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/
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.
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
 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.
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.
His USC Law School Speech (2007)
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
Any good online resources for learning the basics for these?
The question is how exactly are guys like Munger and Buffet using this to choose stock. I'm missing some obvious link apparently.
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.
A good example would be Michael Burry, who had Munger's talk on human misjudgment click when analyzing the housing/mortgage market. Munger's talk about human misjudgment was rooted in psychology and how perverse incentives can cause certain breakdowns to occur which lead to disastrous decision making.
Let's say Burry and another analyst were looking at the same set of data during that period (early 2000s). The analyst might have just seen a great trend - loans are up, deposits are up, employment is up, house prices are up. Everything is climbing which makes it so banks appear more safe as an investment.
Burry on the other hand, saw that data but came to a much more alarming conclusion. Right off the bat he started wondering what incentives create such prosperity and by digging deeper he was able to uncover that loan standards were being relaxed, that people were increasingly levering up, and that some banks were giving no-doc loans.
So what did Burry do? He figured out the best way to go short - the credit default swap trade and he was really the first guy to do it as a means of protecting against subprime mortgages. Along the way he generated huge returns.
You are right - you cannot get rich from worldly wisdom alone. But, if you incorporate mental models into your investment process you can often at least help protect against the downside. That in turn helps increase your ability to generate good returns.
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.
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.
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?
These guys don't come from money. One started out with $2M in AUM in NYC, lives with two roommates, eats tuna fish every day, and has no entertainment budget. He doesn't go out to bars but spends his time at the library, museum, parks, etc -- free stuff.
But, that is the kind of sacrifice that has to be made in order to make living off of a $2M fund work. In the long run it makes sense because if you put up good returns, that $2M can scale fast. Two years into it, a friend that was managing $2M is up to $50M in AUM.
Munger's advice may seem like common sense, but common sense is not so common.
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.