea that's going to lead to the discovery of another good idea. And they're gonna combine these two ideas for decades and decades.
In nineteen sixty eight, Charlie teamed up with Warren and Sandy Goatsman to form diversified retail company.
DRC acquired a department store called Hoschild Cone for twelve million dollars. Hoschild Cone was bought at a bargain price.
But it had no competitive advantage and was constantly having to spend precious capital
Keeping up with the competition.
This mistake is going to lead to the discovery of this great idea I just mentioned earlier.
During that time Charlie started seeing the the advantages of investing in better businesses
That didn't have big capital requirements.
And did have lots of free cash.
that could be reinvested in expanding operations or buying new businesses.
So let's stop right there. Go back to the beginning of this introduction, which I'm still reading from and I'm almost done with.
Go back to the beginning introduction and what did War Warren Buffett said.
Charlie's most important architectural feat was the design of today today's Berkshire. It's this idea, he says, the blueprint he gave me was simple. Forget what you know about buying fair businesses.
at wonderful prices. That's the Garbutt Ben Graham strategy, right?
So forget about buying fair bus businesses at wonderful prices. Uh instead buy wonderful businesses at fair prices.
In other words, go for great. Aim for quality. Those great businesses throw off a lot of cash. We can then take that cash and reinvest it.
And so I read this part before I had dinner with Charlie, then I re read this entire section.
After and I realized.
The the biggest takeaway when it like
There was I mean, Charlie's a genius. Like I I I just cannot believe that I got a chance to talk to him. Like I remember
There's like I got to sit next to him at dinner.
And he like he looks at you in the eye. Like he'll turn his head
and then look at you and I just I could not believe I had
The thought min multiple times.
And I'm not trying to embarrass myself, but you know
Okay.
I truly love Charlie Munger, like he is a hero of mine. He is the wise grandfather I never had.
And so I had this idea, it's like I cannot believe
that I'm looking at like Charlie Munger is looking at me and talking to me.
That's how much I love and respect like the role.
That Charlie Munger has played in my life.
And so there's a ton of great ideas that I got and a ton of notes I took uh after I got back to my hotel after the to the dinner.
But
The I think the thing that that resonated with me the most is that
Charlie has it.
An almost complete indifference to problems.
The way I would say is like
Troubles from time to time should be expected.
This is an inescapable part of life.
So why are you letting it bother you?
And if they're listening to the lessons that he's trying to impart on others.
you realize what he's saying is like you can re the problems are inescapable, you're gonna have some level of problems.
But you can reduce the amount of problems that you have in your life.
By aiming for quality.
High quality business.
And high quality people produce less problems. So one of the notes I left myself after this is like I don't ever want to forget this.
It makes your life easier if you go for great
Great businesses are rare.
Great people are rare.
But you will have way less problems in your life if you're in a great business and you surround yourself by great people.
And at this point in the book you're seeing Warren and Charlie work themselves through this and realize, Oh, this is the we need to course correct here. We need to we have a good strategy. Let's alter it a little bit and it's gonna become a great strategy.
Uh so it says when uh Charlie closed his fund in nineteen seventy five, it had ten million dollars in assets.
And showed an average annual r rate of return.
of almost twenty five percent.
uh for the fourteen years it was in operation. What is interesting
is that in the final years of Charlie's Fund.
In the year in the final years of the fund Charlie was running.
uh a highly concentrated portfolio the holding in blue chip stamp alone
Accounting for sixty one percent.
of the funds investments and this is something that Charlie and Warren repeat over and over again.
He has never been a fan of diversification.
as an investment strategy.
There's a great quote that I have in my read wise from something I read, either a biography or maybe uh warrant shareholder laws in the past.
What Warren said, diversification is for people who don't know what they are doing. Look at how the great fortunes were built.
And Warren's point there is obvious like even if Sam Walton, Estee Lauder, Steve Jobs
Andrew Carnegie, even if they never made an investment outside their company.
They only if they had a hundred percent of their net worth.
in their companies, they'd still be fantastically rich.
Back to this, in nineteen seventy nine, Charlie became Berkshire Hathaway's first vice chairman in eight nineteen eighty three, blue chip stamp.
Merge with Berkshire Hathaway and Charlie took over as chairman of West Co.
It was from those two positions that Charlie would help Warren make the investment and management decisions.
That would take Berkshire Hathaway.
from a net income of a hundred and fifty uh forty eight million in nineteen eighty four.
to approximately twenty four billion in two thousand sixteen. That is when this book was was published.
And Warren wraps up the introduction for us.
In a perfect way.
Warren in summing up Charlie's impact on his investment style over the last fifty seven years said Charlie shoved me
In the direction of not just buying bargains.
As Ben Graham had taught me.
This was the real impact.
That he had on me.
It took a powerful force.
To move me.
On from Graham's limiting view.
It was the power of Charlie's mind when I read that.
The first time made me think of
One of my favorite quotes from Steve Jobs, Steve realized this exact same thing that Charlie and Warren realized in everything I've done. This is what Steve said.
In everything I've done.
It really pays.
To go after the best people in the world. Let me read that part again. Warren in summing up Charlie's impact on his investment style over the last fifty seven years.
So Charlie, shove me.
In the direction.
Of not just buying bargains as Ben Graham had taught me.
This was the real impact that he had on me. It took a powerful force.
To move me.
On from Graham's limiting view.
It was the power of Charlie's mind.
And that was the end of the introduction of the book that I'm gonna talk to you about today and the one I've read for the second time now.
The towel maybe actually probably maybe three or four times.
Uh the Tow Charlie Munger, a compilation of quotes from Berkshire Hathaway's Vice Chairman on life, business, and the pursuit of wealth.
And it was put together by David Clark.
And the reason I said I've probably read this three or four times because the very first time I read it was all the way back in two thousand nineteen. It was episode seventy eight of Founders.
But I have
The hard cover?
Kindle.
In audible audible versions.
of this book. That's how' important it is. I hope I can convince you if you don't already own it.
to order it by the by the time you finish listening to this podcast.
But I re-listened.
I re-listen to the Audible version over and over and over again.
And I think having the hard cover, the physical copy of the book
And just leave it out on the table, your desk.
Because it's the way it's set up is like you have these tiny chapters just like hundred or
Yeah, one hundred and fifty different chapters.
And they just start off with quotes from Charlie and then David Clark.
adding some like context to it.
And so you can read the book all the way through, but you don't have to. You can just pick it up, you know, five, ten, fifteen minutes a day.
read some of Charlie's words and he's gonna give you something to think about. So I want to jump into one of his quotes right here.
Uh Charlie says, Life is like a poker game.
Wherein you have to learn to quit sometimes when holding a much loved hand.
You must learn to handle mistakes and new facts.
that change the odds. And so this is
Some context provided by David Clark. Charlie experienced this with home mortgage lender Freddy Mack.
When Berkshire bought shares in Freddie Mac in the nineteen eighties,
It was a very well run, conservatively managed, profitable enterprise.
that was involved in the mortgage business. As time went on, Freddy's management branched out
into a new line of business in which they were using their quasi governmental status
to aggressively borrow short short term money
And then lend it out long term.
the same financial equation that eventually put Lehman Brothers into bankruptcy.
Seeing the dramatic increase in risk and the change in the attitude of Freddy Mac's management,
Berkshire sold.
It's much love investment.
at a profit in nineteen ninety nine.
Nine years later, check out this out. By two thousand eight.
Freddy Mac.
was in receivership.
The old management had been fired.
And the stock was worth a tiny fraction.

When Berkshire showed its shares.
