
Charles Munger (of Berkshire Hathaway): Elementary Worldly Wisdom - apu
http://ycombinator.com/munger.html
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sivers
Charlie Munger is one of my few heroes. A great all-around thinker, about more
than just investing. I highly recommend a dive into his mind via these two
books:

Seeking Wisdom: From Darwin to Munger = <http://www.amazon.com/dp/1578644283>
= a deep read, mostly focused on cognitive biases

Poor Charlie's Almanack = <http://www.amazon.com/dp/1578645018> = a big coffee
table book of his speeches and essays, good for leaving on the kitchen table
to read over a meal

I think if you order the books directly from Charlie Munger's company, the
proceeds go to charity: <http://www.poorcharliesalmanack.com/>

~~~
joshkaufman
Agreed - Munger has been one of my very few heroes for a long time now. Poor
Charlie's Almanack is a great read.

Munger's concept of mental models is the basis for my book ("The Personal
MBA"), which comes out in January. The project started because I was looking
for a comprehensive treatment of Munger's models, but couldn't find one.

Munger's models also tend to be very clearly focused on making investment
decisions, which is great, but tend to overlook how to start / grow a
business, so that's what I set out to create.

This approach is now the basis of my work with my clients and course
participants, with huge success. Mental models work wonders for people with
little knowledge of a topic - they're a great way to teach people something
useful quickly.

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10ren
A great read.

One thing troubles me is that "great businesses" that make more money for
their owners and raise prices for customers, seem to be less _socially useful_
than the others, such as those in the airplane industry.

Here's the arithmetic for the 15% pa business, paying 35% tax, annually vs.
after 30 years:

    
    
        1.15   ** 30 = 66.2117720;   * .65 = 43.0376518
        1.0975 ** 30 = 16.2980583
    

BTW: My Buffett-based investment approach is to get the total stockholder
equity from a while ago (eg. a decade) and now, and calculate its annual
growth rate [1], a kind of $-acceleration. Then qualitatively understand what
makes the business profitable, and consider whether those factors are likely
to continue for _x_ years. Finally, use the growth rate to project _x_ years
into the future, and compare with investing in an index fund; but normalize by
today's price of the stock (ie you usually pay more than $1 for $1 of
shareholder equity). You can see how long it will take before the stock
outperforms the index. If it does, with a margin of safety, buy it.

[1] It doesn't account for dividends, and includes valuations of IP and
goodwill (which are opinions, not cash), and I'm sure has other flaws. It's
crude, but accurate enough if you use a margin of safety; I tend to think more
precision is spurious and misleading, like those 7 decimal places above.

Does it work? I've looked at about 10 likely companies, but only one looked
really good (30% pa growth rate, and an artificially low price due to bad
news). After 5 years, my return today is 212.20%, ie it's worth over 3 times
what I paid (and that's ignoring its dividends). Theoretically, it would be
1.3 * * 5 = 4.7, but I paid more than $1 for $1 of equity; the growth rate
subsequently dropped to 25% (which is still fantastic!), and the current
market is a bit low. So, the margin of safety is important.

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ngpestelos
"The highest form a civilization can reach is a seamless web of deserved
trust." <http://www.deeshaa.org/2007/06/06/charlie-munger/>

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sbaqai
Munger is credited for Berkshire's first major tech investment in BYD. I
think, unlike Buffett, Munger unabashedly displays his intellect. It turns a
few people off, but if you can get past the brashness, there's much to learn
from his approach to thinking.

I also recommend the two books (Seeking Wisdom & Poor Charlie's Almanack). The
first is not only about Munger (and Buffett), but about other great thinkers
like Darwin, Feynman, Einstein, Mark Twain.

I also definitely recommend watching some of the few videos available of him
online:

His talk at CalTech (2008) (requires RealPlayer) 106 min.
<http://today.caltech.edu/theater/item?story_id=30623>

His USC Law School Speech (2007) <http://www.youtube.com/watch?v=L6Cy7UwsRPQ>

Both are relatively recent, and not in his books.

"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." -CM

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danielrm26
Anyone know of a good place to study the first mathematical models he talks
about? Fermat and Pascal's stuff, and decision theory, I believe.

Any good online resources for learning the basics for these?

~~~
oliveoil
You start with wikipedia, e.g. <http://en.wikipedia.org/wiki/Permutation>

The question is how exactly are guys like Munger and Buffet using this to
choose stock. I'm missing some obvious link apparently.

~~~
jakarta
If you start thinking about investments by incorporating decision trees, I
think you will start inverting and questioning the potential investment when
it comes down to whether or not you should act. This is really helpful to get
yourself in the mindset to look at downside risk and evaluate an investment
from all angles.

~~~
ced
Yeah, but where do permutations and combinations come in? I don't see it at
all.

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bonsaitree
I also recommend his 2003 UCSB lecture paper: [PDF]
<http://www.tilsonfunds.com/MungerUCSBspeech.pdf>

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mojuba
Allow me to be a bit marginal here and ask you, what was not-so-obvious in
this annoyingly long talk?

I scrolled to random places a dozen times, read through a few paragraphs each
time, and found nothing that would be surprising to me.

You can't get rich by following his "worldly wisdom" alone. You need (a) at
least a 7-figure initial capital and (b) extreme intelligence and courage in
order to get a miniscule chance of becoming a 9/10-figure rich.

Any counter-arguments are welcome.

~~~
muhfuhkuh
> (a) at least a 7-figure initial capital

I don't think Michael Dell, Li Ka-Shing, Slim Helu, or Larry Ellison actually
started out with anywhere near that sum of initial capital. From everything
I've read, they started in ghettos and middle-to-working-class voids, or as
immigrants.

I've read that it just takes extreme, almost Asperger's level of apathy toward
risk (AKA chutzpah, balls, juevos, etc), and business acumen from a young age.
Oh, and often a cold, utilitarian view of relationships, but not always.

~~~
mojuba
Bill Gates wouldn't have taken off without his mother's help who arranged a
contract with IBM for her son in the beginning. And I'm sure there are similar
stories for the others too. Let's take Ellison's Government project called
"Oracle" that the Govt. never used - looks very suspicious and we know very
little about how exactly this turned into a private company.

I don't believe in their cheesy "self-made" stories with $1000 put into the
company that eventually turns into a multi-billion corporation. That's just
impossible.

~~~
muhfuhkuh
It is? Well then what the hell are we doing wasting our time on this damn
board, then? We should be looking into Build-a-Bear and 10-minute oil change
franchises.

I guess Sam's 5&10 shop was just as much BS as Betty Crocker, too.

I noticed you left out Dell's story. Did his orthodontist dad brace up all the
kids in his hometown to afford the million to put down on Michael's computer-
makin' biz?

Sometimes a businessman starts out with squat. If there is no "there" there,
then what are we doing here?

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jakarta
Notes from Charlie Munger's latest Q&A (just a couple weeks ago):

[http://www.scribd.com/documents/31051057/2010-Wesco-
Annual-M...](http://www.scribd.com/documents/31051057/2010-Wesco-Annual-
Meeting-Notes)

~~~
bcaulf
Thanks for the link. Good stuff. I had only seen a condensed version. But,
man, scribd just gets worse and worse.

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oliveoil
oh, this is brilliant:

 _Yet, the net amount of money that's been made by the shareholders of
airlines since Kitty Hawk, is now a negative figure—a substantial negative
figure. Competition was so intense that, once it was unleashed by
deregulation, it ravaged shareholder wealth in the airline business._

And that was 1994.

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Hexstream
A long read, but well worth it.

