#295 I had dinner with Charlie Munger · Transcript · BuffettMungerGPT

OtherI 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 scenein one of my favorite documentaries.This is a documentary you can watch on HBO.It's called The Defying Ones.It's about the partnership between Jimmy Iovineand Dr. Dre.That is the description that it will saythe documentary is about.What it is 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 documentaryis when Eminem is describing the very first timehe met Dr. Dre.Eminem is completely unknown at this time.He's not assigned, he's not signed to any record label.Dr. Dre is 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 documentarybecause 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 itwhere 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 most want to have dinner with?Charlie was at the top of that list.I've said this before and I really mean it.To me, Charlie is the wise grandfather I never had.One of my grandfathers diedwhen I was too young to remember him.The other one is a psychopath and a monsterand 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 million years would I think,because I sit in a room by myself for half a decadereading biography after biography after biographyevery day for hours,and then record what I learnedand put it out into the world,would I possibly, there's no possible wayI could think that leads me to being able to meet him.And not only meet him,but I got to, I wrote him a letter in advanceof meeting him and then being able to tell him in person.It's 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.

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OtherNot only was he unbelievably smart,but he was unfailingly polite.He was a gentleman with brains.And so I've thanked them privately,but it's important for me to thank them publicly as well.Andrew Wilkinson and Chris Barlingare 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 hearis going to be a little different.What I did was the week leading upto the dinner with Charlie,I reread the Tao 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 commentaryand other lessons and interesting storiesthat 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 enigmawrapped in a paradox.He is both a mystery and a contradiction at the same time.Warren Buffett said,Charlie's most important architectural featwas the design of today's Berkshire.The blueprint he gave me was simple.Forget what you know about buying fair businessesat wonderful prices,and instead buy wonderful businesses at fair prices.Consequently, Berkshire has been builtto Charlie's blueprint.My role has been that of general contractorwith the CEOs of Berkshire subsidiariesdoing the real work as subcontractors.How is it that Charlie,who trained as a meteorologist and a lawyer,and never took a single college coursein economics, marketing, finance, or accounting,became one of the greatest business and investing geniusesof the 20th and 21st centuries?Therein lies the mystery.Charlie spent much of his youth reading,and that is where he discovered a larger worldthan the neighborhood of Dundee,where Warren Buffett's family also lived.The two boys attended the same grade school and high school,though they were seven years apart in age.In fact, one of Charlie's first jobswas working for Warren's grandfatherat 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 otherswhile accomplishing a joint task,and running the cash register,where money, the lifeblood of the business, flowed.Omaha in the 1930shad distinct ethnic immigrant neighborhoods.Many immigrants worked for the railroadand meatpacking plants,whose operations were centered in Omaha.Charlie went to public school

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Otherwith the children of those immigrants,and as a result, developed an appreciationnot only of their cultures,but also of the commercial aptitudeand the willingness to work unbelievably hardto give their children a better life.That's actually something that Charlie's gonna talk aboutlater in the book as well,where he talks about the differencebetween the work ethic of up-and-coming countries,people with immigrant mentality,compared to people born in rich countries.And when comparing the two different approachesto their work ethic, he says something funny.He's like, the only people that are surprisedwhen they lose to people like that are idiots.Back to this overview of Charlie's early life.After high school, 17-year-old Charlieenrolled in the University of Michigan to study mathematics.He turned 19 a year after Pearl Harbor,dropped out of college, and joined the U.S. Army.The Army sent him to Caltech in Pasadena, Californiato study meteorology.There, he fell in lovewith the sunny Southern California weather.While the teenage Warren Buffettwas busy learning about odds and probabilityat the horse-racing track in Omaha,Charlie was learning this important investment skillwhile playing poker with his Army buddies.And there's actually two maxims that I've heard him repeatthat 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 manin an ass-kicking contest.And another thing that he repeatsis that you should remember that good ideas are rare,and when you find one, you have to bet heavily.So back to this, that's where he learnedto fold his hand when the odds were against himand 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 Nebraskan and family friend, he was admitted.He has never forgotten the importanceof having friends in high places.After law school, Charlie moved back to Los Angeleswhere he joined a prestigious corporate law firm.One of my favorite quotesthat I've ever heard Peter Thiel sayis 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 paragraphI'm about to read to you.Charlie thought a lot about business during that time.