And then the next page is another quote by Charlie says, My idea of shooting a fish in a barrel is draining the barrel first. And so
Well pop to my mind.
uh when I read that is something that's very common in all these uh that history schedule transprenders have in common you'll see over and over again if you if you read their biographies.
Is they're always trying to figure out how they can build
an unfair advantage. I don't mean an illegal advantage, right? An unfair advantage. And the way to think about this,
Is something that uh Jeff Bezos said one time.
And he says, Do you really want to plan for a future in which you might have to fight
With somebody who is just as good as you are.
I wouldn't.
And then Charlie goes into the importance of always advancing your thinking. They talked about, you know, for the ver first part of
Warren's career, he stuck to Graham's playbook.
And what they realized is that there was
Actually, quantitative measures and a in a wonderful business, and a truly great business.
That would have horrified Graham.
And so he he says, Well, even if they've horrified Graham, we started thinking about better businesses, and then David gives us
uh an example of Berkshire's decision to invest in Coca Cola that would have never happened if they were just using Graham's pro uh Graham's playbook.
It says in Graham's investment philosophy, there was no such thing as owning a company for twenty years or longer.
And letting the underlying economics of the business grow the company.
and lift a stock price. Charlie and Warren realized that some businesses have exceptional economics
Working in their favor.
That will cause their intrinsic value to increase over time.
And so the numbers are gonna be a little dated in the book because this book is, you know, seven years old or whatever the case is, but you'll get the point.
uh Berkshire decides to put one point let's let's call it one point three billion dollars
In uh Coke in nineteen eighty eight, over the last twenty seven years of that.
investment alone.
has grown to over seventeen billion, but that does not include all the dividends.
That I received in that time period in the year before the book was published.
Uh, Coca Cola paid Berkshire
Five hundred and twenty eight million in dividends.
a current annual dividend rate of forty percent.
on the initial investment of one point two nine nine billion.
Which I think is a great illustration on the importance of advancing your thinking.
And so that concept of get in a good business and stay there, get in a great business and stay there is going to appear over and over again. Charlie says it in many different ways.
One is better off buying a business with exceptional business economics working in its favor.
and holding it for many years then engaging in a lot of buying and selling. Charlie knows at time
Is a good friend.
to the to a business that has exceptional economics working in its favor.
But for a mediocre business, time can be a curse. So this is something you hear me repeat over and over again. Pops up in these stories.
Time carries most of the weight.
And the reason that's so important to repeat over and over again because it goes against human nature. Even
It's so hard to build a truly great бізнес.
And yet more likely than not
Your truly great business is not gonna be destroyed by competition. It's gonna be destroyed by you.
And so there's another tr line that Charlie repeats that I think is not in this book.
But ties into exactly what he's talking about here.
The problem isn't getting rich. It's staying sane.
So it's not redundant that Charlie repeats this over and over again. It's really important. Repetition, first of all, is the mother of all learning, but it's repetition is also persuasive.
And so and the most important for us to uh person for us to persuade is ourselves. We're in a good business. If you're in a good business, just know that it's human nature to mess it up.
Don't mess it up.
Just stay there and let time do its work.
Going back to another line that
Charlie repeats over and over again.
The worshiping at the altar of diversification I think is really crazy. This is the note I love myself.
And something I'm trying to apply in my life.
One truly great business will make your unborn grandchildren wealthy.
And then on the next page there's one line.
There's one line from Charlie.
And I'm like over here writing novels about it.
So I'll tell you what pops uh up to my mind uh popped up to my mind.
Mimicking the herd invites regression to the mean.
So that's what Charlie says. Mim mimicking the hardware invites
Regression to the mean. Now g we're getting to my novel and then I have other notes on this too.
Charlie and Warren trust their own judgment implicitly. They don't care what other people are doing or thinking.
Then I grabbed a quote.
From episode two eighty six, which is titled I think Warren Buffett and Charlie Munger.
Speaking directly to you.
And there's a line in the book that I read for that episode.
Uh, it says I would say if Charlie and I have any advantage, it is because we're rational.
And we very seldom let extr extraneous factors
Interfere with our own thoughts.
We do not let
other people's opinions interfere.
And this also made me think of something that happened when we were having dinner.
Uh with Charlie. Andrew or Chris. I can't remember which one from Tiny asked Charlie a fantastic question.
And there were uh the question was uh I'm gonna paraphrase here.
I I wasn't it's not like I was taking notes. I had all these
Yeah.
prepared all these questions and ideas I wanna talk to Charlie about.
And I never looked at my phone one time. And so they asked, like, were you motivated, but like part of your your desire to to be successful, like this drive to succeed.
Did it have anything to do with like proving or like getting the uh the appreciation or the like was it did you do it because of your relationship with like your dad or your mom?
Which is a good question because
This appears over and over again in the biographies that you and I talk about.
uh this idea that came from Francis Four Coppolo's biography, but was really in almost every single story.
And it's the find the idea that you can always understand
the son by the story of the father, that the story of the father is embedded in the son.
And so Charlie's answer to the question was fascinating. He says no.
I always had an inner clock.
And so Charlie's point there was that he was doing it for him. He did it because he wanted to do these things. He was interested in them, not because
X, even if it you know, you you obviously love your parents.
But but those are external factors. Like everything came from internally.
He has an inner clock. And so
When I was taking notes, I had to paraphrase like I was trying to think, okay, what are the things like I wanna never forget this, right? Like
Charlie Mung like it's a night that Charlie Munger probably won't remember and I'll never forget.
And so I wanted to make sure and document like
In writing, what are the things that jumped out at me?
And so one of the notes I this is one of the notes I left myself. These are not the words that he used. He never used this word, but this is exactly like the impression he left on me. And so I wrote
Charlie has always had an inner clock.
He just does what he wants to do and doesn't give a fuck.
About the ideas or thought of others.
think all of that ties back to what Charlie's saying here in the book, mimicking the herd
invites regression to the mean. Charlie Munger was not put on the earth.
To be average.
He has no desire and has never had desire to mimic
The herd.
Go back to what Warren says.
I would say if Charlie and I have any advantage, it is because we're rational and we very seldom let extraneous factors interfere with our own thoughts. We do not let other people's opinions
Interfere.
And so moving ahead in the book, we see this idea, same idea.
That we've already gone over, right?
Present in a different way.
And he talks about the like why are you worrying about prediction? I have never been able to predict accurately.
I don't make money predicting accurately.
We just tend to get into good businesses and stay there. Again.
What I write on this page, whatever.
No to myself on this page, time carries most of the weight. Stop overcomplicating things. Just get into a wonderful business and stay there.
Another idea that Warren and Charlie repeat over and over again is the fact that financial crisis
uh the equal opportunity. We'll go over this later on because I jot some notes down. Uh he says this in another way.
And I just
tie in a bunch of the founders that you and I have studied.
you know, ad advanced they use financial crisis.
'Cause everybody else again, it goes against human nature. Everybody else runs away, they run towards and they actually wind up growing their businesses.
uh by leaps and bounds.
by investing and uh investing into their business when everybody else is running.
If you like me live through the nineteen seventy three to nineteen seventy four financial crisis, or even the early nineteen nineties, there was a waiting list to get out.
Of the country club.
That's when you know things are tough. If you live long enough, you'll see it.
This goes back to the main
thing I learned from speaking to him is it's just complete
Almost complete indifference to problems.
Troubles will be
From time to time they should be expected. They're inescapable. You cannot let them bother you. You can also not let them kill you.
Like your business should have redundancy so you can survive them, right?
He's another way that Charlie says this, he says, Listen, it's in the nature of stocks
That they go down from time to time.
And so he talks about keeping cash for this inevitability.
Like, why don't you have cash? Why aren't you prepared for this?
