Poor Charlie's Almanack summary

Who would have thought that someone who never even finished his bachelor’s degree could be so successful? World War II completely interrupted Munger’s studies at the University of Michigan, but he didn’t allow it to derail his career. On the contrary, his unconventional education equipped him to be the investor he is today.

Munger’s academic career began early, with fervent studying. His parents always encouraged their children to read and often gave them books as gifts. Munger looked for knowledge everywhere he could. As a teenager, he spent long hours in the library of a family friend, who was a doctor. There, he immersed himself in medical journals, beginning a lifelong fascination with science and medicine.

After graduating from Harvard, Munger joined a law firm in California and became extremely prosperous. In 1962 he founded the successful firm Munger, Tolles, and Olson.

Munger was deeply restless, however. He wasn’t content to settle for a career as a lawyer. He wanted more: more money, more influence, and more areas to apply his skills and intellect.

If movies like The Wolf of Wall Street are to be believed, Wall Street is full of crooks trying to con people out of their money.

It’s true that there are many unethical investors, and that a lack of regulation allows corrupt practices to flourish. But there are also many principled investors, and there may be no better example than Charlie Munger, and by extension, Berkshire Hathaway.

Munger’s ethical business policy has become especially notable in light of the 2008 Global Financial Crisis. Long before the crash occurred, he was loudly denouncing accountants who practiced “creative accounting” to help their clients fudge their books.

Munger decries what he sees as the moral decay of corporate accounting firms. In his youth, he remembers them as principled enterprises; over his lifetime, however, he’s seen them shift their ethical principles. Accounting firms are now too concerned with getting “filthy rich,” as Munger says, and have sold out their moral principles, helping their clients to doctor the books and find loopholes in the law.

Charlie Munger loves to tell the story of a financial officer in one of his companies who made a stupid investment mistake, costing the company hundreds of thousands of dollars. As soon as he realized what he’d done, the officer went to the president of the company to confess. The president agreed that this was a terrible oversight and warned the financial officer to be more careful next time. But because the officer had immediately confessed instead of trying to cover it up, he kept his job.

This anecdote sums up Munger’s philosophy on honesty. While he has a zero-tolerance approach to liars, he has a very pragmatic view of mistake-making. He believes that to err is human. What matters is that you own up to your mistakes, then learn from them.

Charlie Munger espouses what he calls “sit-on-your-ass investing,” which means that one of the most important qualities for a good investor to have is patience.

He and Buffet wait until they see a good opportunity, like under-valued stock in what they predict will become a profitable company. When they find the right opportunity, they pounce, buying up large parts of the company. Once they’ve bought a share of a company, they usually keep it, sometimes for decades.

Munger often recounts a parable about a workman who only has one tool: a hammer. Because of that, he sees every problem as something that can only be fixed by being bludgeoned.

If you’re an investor with only one “tool” or way of approaching a problem, you’ll suffer in the long run. You’ll try to twist reality to fit your solution, even if it doesn’t. To be successful, you need a very broad and diverse range of tools taken from different disciplines. This will give you the mental acuity needed to adapt your thinking and problem-solving to the dilemma at hand.

Knowledge of psychology is key for an investor. The most important thing you need is to understand the limitations of your own thinking.

Everyone has limited knowledge and blind spots that prevent them from seeing problems clearly. We are also sadly prone to being manipulated subconsciously. That’s why advertising is so effective – or did you think you woke up and decided you wanted a can of Coke of your own free will?

In a fiercely competitive market, it becomes more and more difficult to find a lucrative investment. 

Many people determine whether or not to make a worthwhile purchase with the strategy of value investing pioneered by investor Benjamin Graham. Graham calculated the value of a company if it were to be sold privately, then divided that price by the number of shares available. If the shares were on the market for no more than a fifth of the company’s actual value, then he deemed it a worthwhile investment.