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OtherHe made a habit of asking people what was the best business they knew of. He longed to join 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 realized 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.

OtherThis 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 what we're gonna see Warren Buffett and Charlie Munger had in common. I'll get there in one second. In the summer of 1959, 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 Charlie 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 1962, Charlie finally started an investment partnership with an old poker buddy. He also started a new law firm. Within three years, he stopped practicing 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 episode 251, 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 just point out.

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OtherSomething that was just incredible,absolutely incredible was the power of,even at 99 years old,how powerful Charlie's mind and his recall.It was incredible.All I could think about was,imagine, imagine trying to compete with this guy,with that mind when he was 50 or 60.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 thathe was talking about one of the best thingsthat Ben Franklin did,and you see it in that entire book,Ben Franklin was like 48 years oldwhen he sought out and tried to build a relationshipwith George Washington.George Washington, I think was like 20 or 21 years oldat 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?One of the best things that Ben Franklin ever didwas 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 thatAndrew Carnegie did this as well.And I just went into great detail of how Andrew did thaton episode 284,because one of the people,one of these A players that he sought outwas Henry Clay Frick.And so after Charlie explained this to us,I asked him a follow-up question.I was like, well, is this somethingthat 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.I'm gonna focus on investing full-time.Charlie is 41 years old,41 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 questionI got to ask Charlie about this part of his life,was this is the thought that came to my mindwhen 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 aboutthe younger version of Charlie Munger,the younger version of Warren Buffett,because the decisions that that Charlieand that Warren made at this point in their lives,literally the pages I'm looking at,the decisions they're doing on these pageswill affect everything that happens after.The same applies to you and I.

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QuestionerAnd I think reading biographiesand thinking about the younger versionsof not only Charlie and Warren,but everybody that you and I talked about on this podcast,that is going to motivate you and Ito make the most of what we're doing right nowbecause we know the effect that it's gonna haveon the multiple decades in the future.And so let's go into what 41-year-old Charlie was doing.Charlie's investment partnership was different from Warren'sin that he was willing to take on a lot of debtto 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 overby the Canadian government.The takeover price was $22 a share.BCP was selling for $19 a share.Charlie brought all the shares of BCPhe could get his hands onand ended up putting all of his partnership's money,all of his own money and all that he could borrow into BCP.The trade worked out.BCP was taken over at $22 a shareand Charlie made out like a bandit.And so that was obviously a riskthat Charlie would take early in his careerwhen he didn't have a lot of moneythat he wouldn't take now, right?In the mid 1960s, Charlie and Warrenwere busy scouring over the pink sheets.So that's like a pre-internet daily publicationof the prices of stocks that were printed on pink paper.They're looking for deals, right?They're looking for a bargain price on a good company.One of the companies they found was Blue Chip Stamps.So this is really important.The reason I'm pulling this outis because this is an important ideathat they're gonna use forever.Charlie at this point is in his mid 40s.Warren is in his late 30s.So it says Blue Chip was a trading stamp company.Other businesses would buy trading stamps from Blue Chipto give them to their customerswho would then redeem them for pricesthat Blue Chip was offering.This is gonna be confusing to our modern day.David Clark, the author, does a great job.Listen, just think of thisas an early form of a rewards program.What made the company interesting to Charliewas that Blue Chip had a pool of money called float.Again, this is an important ideathat they're gonna use forever.They had a pool of money called float.That was created by the lag timebetween the selling of the stampsand the customers redeeming them.What made Blue Chip's stock attractively pricedwas the fact that the US governmenthave filed an antitrust action against the company.