He knows that cyclical financial crisis is
Uh are just in the nature of capitalism.
Random recessions and crashes are programmed into Charlie's buying strategy.
He lets cat him and Warren let cash pile up.
They wait for a recession and crash, even if it means getting low rates of return.
on their cash holdings as they wait for the inevitable
When the crash hits, they make their purchases.
As Charlie has said many times, it was not brains that made him so rich, it was temperaments.
And this is an idea that they're still using in present day. At the end of two thousand twenty two, Berkshire held
Ninety two billion dollars of treasury bills.
And we brought this up at dinner and he said something like it was hilarious.
Uh, just how nonchalant he was about it. He goes, Yeah, the world came around to us on that.
And so in this book they talk about the the importance of patients over and over again.
And they have one line here. I'm actually gonna read the full quote. This comes from uh
Episode two eighty six.
The towel Charlie Munger says I succeeded I succeeded because I have a long attention span.
That's still a fantastic quote, but I like that what happens before it and just a reminder, something I'm trying to obviously do with founders.
is he says, I think people that multitask pay a huge price. I only do this, right? I only focus on this. This is something I actually like I got an idea from Charlie. And I the way I
break it down my own mind, it's only two words. Stop multitasking. I have like a little Charlie Munger on shoulder that like admonishes my behavior from time to time.
I think people that multitask pay a huge price. When you multitask so much, you don't have time to think about anything deeply. You're giving the world an advantage you shouldn't do.
Practically everybody is drifting into that mistake.
I did not succeed in life by intelligence.
I succeeded because I have a long attention span.
And so that quote in this book is under the headline patience.
Something that I heard Charlie say a long time ago that I've never forgotten.
And I think reading biographies and l obviously listening to found uh podcasts like founders is gonna play the role that Barron's
magazine played in his life.
And so he like another w uh way to talk about the importance of patients is he tells a story. He's like, Well
You know, I made four or five hundred million dollars.
from reading Barron's magazine for fifty years and people are like, What what what what are you talking about?
And so his whole point is like, listen, I read Barron's magazine for fifty years.
I only found
Uh the entire time.
I found
One idea that I could act on.
Only one.
I made eighty million dollars on that idea, basically risk free.
Then I took that eighty million dollars and I gave it to Lelu, and he turned it into four or five hundred million dollars. And so that is how I learn how I made four or five hundred million dollars.
Feeding Baron's
For fifty years.
That is one of the greatest anecdotes you could ever hear about the importance of patients.
And then this is Charlie on the dangers of overconfidence. Smart people are not exempt from professional disasters from overconfidence.
Another way to think about that is he says this in a different way, the problem is not getting rich, it is staying sane.
Then they go back into the importance of having patience and waiting for great opportunities. I love this sentence because
Again, it could just go the reason we could shout this these things from the from the rooftops.
Most humans are never gonna do it just'cause it goes against human nature and they're incapable of going into our nature, right?
and Charlie and Warren are capable of going of bucking the trend.
One of the reasons Charlie and Warren have never worried about anyone mimicking their investment style.
Because no other institution or individual has the discipline or the patience to wait as long as they can.
He then talks about the importance of making sure that you can endure problems. An isolated example that's very rare.
Is much easier to endure.
Than a perfect sea of misery that never ceases.
And again, this all ties back to that main theme.
Where it's like the formula is simple but not easy.
great businesses and great people. Get in great businesses, surround yourself with great people. It's gonna take care of
Most of the pr avoid.
What it
One of the best things that Charlie said on episode two eighty six, right? That it's crazy how much information he's able to convey to us in three words. And I think
They all this all ties together.
Wisdom is prevention.
And how do you prevent from having to solve problems? You avoid them. Wisdom is prevention. And how do you avoid problems?
You s you get into great businesses and you surround yourself with great people. Charlie's talking about the difference between an excellent company.
which might confront a major problem a few times in a span of twenty years compared with a mediocre company which might go from problem to problem year after year.
And one way you know that you're around low quality people is'cause that they are a perfect sea of misery that never ceases. They just have one problem after another.
My wife has this beautiful way to to describe this. She says in Spanish
But it loosely translates to that person can drown in a cup of water.
On the next page, Charlie says something that I'm doing in my life and it's something that jumped out at me
Makes me think of something I learned from Ed Thorpe and Jeff Bezos.
He says, Move only when you have the advantage. You have to understand the odds and have the discipline to bet only when the odds are in your favor.
Something that popped up when I uh when I read this page as well.
is advice that I learned from Ed Thorpe on episode two twenty two.
Which is only play games where you have an edge.
And in his very last uh shareholder letter that Jeff wrote as the C of Amazon.
He has another great three line piece of advice.
Differentiation is survival.
To understand this piece of advice you need a little bit of Charlie history.
In the late nineteen sixties, both Charlie and Warren had their own hedge fund.
As the bull market of the late nineteen sixties rage on, everything became overpriced and Warren could no longer find anything cheap enough to buy.
So rather than alter his investment strategy, Warren shut down his hedge fund.
And return the money to his partners.
putting the vast majority of his own money into cash equivalents.
Charlie kept on investing and enjoyed great returns until the stock market crash of nineteen seventy three and nineteen seventy four.
When he lost nearly half of his partner's money.
He called it
The worst time of his life.
Warren, who was sitting on a huge amount of cash because everything running up to the crash had been overpriced, suddenly found himself surrounded
by dozens of wonderful companies selling at bargain prices.
Another thing I learned from Charlie
Aim for durability. In his eyes, durability.
is a first class trait.
More about this now. Charlie and Warren's theory is that a company with a durable competitive advantage has business economics.
That will expand the underlying value of the business over time.
And the more time passes, the more the company's value will expand. Time carry that's another way of saying
Time carries most of the weight.
We can apply that into
a actionable advice, get in a great business and stay there.
More advice from Charlie's make sure you have an accurate representation of your business in your mind. I think one should recognize reality even when one doesn't like it.
Indeed, especially
When one doesn't like it.
They talk Munger and Buffett talk about the importance of
Stepping on problems early.
Like the ti the right time when you have a problem to act is right now.
Munger has this great quote.
Uh wise people step on big and growing troubles early. Wise people step on big and growing troubles early.
And then this is one of the most well known of Charlie Munger's quotes.
It's remarkable how much long term advantage people like us have gotten by trying to be consistently not stupid.
Instead of trying to be very intelligent.
There must be some wisdom in the folks that say it's the strong swimmers who drown.
Charlie's interested in a simple strategy that allows him to post superior results over the long term.
The foundation of which is trying not to do anything stupid.
Another main theme that Charlie repeats over and over again is the ability to recognize
It's not just good enough to recognize an opportunity when it's presented to you, but y you have to act on it.
You do get an occasional opportunity to get into a wonderful business that's being run by a wonderful manager. And of course, that's Hog Heaven Day.
Charlie believes that if you aren't buying like crazy, when you have the opportunity to buy a business that has huge potential,
It is a big mistake.
And then he has a hilarious story.
His whole thing is like listen, if you have an exceptional exceptional business will just keep on earning money.
Over and over and over again, forever.
And so it's a fantastic way.
To tell the story.
And he says, When I came out to California, there was this Playboy, and he spent all his time drinking heavily and chasing movie stars.
His banker called him in and said that he was very nervous about his behavior.
He told his banker.
Let me tell you something.
My municipal bonds don't drink.

I love that.
Um, and then Charlie says that learning from history is a form of leverage.
The fact is so few people can do this that f uh and you see this because financial des the financial disasters of today
or almost completely forgotten in a year or two.
And so this goes back to the idea that Warren and Charlie just trust their own judgment. And so it says if people weren't wrong so often,
And so I read that one sentence.
