Poor Charlie’s Almanack

Main Takeaway

My biggest takeaway from Poor Charlie’s Almanack was the importance of learning what not to do, as well as what to do.

Book Reflection

Munger repeatedly makes the point that you do not need to make brilliant decisions all the time to achieve good results. A huge amount can be achieved simply by avoiding stupidity, recognising common mistakes and staying away from situations where the odds are against you.

This resonated with me particularly because of my own experience with trading. One of the biggest things I have been learning is how damaging impulsive decisions can be. Sometimes the best decision is simply to do nothing. Patience is key, especially when it comes to long-term investing, and feeling as though you always need to be making a trade can lead you into decisions you would never make if you stopped and thought properly.

It also made me appreciate the idea of inversion. If you are trying to become a better investor, for example, studying what causes investors to consistently lose money can be just as useful as studying the people who have succeeded. If impatience, excessive leverage, emotional decision-making, overconfidence and following the crowd repeatedly lead to poor outcomes, then deliberately avoiding those behaviours already puts you in a much stronger position.

Sometimes succeeding is less about constantly asking, “What brilliant thing should I do?” and more about asking, “What obvious mistakes do I need to make sure I don't make?”

I had wanted to read Poor Charlie’s Almanack for a long time. I had heard so many good things about Charlie Munger and the way he thought, and the book definitely lived up to my expectations.

Munger was obviously an incredible investor, but what I found most interesting was how much of his wisdom extended beyond investing. Some of my favourite parts of the book were actually his thoughts on psychology, human behaviour, learning and decision-making.

One of the ideas I appreciated most was his concept of developing a latticework of mental models. Rather than becoming knowledgeable in only one area, Munger believed in learning the important ideas from a wide range of disciplines and then connecting them together.

Over his life he drew ideas from subjects such as mathematics, psychology, economics, science and history and used them to improve the way he approached completely different problems.

I really related to this. I have always been interested in a wide range of subjects, and the book reinforced my belief that this can be a huge advantage. Learning something in one area often gives you a completely different way of looking at a problem somewhere else. The more useful ideas you have available to you, the more ways you have of understanding what is actually going on.

Another major part of the book that stood out to me was Munger's understanding of psychology and human misjudgement.

One example that stuck with me was his discussion of Judith Rich Harris and the influence that peer groups can have on children. The basic idea is that the people children surround themselves with can have an enormous influence on their behaviour and development.

I found this fascinating because the lesson extends far beyond children. The people we surround ourselves with affect the way we think, behave and make decisions. In investing, the same psychological forces can cause people to follow the crowd simply because everyone around them appears to believe the same thing.

It was another reminder of how important independent thinking is.

Munger's discussion of incentives also made a lot of sense to me. People respond strongly to the incentives placed in front of them, sometimes without even realising it.

I can relate to this personally through work. There is obviously a financial incentive to work harder when you are being paid well, but it is not purely about money. How well you are treated also makes a significant difference to how motivated you are and how much effort you are willing to put in.

It seems obvious when you say it, but it is easy to forget when looking at other people's behaviour. Rather than immediately asking why someone is behaving in a certain way, it can be useful to first ask: what are they being incentivised to do?

That is something I think can be useful when looking at employees, managers, businesses and investments.

One of the simplest lessons in the book was also one of the ones that stayed with me most.

Munger discusses Carl Braun's approach to giving people instructions. The important part was not simply telling someone what needed to be done, but also explaining why they were being asked to do it.

I thought this was incredibly useful.

If somebody understands the reasoning behind a task, they are much more capable of thinking for themselves while completing it. They are no longer blindly following an instruction; they understand the outcome that is actually trying to be achieved.

It is a very small idea, but I can see it being extremely valuable in business. If I am ever managing people or asking someone to do something important, I want to remember to explain the reasoning behind it rather than simply telling them what to do.

Overall, what I liked most about Munger was the way he approached life as a continuous process of learning.

He was rational, incredibly curious and willing to learn from almost anywhere. He understood that human beings are naturally prone to making irrational decisions, and instead of assuming he was immune to those mistakes, he tried to build systems of thinking that helped him avoid them.

That is probably what I will remember most from Poor Charlie’s Almanack.

You don't have to know everything. You don't have to constantly be doing something. And you don't have to make genius decisions every day.

Learn broadly, understand incentives, think independently, be patient and become very good at avoiding the mistakes that repeatedly destroy other people's results.

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