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OtherThat's why they're getting a deal.Charlie, as a lawyer, thought the lawsuitwould be resolved in favor of Blue Chip, which it was.Charlie, through his partnershipand Warren through Berkshire,eventually took control of the companyand Charlie became its chairman.By the late 1970s, the float at Blue Chiphad grown to approximately $100 million,money that Charlie and Warren could invest.Blue Chip's business model eventually became obsolete.Under Charlie's direction,Blue Chip used its surplus capitalto purchase 100% of See's Candiesand 80% of a finance company called Wesco.Just as Warren, this is the important part,just as Warren had taken capitalout of Berkshire's failing textile operationto buy a thriving insurance company,Charlie took the excess capital out of Blue Chip's stampand invested it in profitable businesses.So that is one good idea that's going to leadto the discovery of another good ideaand they're gonna combine these two ideasfor decades and decades.In 1968, Charlie teamed up with Warrenand Sandy Goetzmann to form Diversified Retail Company.DRC acquired a department storecalled Hochschild Kohn for $12 million.Hochschild Kohn was bought at a bargain price,but it had no competitive advantageand was constantly having to spend precious capitalkeeping up with the competition.This mistake is going to lead to the discoveryof this great idea I just mentioned earlier.During that time, Charlie started seeing the advantagesof investing in better businessesthat didn't have big capital requirementsand did have lots of free cashthat could be reinvested in expanding operationsor 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 introductionand what did Warren Buffett said?Charlie's most important architectural featwas the design of today's Berkshire.It's this idea, he says,the blueprint he gave me was simple.Forget what you know about buying fair businessesat wonderful prices.That's a cigar butt Ben Graham strategy, right?So forget about buying fair businesses at wonderful prices.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 reread this entire section after,

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Questionerand I realized the biggest takeaway,I mean, Charlie's a genius.I just cannot believe that I got a chance to talk to him.I remember, I got to sit next to him at dinnerand he looks at you in the eye.He'll turn his head and then look at you.And I just, I could not believe,I had the thought multiple timesand I'm not trying to embarrass myself,but I truly love Charlie Munger.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 the rolethat Charlie Munger has played in my life.And so there's a ton of great ideas that I gotand a ton of notes I took after I got backto my hotel after the dinner.But I think the thing that resonated with me the mostis that Charlie has an almost complete indifferenceto 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 you're listening to the lessonsthat he's trying to impart on others,you realize what he's saying.He's like, the problems are inescapable.You're going to have some level of problems,but you can reduce the amount of problemsthat you have in your life by aiming for quality.High quality business and high quality peopleproduce less problems.So one of the notes I left myself after this,it's 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 lifeif you're in a great businessand you surround yourself by great people.And at this point in the book,you're seeing Warren and Charlie work themselvesthrough 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 going to become a great strategy.So it says when Charlie closed his fund in 1975,it had $10 million in assetsand showed an average annual rate of return of almost 25%.For the 14 years it was in operation.What is interesting is that in the final yearsof Charlie's fund, in the final years of the fund,Charlie was running a highly concentrated portfolio.The holding in blue chip stamp alone accountedfor 61% of the fund's investments.And this is something that Charlie and Warrenrepeat over and over again.He has never been a fan of diversification

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Otheras an investment strategy.There's a great quote that I have in my read wisefrom something I read, either a biographyor maybe Warren's shareholder letters in the past.What Warren said, diversification is for peoplewho don't know what they are doing.Look at how the great fortunes were built.And Warren's point there is obviously,even if Sam Walton, Estee Lauder, Steve Jobs, Andrew Garney,even if they never made an investmentoutside of their company,if they had 100% of their net worth in their companies,they'd still be fantastically rich.Back to this, in 1979, Charlie becameBerkshire Hathaway's first vice chairman.In 1983, blue chip stamp merged with Berkshire Hathawayand Charlie took over as chairman of WESCO.It was from those two positions that Charliewould help Warren make the investmentand management decisions that would take Berkshire Hathawayfrom a net income of 148 million in 1984to approximately 24 billion in 2016.And that is when this book was published.And Warren wraps up the introduction for usin a perfect way.Warren, in summing up Charlie's impacton his investment style over the last 57 years said,Charlie shoved me in the directionof 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 onfrom 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 quotesfrom Steve Jobs.Steve realized the exact same thingthat Charlie and Warren realized.In everything I've done, this is what Steve said.In everything I've done, it really paysto go after the best people in the world.Let me read that part again.Warren, in summing up Charlie's impacton his investment style over the last 57 years said,Charlie shoved me in the directionof 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 onfrom Graham's limiting view.It was the power of Charlie's mind.And that was the end of the introductionof the book that I'm gonna talk to you about todayand the one I've read for the second time now,The Tao, or maybe actually probably maybe three or four timesThe Tao of Charlie Munger, a compilation of quotesfrom 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