And without looking up any notes, I just wrote down, I go, Okay, what are other people what are a list of other entrepreneurs that you and I've studied that other people said that what these people were doing wouldn't work?
Sam Walton, Steve Jobs, Jeff Bezos, Rockefeller, Edwin Lan, Coco Chanel, Andrew Carnegie, Michael Jordan, Kobe Bryant, Larry Ellison, Ray Crock, John Malone, Henry Ford, George Lucas, the Wright brothers.
And if we went through every single episode
or biography read so far for founders. So the list would be a lot longer than that.
This goes back to patients.
And again
this idea of like breaking down what he's trying to say and just very simple like rules for life.
Ah, to me it's like human nature is
to be impatient and quit. Just do the opposite.
You have to be very patient. You have to wait until something comes along, which at the price you're paying is easy
That's contrary to human nature, just to sit there all day long doing nothing and waiting.
It's easy for us. We have lots of other things to do.
But for an ordinary person, can you imagine just sitting for five years doing nothing?
You don't feel active.
You don't feel useful.
So you do something stupid.
And so they break down what is the likely human reaction.
If you wake up one morning determined to invest your money, your chances of finding an investment that would meet Charlie's standards
Is almost zero.
So you settle for something less.
W when you could have gotten something more if you just waited. Charlie's approach is contrary to human nature.
This is what I mentioned uh earlier.
how that they run in when everybody else is running away and that this is actually a great way to expand your business.
Uh we have a history when things are really horrible of wading in when no one else will.
All these people used economic downturns to their advantage. This is when they expanded. Rockefeller, Carnegie, Henry Clay Frick, and Izzy Sharp. Izzy Sharp is the founder of four seasons.
And so this came up a few times at dinner. He tells these wonderful stories with amazing recall of like all these different deals or businesses or ideas they came across as they built, you know, Berkshire for the last
What is that, sixty years, fifty years, something like that?
And he just has like this tagline.
Oh, this is like my again, I wasn't taking notes, this is something I wrote down after the fact.
But really it's just like we made so much money because we had cash and we could move fast.
Think about how crazy that is that that could be of advantage. Obviously you
you're you're getting you're seeing these deals too, which is a you know another on uh advantage that you have to figure out like how to build up in your own business.
But once you are getting the deal flow and actually seeing the opportunities that are coming to you, right?
The idea is like
We just we just made a lot of money because we had cash and we could move fast.
And then the book goes into something that obviously Charlie and I share, the fact that we're both biography nuts.
Uh hope one day to catch him, although
now I know I've having seen his bookshelf, uh I have to step my game way up. He was
On w another thing, it's like people say don't meet your heroes and I understand w that advice, but like
I just came away like even more impressed by him.
Like not only was he unbelievably intelligent, his mind is really powerful, he told amazing stories
Super impressive at ninety nine years old.
But he was just unbelievably like polite. I asked like Hey Charlie, do you mind if I look at your bookshop?
Go ahead, do whatever you want. Just unw I just could not believe how generous he was.
So I saw the reason I bring this up is because
You know.
I I'm thinking I'm getting close to three hundred biographies for the podcast.
He has so many books I've never even heard of like
It it was just amazing.
In some cases he's making his own books.
He has transcriptions from very valuable and rare interviews with some of his tree's greatest founders, and he put them in binders.
That's what I mean. It's like oh I'm gonna I need to set my game way up here. So there's gonna be a bunch of books
coming over the next, you know, few year few months to few years.
That I found on Charlie's bookshelf.
And now I'm I'm trying to like they're very rare books, I have to like go and hunt them down.
I was just
unbelievably again, I'm repeating myself, but I was just unbelievably impressed with just how much and how dedicated he was to to reading and how he says like that.
that made all the difference in his life.
There isn't a single formula you need to know a lot about business and human nature and the numbers.
It is unreasonable to expect that there's a magic system that will do it for you.
People are looking for a simple method that they can learn from reading one book that will make them rich. It doesn't happen that way.
One is actually better off reading a hundred business biography than a hundred books on investing. Why?
Because if we learn the history of a hundred different business models, we learn when the businesses had tough times and how they got through them.
We also learn what made them great or not so great.
And so on the next page, it goes back to this idea where it's like, Hey, we made a lot of money because we had the cash and we can move fast, right? And essentially saying, Hey, these opportunities, they present themselves, you gotta make the decision right then.
They're not gonna like oh it's on the open market, it's gonna sit there for months.
And so he says um
You have to be ready to pounce when the opportunity presents itself because in this world opportunities just don't last.
Very long.
And so when I got to that section, it made me think of one of my favorite quotes.
Uh, I gotta re redo this podcast because the it's Mark Andreessen's blog archive, which I still think is fantastic. It's episode fifty.
I'm gonna read uh two paragraphs from
Mark and Jason's blog archive, this was written probably fifteen years ago.
And it's ties into what Charlie's talking about here.
This is what Mark said.
The second rule of career planning. Instead of planning your career, focus on pursuing opportunities.
Opportunities that present themselves to you are the consequence.
of being in the right place at the right time. They tend to present themselves when you're not expecting it.
And often when you're engaged in other activities that would seem to preclude you from pursuing them.
And they come and go quickly.
If you don't jump all over an opportunity, somebody else generally will and it will vanish. I am continually amazed.
At the number of people who are presented with an opportunity and pass.
There's your basic dividing line between the people who shoot up in their careers like a rocket ship.
And those who don't.
Right there.
I am also continually amazed at the number of people who coast to life and don't go out
And see and don't go and seek out opportunities.
Even when they know in their gut.
That is what they'd really like to do.
Do not be one of those people. Life is way too short.
And so now we got to the part that I mentioned earlier where
He was talking about the fact that
people that that are coming from poorer countries or that they have immigrant mentality, they just work so unbelievably hard.
Much harder.
than people who grew up using like wealth and comfort.
And you should not be surprised if
a person's working and putting in, you know, two or five or ten times the effort.
that you lose to this person. This is this spawned a bunch of thoughts for me as well.
As we've talking about uh the rise of Korea in the business world
And he says Koreans came up from nothing in the auto business. So
Let me pause right there.
Chang Ju Young.
the most I I've read, you know, three hundred biographies so far for the podcast.
Number uh episode one seventeen. That is the single most inspiring autobiography that I have read so far.
Uh, it's called Born of This Land, My Life Story, I think, Chun Ju Young.
was the founder of Honda.
He grew up so
Poor uh he had to eat tree bark in the winter.
to survive as a kid and he winds up dying as the richest man in Korea.
Koreans came up from nothing in the auto business. They worked eighty four hours a week for more than a decade.
At the same time, every Korean child came home from grade school and worked with a tutor for four hours in the afternoon.
Are you surprised when you lose to people like that?
Only if you're a total idiot.
And so when I read this part, not only did I think of Cheng Jiung, but I thought of
Uh, my friend Sam Hinky was on uh the invest like the best podcast and the
The title is Find Your People. I think it's Find Your People. I will I will find the actual link and put in the show notes for you.
And Sam i is uh an authority on um the writing of Robert Carrow.
I think Caro's um multiple part series on Lyndon B. Johnson is is Sam's favorite book.
But he said something on the podcast, and I took these notes years ago.
Or maybe like a year ago.
And I thought it was fascinating. It it relates exactly what Charlie's saying here.
And so Sam is talking about like
You know, Carl is famous for writing his series on Lyndon Johnson and is famous famous for writing The Power Broker.
uh on Robert Moses. I read The Power Broker. I'm working my way through the Linda Johnson series right now.
But Sam said something that was fascinating. He says Carl profiled two men
whose seeds were not high in the tournament of life.
They were born without many advantages.