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David Senraor four times, because the very first time I read itwas all the way back in 2019, it was episode 78 of Founders.But I have the hardcover, Kindleand audible versions of this book.That's how important it is.I hope I can convince you if you don't already own itto order it by the time you finish listeningto this podcast.But I re-listened to the audible versionover and over and over again.And I think having the hardcover,the physical copy of the bookand just leave it out on the table, your desk,because it's the way it's set up.It's like you have these tiny chapters.There's like 100 or 150 different chapters.And they just start off with quotes from Charlieand 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, five, 10, 15 minutes a day,read some of Charlie's words.He's gonna give you something to think about.So I wanna jump into one of his quotes right here.Charlie says, life is like a poker game,wherein you have to learn to quit sometimeswhen holding a much loved hand.You must learn to handle mistakes and new factsthat change the odds.And so this is some context provided by David Clark.Charlie experienced thiswith home mortgage lender, Freddie Mac.When Berkshire bought shares in Freddie Mac in the 1980s,it was a very well-run conservatively managed,profitable enterprise that was involvedin the mortgage business.As time went on, Freddie's management branched outinto a new line of businessin which they were using their quasi-governmental statusto aggressively borrow short-term moneyand then lend it out long-term.The same financial equationthat eventually put Lehman Brothers into bankruptcy.Seeing the dramatic increase in riskand the change in the attitude of Freddie Mac's management,Berkshire sold it's much loved investment at a profitin 1999.Nine years later, check out this out.By 2008, Freddie Mac was in receivership.The old management had been firedand the stock was worth a tiny fractionof what it had been when Berkshire sold its shares.And then the next page is another quote by Charlie says,my idea of shooting a fish in a barrelis draining the barrel first.And so what popped to my mind when I read thatis something that's very common in all these,that history scholars and entrepreneurs have in common,you'll see over and over again if you read their biographiesis they're always trying to figure out

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Otherhow 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 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.

OtherAnd then Charlie goes into the importance of always advancing your thinking. They talked about, you know, for the first part of Warren's career, he stuck to Graham's playbook. And what they realized is that there was actually quantitative measures in a wonderful business and a truly great business that would have horrified Graham. And so he says, well, even if they've horrified Graham, we started thinking about better businesses.

OtherAnd then David gives us an example of Berkshire's decision to invest in Coca-Cola that would have never happened if they were just using Graham's playbook. It says, in Graham's investment philosophy, there was no such thing as owning a company for 20 years or longer and letting the underlying economics of the business grow the company and lift the stock price. Charlene Warren realized that some businesses have exceptional economics working in their favor that will cause their intrinsic value to increase over time.

OtherAnd 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. Berkshire decides to put one point, let's call it $1.3 billion in Coke in 1988. Over the last 27 years of that investment alone has grown to over 17 billion, but that does not include all the dividends that it received in that time period in the year before the book was published. Coca-Cola paid Berkshire 528 million in dividends, a current annual dividend rate of 40% on the initial investment of 1.299 billion, which I think is a great illustration on the importance of advancing your thinking.

OtherAnd 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 than engaging in a lot of buying and selling. Charlie knows that time is a good friend 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.

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OtherIt pops up in these stories.Time carries most of the weight.And the reason that's so important to repeat overand over again, because it goes against human nature.Even it's so hard to build a truly great business.And yet more likely than not,your truly great business is not going to be destroyedby competition.It's going to be destroyed by you.And so there's another line that Charlie repeatsthat 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 thisover 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 the most important person for us to persuadeis 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 repeatsover and over again,the worshiping at the altar of diversification,I think is really crazy.This is the note I left myselfand something I'm trying to apply in my life.One truly great business will makeyour unborn grandchildren wealthy.And then on the next page,there's one line from Charlieand I'm like over here writing novels about it.So I'll tell you what popped up to my mind.Mimicking the herd invites regression to the mean.So that's what Charlie says.Mimicking the herd invites regression to the mean.Now we're getting to my noveland 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 286,which is titled, I think Warren Buffettand Charlie Munger speaking directly to you.And there's a line in the book that I read for that episode.It says, I would say if Charlie and I have any advantage,it is because we're rationaland we very seldom let extraneous factorsinterfere with our own thoughts.We do not let other people's opinions interfere.And this also made me think of something that happenedwhen we were having dinner with Charlie.Andrew or Chris, I can't remember which one from Tinyasked Charlie a fantastic question.The question was, I'm gonna paraphrase here.I wasn't, it's not like I was taking notes.I had all these, I had prepared all these questionsand ideas I wanted to talk to Charlie about

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Questionerand I never looked at my phone one time.And so they asked like, were you motivatedwith like part of your desire to be successful?Like this drive to succeed.Did it have anything to do with like approvingor like getting the appreciation or the,like did you do it because of your relationshipwith like your dad or your mom?

OtherWhich is a good question because this appears overand over again in the biographies that you and I talk aboutand this idea that came from Francis Ford Coppola'sbiography, but was really in almost every single story.And it's the idea that you can always understandthe 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 itfor 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 obviously love your parents,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 want to never forget this, right?Like Charlie, like it's a night that Charlie Mungerprobably 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 doand doesn't give a fuck about the ideasor thoughts of others.Think all of that ties back to what Charlie's sayinghere 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 desireto mimic the herd.Go back to what Warren says.I would say if Charlie and I have any advantage,it is because we're rationaland we very seldom let extraneous factorsinterfere 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?Presented in a different way.And he talks about like,why are you worrying about prediction?I have never been able to predict accurately.

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OtherI don't make money predicting accurately. We just tend to get into good businesses and stay there. Again, what I write on this page, what I wrote note 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, the equal opportunity, we'll go over this later on because I've got some notes down. He says this in another way. And I just tie in a bunch of the founders that you and I have studied, you know, advanced, they use financial crisis because everybody else, again, it goes against human nature. Everybody else runs away. They run towards it and they actually wind up growing their businesses by leaps and bounds, by investing into their business when everybody else is running. If you, like me, live through the 1973 to 1974 financial crisis, or even the early 1990s, 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 just this 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 in 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 crises are just in the nature of capitalism. Random recessions and crashes are programmed into Charlie's buying strategy. He lets cash, 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 2022, Berkshire held $92 billion of treasury bills. And we brought this up at dinner and he said something like, it was hilarious, just how nonchalant he was about it. He goes, yeah, the world came around to us on that. And so in this book,

[30:26]

David Senrathey talk about the importance of patienceover and over again.And they have one line here.I'm actually gonna read the full quote.This comes from episode 286.To tell Charlie Munger,it says,I succeeded because I have a long attention span.That's still a fantastic quote,but I like what happens before it.And it's 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 Charlieand the way I break it down in my own mind,it's only two words,stop multitasking.I have like a little Charlie Munger on my shoulderthat 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 bookis under the headline patience.Something that I heard Charlie say a long time agothat I've never forgotten.And I think reading biographiesand obviously listening to podcasts like Founderswas gonna play the rolethat Barron's magazine played in his life.And so like another way to talk about the importance of patience is he tells a story.He's like, well, you know,I made four or $500 millionfrom reading Barron's magazine for 50 years.And people are like, what are you talking about?And so his whole point is like,listen, I read Barron's magazine for 50 years.I only found, the entire time,I found one idea that I could act on, only one.I made $80 million on that idea,basically risk-free.Then I took that $80 million and I gave it to Li Luand he turned it into four or $500 million.And so that is how I made four or $500 millionfrom reading Barron's for 50 years.That is one of the greatest anecdotes you could ever hearabout the importance of patience.And this is Charlie on the dangers of overconfidence.Smart people are not exemptfrom professional disasters from overconfidence.Another way to think about thatis 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 patienceand waiting for great opportunities.I love this sentence because, again,it gives us the reason,

[32:31]

Questionerwe could shout these things from the rooftops.Most humans are never gonna do itjust because it goes against human natureand they're incapable of going against our nature, right?