And to get all the way to the top, you probably had to sacrifice everything to the effort.
The meta lesson is if you are not willing to pay that price.
You should presume that someone else will.
If you want something like the presidency
And then and then my note here is our is or being a billionaire.
If you want something like the presidency, you should presume
There is someone out there who will devote all their time
Money.
Relationships.
Sense of ethics.
Everything.
In sacrifice of that one goal.
Of course.
That person
would win that race.
And to me that sounds a lot like the same lesson that
Charlie's trying to impart on you and I here.
Are you surprised when you lose to some people like that? Only if you are a total idiot.
Another person Charlie brings up uh that he admired a lot was Sam Walton.
And so this quote from
Charlie made me think of a quote that I read in Sam's fantastic autobiography.
Which I covered for the second time.
On episode two thirty four. I'll probably read that book.
I would imagine I read that book five or ten times throughout my life. Um I just had uh lunch with somebody that was in town to have dinner
Uh with tr with Peter Teel.
And they said something that was fascinating that uh Peter had mentioned at dinner
I just randomly said, Oh yeah, uh I was reading this book for the seventh time and he noticed something.
And I was like, Oh okay, like I thought like reading them two times was enough, maybe three times enough.
And again, you just you're constantly exposed to people that just take things farther.
than you otherw otherwise would.
Charlie says we just keep our heads down and handle the headwinds and tailwinds as best we can and take the result after a period of years.
Uh Sam and his fantastic autobiography said.
When he was asked how did Walmart do it?
He says, Friend, we just got after it and we stayed after it.
And then we're almost to the end of the book and we come to one of my
This is one of my favorite Charlie Munger ideas of all time.
In business, we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables.
Like the discount warehouses of Costco.
Costco's obsessed with keeping operating costs to a minimum. It does so now David Clark is giving us some commentary on like how extreme they are.

Something I got to ask Charlie about Jim Sinegal because he knows Jim Sinegal, he loves Jim Sinegal, it's just hilarious. And I love Jim Sinegal too, and I was well, I'll get there in a minute.
So it says uh Costco is obsessed with keeping operating costs to a minimum. It does not provide shopping bags, saving Costco two to five cents each on plastic bags and ten to twenty five cents each on paper ones.
This might not seem significant, but consider this.
There's approximately a hundred and fifty million customer checkouts every year at Costco. That's crazy.
So
Let's say that each checkout, if they provide a bag, it costs them thirty cents.
If you multiply
That thirty cents by the total checkouts, that's forty five million dollars a year.
By simply getting rid of paperbags to check out Costco arguably saves itself forty five million a year.
And saying Costco's not alone in in this kind of thinking.
Geiko did something that seemed outrageous. Early on it got rid of its insurance agent and its commission by selling directly to the consumer.
Thereby reducing its costs.
Which allowed it to be more competitive in the pricing.
and still maintain its profit margin. Another example.
Nebraska furniture mark.
Buys huge quantities of furniture from a single manufacturer.
at a huge discount, which allows it to stores to sell.
for us a sofa cheaper than the competition.
And still keep its margins high.
This paragraph is so important.
I have a giant exclamation point.
Next to this in the book.
Uh the one thing
that all of Berkshire's businesses have in common is that they are managed by people who are willing to go to great lengths to keep costs low. That goes for Berkshire's home office as well.
It doesn't have a public relations department or an investor services department. And for many years the annual report was printed on the cheapest paper possible.
And had no expensive color photos.
Note in recent years that
The paper quality has improved.
And the annual report now sports one color photo.
Which may be a sign that management is starting to slip.
And so there's few people in the world that love Costco more than Charlie Munger. I got to ask him, I was like, Hey
I love Jim Sinegal.
You know I the only thing I've ever found him in writing
is the fact that he wrote the the introduction to to Sol Price's biography, which was like his his hero and his mentor.
And I was like, What's going on? Like, why can't I f uh I forgot the exact way I said it's like why does like
Uh I asked him like why Jim kept a low profile, that it's just so hard.
To find speeches or writings of Jim
And Charlie's simple answer was
That's'cause he was busy working.
I thought there was a lesson there.
And then Charlie brings up the fact that this is harder to understand, especially for people in business, like just how magical.
That's the only way to describe it like
A great brand is nothing short of magic.
If you think about it, like the w the the quote unquote
you know, richest person in the world right now, Bernard O'Naught has built his fortune on the power, the magic of brands.
And so they didn't understand Warren and Charlie didn't understand the the magic of brands until they bought C's candies.
It says when we bought C'candies, we didn't know the power of a good brand. Over time we just discovered
That we could raise prices by ten percent a year and no one cared.
Learning that changed Berkshire. It was really important.
And this is why it's so important and valuable. Some brand names own a piece of consumers' minds.
And they do not have any direct competition.
When Charlie and Warren first discovered such companies, they called them consumer monopolies.
And I thought this was interesting one way Charlie found
great businesses is by buying a bunch of bad businesses first.
Charlie and Warren have both owned a few bad businesses in their day. Department store, a windfill man windmill manufacturer, a textile factory, and an airline.
Why are those businesses bad? Because they are involved in intensely
Competitive industries. Think about what
Jeff Bezos Soto's differentiation is survival.
Because they're involved in intensely competitive industries that beat each other up over price, which brings their profit margins down, kill their cash flow, and diminishes their chances of long term survivability.
Now we know that the secret is always
to go with the better business that has a durable competitive advantage.
He mentioned this earlier that is in the nature of stocks
to go up and down if you're not willing to react with equanimity to market price decline at fifty percent.
two or three times a century, you're not fit to be a common shareholder and you deserve the mediocre result you're going to get.
Compare with the people.
Who do have the temperament.
Who can be more philosophical
About these market fluctuations.
I would condense that down even further into uh an aphorism that you and I could take uh with us in the future. Tough times don't last, but tough people do.
uh average out betting on the quality of a business is better than betting on the quality of the management.
But very rarely you find a manager who is so good.
That you're wise to follow him.
into what looks like a mediocre business and so they use this example of
Rose Blunk and Mrs. B.
Who's my favorite.
character in all of uh Warren's shareholder letters. I wish there was I can't find a biography on her.
If you find a biography on Mrs. B, please let me know.
Mrs. B started the Nebraska furniture mart.
uh in omaha in nineteen thirty seven she grew in it's the most successful furniture store in the United States.
Berkshire bought ninety percent of the company from her when she was eighty nine years old, and she stayed on managing
Managing it with her sons.
Five years later, she gets into a fight with her sons.
She leaves in a huff and starts a new store across the street.
What harm can a ninety four year old woman do to a multi billion dollar conglomerate?
In no time at all, she had taken so much of Nebraska furniture merch business that Berkshire was forced to spend millions of dollars buying her out a second time.
But this time around they had her sign a non complete cause.
A very wise thing.
uh to do given that she went on to work seven days a week open to closed so she passed away at the age of a hundred and four.
But as a general rule, but on the quality of the business, not on the quality of the management.
Unless you've got a Mrs. B.
In that case.
Go all in.
Mrs. B is gonna make another appearance under the section of Master Plans, which is hilarious.
Uh at Berkshire there's never been a master plan.
Anyone who wanted to do it, we fired because it takes on a life of its own and doesn't cover new reality. We want people taking into account new information.
That's a great way to describe it.
I think they described described it even better in episode two eighty six.
They said we are individual
Opportunity driven.
Our acquisition technique at Berkshire is simple is simplicity itself.
We answer the phone.
individual opportunity driven.
And so at the end of the section it goes back to Mrs. B. We'd rather keep things simple and improvise as we go along.
Whenever I think of master plans, I remember Nebraska Furniture Marts founder, Mrs. B.