OtherAnd Charlie and Warren are capable of bucking the trend.One of the reasons Charlie and Warren have never worriedabout anyone mimicking their investment stylebecause no other institution or individualhas the discipline or the patienceto wait as long as they can.He then talks about the importance of making surethat you can endure problems.An isolated example that's very rareis much easier to endurethan a perfect sea of misery that never ceases.And again, this all ties back to that main themewhere it's like the formula is simple but not easy.Great businesses and great people.Get in great businesses,surround yourself with great people.That's gonna take care of most of the, avoid.One of the best things that Charlie said on episode 286,right, that it's crazy how much informationhe's able to convey to us in three words.And I think 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 get into great businessesand you surround yourself with great people.Charlie's talking about the differencebetween an excellent company,which might confront a major problem a few timesin a span of 20 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 peopleis because they are a perfect sea of miserythat never ceases.They just have one problem after another.My wife has this beautiful way to describe this.She says in Spanish, but it loosely translatesto that person can drown in a cup of water.On the next page,Charlie says something that I'm doing in my lifeand it's something that jumped out at me,makes me think of something I learnedfrom Ed Thorpe and Jeff Bezos.He says, move only when you have the advantage.You have to understand the oddsand have the discipline to bet onlywhen the odds are in your favor.Something that popped up when I read this page as wellis advice that I learned from Ed Thorpe on episode 222,which is only play games where you have an edge.And in his very last shareholder letterthat Jeff wrote as the CEO of Amazon,he has another great three line piece of advice.Differentiation is survival.To understand this piece of advice,

[34:38]

Otheryou need a little bit of Charlie history.In the late 1960s,both Charlie and Warren had their own hedge fund.As the bull market of late 1960s raged on,everything became overpricedand Warren could no longer findanything cheap enough to buy.So rather than alter his investment strategy,he instead had Warren shut down his hedge fundand return the money to his partners,putting the vast majority of his own moneyinto cash equivalents.Charlie kept on investing and enjoyed great returnsuntil the stock market crash of 1973 and 1974,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 cashbecause everything running up to the crashhad been overpriced,suddenly found himself surroundedby dozens of wonderful companies selling at bargain prices.Another thing that 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 companywith a durable competitive advantagehas business economics that will expandthe 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 actionable advice.Get in a great business and stay there.More advice from Charlie is make sureyou have an accurate representationof your business in your mind.I think one should recognize realityeven 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 right time when you have a problem to actis right now.Munger has this great quote,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-knownof Charlie Munger's quotes.It's remarkable how much long-term advantagepeople like us have gottenby trying to be consistently not stupidinstead of trying to be very intelligent.There must be some wisdom in the folksthat say it's the strong swimmers who drown.Charlie's interested in a simple strategythat 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 againis the ability to recognize.It's not just good enough to recognize an opportunity

[36:42]

Otherwhen it's presented to you, you have to act on it.You do get an occasional opportunityto get into a wonderful businessthat's being run by a wonderful manager.And of course that's hog heaven day.Charlie believes that if you aren't buying like crazywhen you have the opportunity to buy a businessthat has huge potential, it is a big mistake.And then he has the hilarious story.His whole thing is like, listen,if you have an exceptional business,we'll just keep on earning moneyover and over and over again forever.And so he has 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 timedrinking heavily and chasing movie stars.His banker called him in and said that he was very nervousabout his behavior.He told his banker, let me tell you something,my municipal bonds don't drink.I love that.And then Charlie says that learning from historyis a form of leverage.The fact is so few people can do this,and you see this because the financial disasters of todayare almost completely forgotten in a year or two.And so this goes back to the ideathat Warren and Charlie just trust their own judgment.And so it says, if people weren't wrong so often,we wouldn't be so rich.And so I read that one sentenceand without looking up any notes, I just wrote down,I go, okay, what are other people,what are a list of other entrepreneursthat you and I've studied that other people saidthat what these people were doing wouldn't work?Sam Walton, Steve Jobs, Jeff Bezos, Rockefeller,Edwin Land, Coco Chanel, Andrew Carnegie,Michael Jordan, Kobe Bryant, Larry Ellison,Ray Kroc, John Malone, Henry Ford,George Lucas, the Wright brothers.And if we went to every single episodeor biography read so far for founders,so the list would be a lot longer than that.This goes back to patience.And again, this idea of like breaking downwhat are you trying to sayand just very simple like rules for life.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.