Who in response to a question
About having a business plan replied.
Yes.
Sell cheap and tell the truth.
So this is a quote you don't hear all the time. It's the it's this idea ties together the these two ideas that uh the importance of continuing advancing your thinking.
And then know when to stretch.
For great opportunities.
And so there's this uh company called Iskar.
It's actually the first time they bought a wholly company outside the United States.
And so Charlie was gonna describe it now. He says, We didn't know when we were young which things to stretch for.
But by the time we reached Iskar
Which we never would have bought when we were young. We knew to stretch for the right people. So stretch for the right people.
And so this is a description of what they did.
Iskar is an Israel based worldwide maker of precision carbide metal cutting tools used in industry. It is the dominant player in its field.
So Berkshire bought eighty percent of the company in two thousand six for four billion.
I then purchased the final twenty percent.
in two thousand thirteen for two billion
Which shows that it was a better business in two thousand thirteen than it was in two thousand six.
Benjamin Graham would have never bought it because it wasn't selling below book value.
Charlene Warren learned with the purchase of Nebraska furniture mart.
That if the dominant player is large enough and well enough entrenched with its customer base,
The cost of entry into its market is much too high for potential competitors.
size and market domination can create.
This is the the punchline.
size and market domination can create their own kind of durable competitive advantage.
Which is what Iskar had in spades.
So something Charlie brought up at dinner as well is the people he greatly admired.
Uh, we were talking a lot about Benjamin Franklin. He says he's there was unlikely to ever be another life as remarkable as Ben Franklin's.
And another person that he greatly admires and I saw a bunch of books about was Liquan Liu.
Uh, I'm gonna actually do a a podcast on Lee's book, which is called the
From third world to first
To first Singapore's story.
'Cause it says in this book that that book is well worth reading, and it actually says Charlie became so enamored of Lee that he commissioned a bronze bust of him.
To keep the one he owns.
of Benjamin Franklin Company. So I thought that was interesting.
This is what Charlie said about uh Lee and Singapore.
In a democracy, everyone takes turns.
But if you really want a lot of wisdom, it's better to concentrate decisions or pro and process in one person.
So repeat that if you really want a lot of wisdom, it's better to concentrate decisions and process in one person.
It is no accident that Singapore
has had a much much better record
given where it started, then the United States.
There power was concentrated in an enormously talented person.
Li Kuan Yu.
who was the Warren Buffett of Singapore.
And so the reason I wanted to include that in the discussion you and I are having today
Is because when I read that, I didn't think about Lee Kwan Yu and I didn't think about Warren Buffett. I actually thought about Steve Jobs.
And it's something that I read in um I read the the biography of Johnny Ive, which was fantastic for episode one seventy eight.
And
Th this idea that founders
have absolute control, right? It's better to concentrate decisions and process them one person.
And there's a story in that book when Steve comes back to Apple where he's getting a lot of pushback by some of the people over there.
And
Jobs just refused to take no for an answer, and because he had absolute control and absolute authority, he could do so. So there's a paragraph in
Yeah, the book of
It's called Johnny Ive, the genius behind Apple's greatest products. And it says
This is what Steve Jobs' talking.
When we took it this idea, when we took this idea to the engineers, they came up with thirty eight reasons they couldn't do it, jobs are called.
And I said no.
No, we're doing this.
And they said, Well why?
And I said, because I'm the CEO
And I think it can be done.
And they grudgingly did it.
And then they get into the importance of this trait that you and I share, this idea of like lifelong learning and self improvement lasts as long as the breath lasts because
Why? Because it's so valuable.
The co there there's a compounding effect.
to to knowledge.
In Charlie's own life, when he was uh practicing law, he implemented a self education regime of one hour a day to learn such things as real estate development, stock investing.
It was slow going at first, but after a great number of years and thousands of books read, he started to see how different areas of knowledge interplay with each other.
And how knowledge like money can compound.
Making one more and more aware
Of the world in which he or she lives.
I'm usually pretty suspect of formulas, but I actually think this three part formula is actually really good.
Uh, these are Charlie Munger's three rules for a career. Number one, don't sell anything you wouldn't buy yourself.
Number two, don't work for anyone you don't respect and admire. And three,
Work only with people you enjoy.
And so when I was rereading my highlights last night because I knew I was gonna sit down and talk to you about this today.
When I got to this part again about making mistakes, this is what I wrote at the top of the page. This was my main takeaway from my dinner with Charlie, his complete indifference to problems.
And this is what he says, There's no way you can live an adequate life without many mistakes.
In fact, one trick in life is to get so you can handle mistakes.
And so one of my favorite quotes on this actually came from the founder of Akea.
I read his autobiography all the way back on this like years ago, it's uh episode one oh four.
And he has this great line I've never forgotten, you know, many years since.
He says only those who are asleep make no mistakes.
Making mistakes is the privilege of the active.
The fear of making mistakes is the root of bureaucracy and the enemy of development.
It is always the mediocre people who are negative.
who spend their time proving
That they were not wrong.
The strong person is always positive and moves forward.
And so when Charlie says, Listen, you're gonna go through life, you're gonna make mistakes, right? Th the fact is that you have to get it get to a point where you can handle them.
I would also say something he he mentioned a few times is the the importance of learning from mistakes.
And so he brought up a few times to tonight.
Some mistakes that he'd made.
And then what he learned from them, and it reminded me of this.
He has a um a d there's a s short chapter in this book.
called admitting stupidity and this is
The quote from Charlie.
that I feel that he definitely applied to his own life. He says, I like people
Admitting that they were complete stupid horses asses.
I know I'll perform better if I rub my nose in my mistakes.
This is a wonderful trick to learn.
And so before sitting down and rereading this book for like the second or third time or whatever it was.
I had listened to the entire audiobook and I heard
Once I heard uh this part in the audio book
I had the thought I was like, Oh, that's definitely going in the podcast.
I love this. This is another one of his ideas.
that I'm trying uh to
To use my own work.
Uh he says extreme specialization is the way to succeed.
Most people are way better off specializing than trying to understand the world. And this is the commentary by David Clark.
Specialization is the key to survival in any species, and that is the key to success in any business. Specialization protects us.
From competition.
Why? Because specialization presents a barrier of entry to the competition.
And the more difficult it is to become specialized
The greater the barrier.
If all we do is what everyone else does, we will spend our lives competing head to head.
With everyone else.
But if we specialize in something and excel at it.
The specialization will set us apart from the rest of the crowd.
Do we take our Porsche?
To the local car mechanic who works on everyone's car?
Of course not.
We take it to the shop.
That specializes in Porsches.
It charges us twice the normal hourly rate.
and gets away with it because it is a Porsche specialist.
It is specialists who make the big bucks.
And then this next one is titled Secret of Success, which usually I'm very skeptical when I hear things like this, but I really do believe it does most of the heavy lifting.
If we believe and I I think what Charlie said is accurate, but if we believe what he said is accurate is that listen, problems are inevitable.
But if you s if you surround yourself with great people and get into great businesses.
It eliminates wisdom is prevention. It's gonna eliminate most of the problems that you
have that you're gonna have in life that are under your control. Right. So I think that's
A hugely important idea.
And I would combine it with this, and I think this is the same principle.
And he says I have never succeeded very much in anything in which I was not very interested.
If you can't somehow find yourself very interested in something
I don't think you'll succeed very much.
Even if you're fairly smart, there's another way that I've heard him explain this exact same idea.
And that he says an intense interest.
in any subject is indispensable if you want to excel. And this is the commentary by David Clark.
Charlie often says that the key to being a great business manager is to have a passion for the business.
For people who have that.