[38:42]

OtherSo 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 investmentthat would meet Charlie's standards is almost zero.So you settle for something lesswhen you could have gotten something moreif you had just waited.Charlie's approach is contrary to human nature.This is what I mentioned earlier,how that they run in when everybody else is running awayand that this is actually a great wayto expand your business.We have a history when things are really horribleof waiting 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 recallof like all these different deals or businessesor ideas they came across as they built Berkshireover the last, what is that, 60 years, 50 years,something like that.And he just has like this tagline.This is like my, again, I wasn't taking notes.This is something I wrote down after the fact.But really he's just like, we made so much moneybecause we had cash and we could move fast.Think about how crazy that is, that could be an advantage.Obviously, you're getting, you're seeing these deals too,which is another advantage that you have to figure outlike how to build up in your own business.But once you are getting the deal flowand actually seeing the opportunitiesthat are coming to you, right?The idea is like, we just made a lot of moneybecause we had cash and we could move fast.And then the book goes into somethingthat obviously Charlie and I share,the fact that we're both biography nuts.Hope one day to catch him.Although now I know, having seen his bookshelves,I have to step my game way up.He was, another thing, it's like people say,don't meet your heroes, and I understand 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 99 years old,but he was just unbelievably like polite.I asked like, hey, Charlie, do you mindif I look at your bookshelves?Like, go ahead, do whatever you want.I just could not believe how generous he was.So I saw, the reason I bring this up is because,

[40:44]

David Senrayou know, I'm thinking I'm getting closeto 300 biographies for the podcast. He has so many books I've never even heard of. Like, it was just amazing. In some cases, he's making his own books. He has transcriptions from very valuableand rare interviews with some of history's greatest foundersand 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 comingover the next, you know, few months to few yearsthat I found on Charlie's bookshelf. And now 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 impressedwith just how much and how dedicated he was to readingand how he says like that,that made all the difference in his life.

CharlieThere isn't a single formula. You need to know a lot about businessand human nature and the numbers. It is unreasonable to expect that there's a magic systemthat will do it for you. People are looking for a simple methodthat they can learn from reading one bookthat will make them rich. It doesn't happen that way. One is actually better off reading a hundredbusiness biographies and a hundred books on investing. Why? Because if we learn the historyof a hundred different business models,we learn when the businesses had tough timesand 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 ideawhere it's like, hey, we made a lot of moneybecause we had the cash and we can move fast, right? And essentially saying, hey, these opportunities,they present themselves. You gotta make a 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, you have to be ready to pouncewhen the opportunity presents itselfbecause in this world,opportunities just don't last very long.

David SenraAnd so when I got to that section,it made me think of one of my favorite quotes. I gotta redo this podcastbecause it's Mark Andreessen's blog archive,which I still think is fantastic. It's episode 50. I'm gonna read two paragraphsfrom Mark Andreessen's blog archive. This was written probably 15 years agoand it 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

[42:39]

Otherare the consequence of being in the right placeat the right time.They tend to present themselveswhen you're not expecting it.And often when you're engaged in other activitiesthat would seem to preclude you from pursuing themand 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 peoplewho are presented with an opportunity and pass.There's your basic dividing linebetween the people who shoot up in their careerslike a rocket ship and those who don't, right there.I am also continually amazed at the number of peoplewho coast through life and don't go outand don't go and seek out opportunitieseven when they know in their gutthat is what they'd really like to do.Do not be one of those people.Life is way too short.