They are artists whose passion for their work drives and defines their lives.
Here Charlie's pointing out that this theory applies to anything that we do in life.
To be successful in something, we need to be passionately interested in it.
And that passion, more than raw intelligence, tends to determine
Whether or not we will succeed at what we do, as St. Jobs said.
Work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work.
And the only way to do great work is to love what you do. And I want to summarize that again with w by repeating this.
An intense interest.
in any subject is indispensable if you want to excel at it.
A few pages later, he goes right back at it. This time it's from the opposite angle that most people are rat poison. Therefore, you should avoid them. The other side of that is obviously go for great.
Right, go for great, I think is the the maximum that's coming gonna come out of this podcast that I remember the most.
Oh, it's just so useful dealing with people you can trust and getting all the others
The hell out of your life.
Wise people want to avoid other people who are just total rat poison.
And there are a lot of them. Wise people
Want to avoid other people who are just total rat poison.
And there are a lot of them. When I read this
uh this quote from Charlie, it made me think of something
That I read uh in
in Warren Buffett shareholder letters.
And it's really this application of the idea they only want to work with other great people.
And what Warren's I'm gonna read this this paragraph from br uh his shareholder letters real quick.
And really what he's talking about is like just most businesses, right, are poorly run to average run.
And so he says our major contribution to the operations of our subsidiaries is applause.
But it is not the indiscriminate applause of a Pollyanna.
This is warrant writing, by the way.
Rather, it is informed applause based upon the two long careers that we have spent intensively observing business performance.
And managerial behaviour Charlie and I have seen so much of the ordinary in business.
Де ви конulті а вирoso performance.
Another piece of advice from Charlie, there is no cookie cutter solutions.
Think about his answer when he was asked, Hey, if you are if you ever had to teach
like a class, a business class or a finance class, what would what would you do? And he's like, I would take a hundred
uh studies of company history and just talk about what they did correctly and what they did incorrectly.
earlier in the book to said, Hey, y you're better off reading hundreds of biographies than just reading, you know, a hundred business books.
And this is why it's like you're when you're doing that, you're just watching game tape.
It's no different than a young Kobe Bryant watching video tape.
of Michael Jordan and Magj and Magic Johnson and just constantly being exposed.
To a million different game scenarios, and then using that knowledge in his own work when he's presented with another complex scenario.
And it says beware of cookie cutter solutions. One solution fits all is not the way to go.
The right culture for the Mayo Clinic is different from the right culture at a Hollywood movie studio. You cannot run all these places with a cookie cutter solution.
And then Charlie talks about the importance of being a learning machine. And you see this what's amazing to me.
He's not ready every single book that I can f uh on Charlie Mugger. Hopefully I I've covered them all.
Charlie at forty one or forty five.
Would get his ass kicked.
By the sixty five year old Charlie.
The seventy year old Charlie.
he applied this in his own life. Like he took his own advice. Warren
is one of the best learning machines on this earth. Warren's investing skillsly increased since he turned sixty five.
Having watched the whole process with Warren, I can report.
That if he had stopped with what he knew at earlier points
The record would be a pale shadow of what it is. And this commentary by David Clark is one of my favorite
uh sections in this entire book.
There is another point that I've noticed with men and women who truly excel at their craft or profession.
They keep on learning and improving themselves long.
Long after most people would have retired.
It's like sharks.
They have to swim to live.
Learning is just something those people have to do.
And a large part of the way that Warren and Charlie learned, not only through the experience, they spent a ton of time reading and then talking to smart people.
This is actually another idea that I that I stole from Charlie and I'm using
I don't know if I told you this, like
Hopefully this this podcast is uh you're like learning something and being entertained by this because I still feel like like I'm on I'm on the high that this happened. Uh the reason I bring that up is'cause I can't remember if I told you that I got a chance to write a letter to Charlie before I met up with him.
And it was really short, just explaining like the the influence. I had a chance to
tell one of my heroes like this is not hyperbolic.
Your ideas changed my life.
Your thinking has shaped mine.
And so I won't read the whole thing, but I do want to read a section, and this is just a handful of these ideas. So I w I write it. I'm using
A collection of your i your ideas is a blueprint for building my business. And I just list it off some of them and you know, this is just part
A few of them. Uh become friends with the eminent dead.
Aim for durability.
Take a simple idea and take it seriously.
Find what you're best at and keep pounding away at it forever.
Stop multitasking.
Self improvement lasts as long as the breath does. So that second to last one right there.
To stop multitasking, this is what he says.
Look at this generation with all of its electronic devices and multitasking.
I will confidently predict less success than Warren.
Who just focused on reading.
And then this is the extension of that idea. Reading personal biographies allows one to experience multiple lives and successes and failures.
Reading business biographies allows one to experience the vicissitudes of a business and learn how problems are solved.
Both Charlie and Warren are copious readers.
of personal and business biographies.
And that last line is an understatement. I thought I've read a lot of biographies. Charlie Morn make me look a like an absolute amateur Sam Zell. I don't think I've told you this yet. I'm working on a podcast about it, but I got to also have a two hour lunch.
uh sitting directly across from Sam Zell, same thing. This guy knew more about business history
Than I did.
Every obscure figure, every obscure book, every obscure company I try to bring up.
He knew the founder, he knew the company history, he knew the outcome.
It was remarkable. And and again, just meeting Sam
Talking to him.
talking to Charlie, it's like okay, I I get done with this and I'm like, I'm clearly
Clearly on the right path.
And then Charlie shares a lesson that he learned from his dad when his dad was still alive.
I asked my father why he did his dad was an attorney for a bunch of businessmen in Omaha.
I asked my father why he did so much work for a big blowhard, an overreaching jerk, rather than for his best friend Grant McFadden.
He said that man you call a blowhard is a walking bonanza of legal troubles, whereas Grant McFadden, who fixes problems promptly,
And is nice.
hardly generates any legal work at all. And again that ties into a main theme.
Of this book.
Same with businesses. The great ones don't have endless problems.
There's a great line that's in the inside cover of this book and it says Munger is a deeply perceptive
Observer of human nature.
This next quote from him.
Uh made me think of that.
Something I also wrote down to myself after um after I had dinner with them.
I said, Charlie looks at nearly everything through the lens of history.
You aren't changing human nature. Things will just keep repeating forever.
And so he says all human beings work better when they get what psychologists call reinforcement.
If you get constant rewards, even if you're Warren Buffett.
You will respond.
Learn this.
And find out how to prosper.
By reinforcing the people who are close to you.
Next quote from Charlie, I just wrote simply, This is excellent.
You must have the confidence to override people with more credentials than you.
whose cognition is impaired.
By incentive caused bias.
Or some similar psychological force that is obviously present.
But there are also cases where you
Have to recognize
That you have no wisdom to add.
And that your best course is to trust some expert.
We are lucky if we get to live to old age.
And so he has advice for that. The best armor for old age.
Is a well spent life preceding it.
I wrote down on this page after I reread the highlights last night another takeaway from my dinner with Charlie. He did this.
The best armor of old age is a well spent life preceding it.
And so this is some of his best advice because I think it applies
Specifically
to people like you and I.
These like
D very driven, trying to do something in the world, willing to push yourself, wanting to build a successful business, a successful life.
And it's amazing how many wealthy people I know.
have not heeded this advice yet and their their lives are worse off at uh this.
He says, I've heard Warren say a half a dozen times, it's not greed that drives the world, but envy. You have to cure yourself of this.
Curing yourself of this is key.
Key for a well lived life.
Charlie's known for saying that self pity has no utility.
Envy doesn't either. Envy has no utility.
And then Charlie talks about his favorite habit. That's the habit of reading. I got to see this firsthand.
Again, this is advice that Charlie gives.
It's advice that Warren gives. It's something I experienced directly when I when I had lunch with Sam Zell.
In my whole life, I have known no wise people who didn't read all the time.
None.
Zero. You'd be amazed at how much Warren reads and how much I read.
My children laugh at me, they think I'm a book.
With a couple of legs sticking out.
Charlie's always been a voracious reader. As a child he lived in the downtown Omaha public library where
Exploring the stacks.
He met the towering intellectuals of both the past and present in books. By the age of eight, both Thomas Jefferson and Benjamin Franklin
Had permanent places
on the bookshelf above his bed. It is reading that helped put him ahead of the pack.
In fact, this is my oversight that I have not done
I have a a biography of Thomas Jefferson, I just haven't read it yet, and I haven't done it from the podcast.
forgot that he that Thomas Jefferson was one of um
uh Charlie Munger's heroes and who he
looked up to and influence his thinking. So that that alone is why I need to do it.
And I I as I'd imagine uh Charlie Munger would recommend as well.
Next thing.
Uh, this is definitely
uh really important advice and something you see that Charlie does in his own life. Life is always going to hurt some people in some ways and help others.
There should be more willingness to take the blows of life as they fall.
That's what manhood is.
Taking life as it falls, not whining all the time.
And trying to fix it by whining.
As a great
American cowboy actor John Wayne once said.
Son.
I don't care much for quitters.
And then this is Charlie repeating
The compounding effect of knowledge. I constantly see people rise in life who are not the smartest, sometimes not even the most diligent.
But they are learning machines. They go to bed every night a little wiser than they were when they got up and boy
Does that help?
Particularly when you have a long run ahead of you.
Then he repeats, Stop multitasking. I think people who multitask pay a huge price.
It was in one of the books. I d I can't remember if I it was on the Bill Gates biography that I just recently did.
Or one of the Warren Buffett biographies, but I read the story.
Where uh young Bill Gates and then a slightly
older but still younger, uh War version of Warren Buffett.
'Cause I think he's like a decade and a half older and Bill, maybe two a decade, something like that.
Maybe even three.
But
Uh Warren uh Warren and Bill Gates are at a some kind of dinner meeting.
Yeah.
Bill Gates' dad is there.
And he was asking the group
They are like in the small group, like, Okay, what was
Uh what was the one trait
Now what was most responsible for your success and Warren Buffett and Bill Gates?
both answered the same way. They said focus.
And I think if you listen to episode two ninety, or if you read the book that the episode is about hard drive, Bill Gates, and the making of the Microsoft Empire.
You'd realize that he had
complete focus on. In fact I heard Bill
speak uh later in like some kind of documentary where
He said he knew something had changed because uh when he started having to deal with the antitrust suit
uh that Microsoft was going to for the first time
since the founding of Microsoft he was actively looking for a distraction.
So let's go back to this idea that Charlie mentioned, the fact that this is what Ben Franklin did, this is what Andrew Carnegie did, this is what uh him and Warren Buffett did. It's you've got to try to build this seamless web of trust with the people that are around you.
The highest form that civilization can reach is a seamless web of deser deserved trust.
Not much procedure, just totally reliable people correctly trusting one another.
In your own life, what you want is a seamless web of deserved trust.
And if your proposed marriage contract
Has forty seven pages.
I suggest you not enter.
The corporate culture at Berkshire is that if you can't trust someone
You really shouldn't be doing business with him or her.
So Charlie was just telling us that envy has no utility. This is when
He talks about the self pity has no utility at all.
Either I think the attitude of Epicetus is the best. He thought that every mischance in life was an opportunity to behave well.
Every missed chance in life was an opportunity to learn something.
And then your duty was not to be submerged in self pity.
But to utilize the terrible blow in a constructive fashion.
That is a very good idea. And I love the fact that, you know, he says that study from history is a form of leverage.
Like
Hopefully you and I have multiple decades left in our career. And think about all the lessons that we're able to observe from other people and learn from other people's experience that we can apply.
In the same fashion.
Charlie
Did that, but he also had to learn from his own experience. So this is an example of this is the fact that he didn't cry about these mistakes. He learned the lesson and then
Applied.
The the the lesson he learned.
To his profit later on in life.
If he had never experienced troubles with a business in a very competitive industry, like textile, shoes, retail.
And airlines.
He would have never gained the insight into the wonders of owing a business.
That had a consumer not monopoly.
Such as Coca-Cola or C'candies.
He would have never seen how a low cost producer such as Geiko can have a competitive advantage over its much bigger competitors. If he had never experienced the pain.
of the market crash of nineteen seventy three and nineteen seventy four.
He would have never had the foresight to stockpile the cash.
He used to buy Wells Fargo stock.
In two thousand eight and two thousand nine.
So there's a lesson I learned from reading two of Arnold Schwarzenegger's autobiographies. It's episode one ninety three.
That's the autobi autobiography Arnold wrote when he was in like seventy.
And uh episode one forty one, which is the
the episode that he wrote when he was like thirty, and he kinda at the very end the book ends of him calling his shot saying, Hey, the same
lessons that I've used to to become a
uh world champion of bodybuilding I'm just gonna use to become an an a uh an actor.
and build a business empire. So it's it's kind of interesting that he called the shot there.
But one thing he said, he's like it's very dangerous when you start doubting yourself that you're gonna get t
Don't worry, the external world is going to try to get you to doubt yourself as much as possible, but it's dangerous when you actually believe and you start doubting yourself.
This ties into what this the story that Charlie's about to tell you and I it's like it's very dangerous if you start lying to yourself.
And this is a great little story to remember how dangerous that is and how to avoid it.
Dean Kendall once told me a story. When I was a little boy, I was put in charge of a little retail operation that included candy.
My father saw me take a piece of candy and eat it.
And I told him, Don't worry, I intend to replace it. Now listen to this what his this fantastic advice said.
This father gave his son.
My father said
He's like, Oh, don't worry, I'll eat it, I'll I'll replace it later.
My father said
That sort of thinking will ruin your mind.
It will be much better for you if you take all you want and call yourself a thief.
Every time you do it.
He's trying to tell his son.
Don't lie to yourself.
And then this is the second to last piece of advice.
from Charlie Munger to you and I, if you have enough sense to become a mental adult yourself.
You can run rings.
Around people smarter than you.
Just pick up
The key ideas from all the disciplines.
Not just a few.
And you're immensely wiser than they are.
And finally he says over the long term
the eclipse rate of great civilizations being overtaken.
Is a hundred percent.
So you know how it's going to end.
When we brought up the subject of death, he said he wasn't afraid of it.
And he made a joke saying he just planned to lay there like everyone else does.
And that is where I'll leave it.
For the full story, highly recommend. I I really think it's it's crazy if you don't buy this book.
Um it's a to me it's just a manual for for life, for business.
Keep it around, keep it out, constantly pick it up.
If you don't buy the physical copy, at least buy the audible and just listen to it over and over again.
And if you buy the book and you use the link that's in the show notes in your podcast player are available at founderspodcast.com.
You'll be supporting the podcast at the same time.
If you haven't yet signed up for Founders Premium.
That link is also down below and available founderspodcast dot com.
That is so you can listen to the AMA, the Ask Me Anything episodes that I've been making.
I might actually do a Charlie Munger
only AMA episode soon as well. I had that idea earlier today.
Uh, that's available down below in the show notes on your podcast player and available at founderspodcast dot com.
And if you want to join my free email newsletter where I email the top ten highlights for the books that I read.
That link is also below.
That is two hundred and ninety five books down, and if I wanna catch up with Charlie Munger.
Ten thousand to go.
And I'll talk to you again soon.