OtherAnd so now we got to the part that I mentioned earlierwhere he was talking about the factthat people that are coming from poorer countriesor that have immigrant mentality,they just work so unbelievably much harderthan people who grew up using like wealth and comfort.And you should not be surprised if a person's workingand putting in two or five or 10 times the effortthat you lose to this person.This spawned a bunch of thoughts for me as well.And so he's talking about the rise of Koreain the business world.And he says, Koreans came up from nothingin the auto business.So let me pause right there.Chungju Young, I've read 300 biographies so farfor the podcast.Number, episode 117.That is the single most inspiring autobiographythat I have read so far.It's called Born of this Land, My Life Story I think.Chungju Young was the founder of Hyundai.He grew up so poor, he had to eat tree bark in the winterto 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 84 hours a week for more than a decade.At the same time, every Korean childcame home from grade school and worked with a tutorfor 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 Chungju Young,but I thought of my friend Sam Hinkewas on the Invest Like the Best podcast.And the title is Find Your People.I think it's Find Your People.I will find the actual linkand put in the show notes for you.And Sam is an authority on the writing of Robert Caro.

[44:51]

OtherI think Caro's multiple part series on Lyndon B. Johnsonis Sam's favorite book.But he said something on the podcast.I took these notes years ago, or maybe like a year ago.And I thought it was fascinating.It relates exactly what Charlie is saying here.And so Sam is talking about like,Caro is famous for writing his series on Lyndon B. Johnsonand is famous for writing The Power Broker on Robert Moses.I've read The Power Broker.I'm working my way throughthe Lyndon Johnson series right now.But Sam said something that was fascinating.He says, Caro profiled two menwhose 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 my note here is ours, or being a billionaire,if you want something like the presidency,you should presume there is someone out therewho 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 lessonthat 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 upthat he admired a lot was Sam Walton.And so this quote from Charlie made me think of a quotethat I read in Sam's fantastic autobiography,which I covered for the second time on episode 234.I'll probably read that book.I would imagine I read that book fiveor 10 times throughout my life.I just had lunch with somebody that was in townto have dinner with Peter Thiel.And he said something that was fascinatingthat Peter had mentioned at dinner.I just randomly said, oh yeah, I was reading this bookfor 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're constantly exposed to peoplethat just take things farther than you otherwise would.Charlie says, we just keep our heads downand handle the headwinds and tailwinds as best we canand take the result after a period of years.Sam in his fantastic autobiography saidwhen he was asked, how did Walmart do it?He says, friend, we just got after it

[46:58]

Questionerand we stayed after it.And then we're almost to the end of the bookand 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 systemgoes almost ridiculously far in maximizingand or minimizing one or a few variables,like the discount warehouses of Costco.Costco is obsessed with keeping operating coststo a minimum.So now David Clark is giving us some commentaryon like how extreme they areand he's gonna tie into something I asked.Something I got to ask Charlie about Jim Sinegalbecause he knows Jim Sinegal, he loves Jim Sinegaland it's just hilarious.And I love Jim Sinegal too.And I was, well, I'll get there in a minute.So it says Costco is obsessedwith keeping operating costs to a minimum.It does not provide shopping bags,saving Costco two to five cents each on plastic bagsand 10 to 25 cents each on paper ones.This might not seem significant, but consider this.There's approximately 150 million customer checkoutsevery year at Costco, that's crazy.So let's say that each checkout,if they provided bags, it costs them 30 cents.If you multiply that 30 cents by the total checkouts,that's $45 million a year.By simply getting rid of paper bags to checkout,Costco arguably saves itself 45 million a year.And saying Costco's not alone in this kind of thinking,Geico did something that seemed outrageous.Early on, it got rid of its insurance agentand its commission by selling directly to the consumer,thereby reducing its costs,which allowed it to be more competitive in the pricingand still maintain its profit margins.Another example, Nebraska Furniture Martbuys huge quantities of furniturefrom a single manufacturer at a huge discount,which allows its stores to sell us a sofacheaper 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.The one thing that all of Berkshire's businesseshave in common is that they're managed by peoplewho 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 departmentor an investor services department.And for many years, the annual report was printedon the cheapest paper possibleand had no expensive color photos.Note, in recent years, the paper quality has improvedand the annual report now sports one color photo,which may be a sign that management is starting to slip.

[49:05]

QuestionerAnd so there's few people in the worldthat love Costco more than Charlie Munger.I got to ask him, I was like, hey, I love Jim Sinegal.The only thing I've ever found him in writingis the fact that he wrote the introductionto Sol Price's biography,which was like his hero and his mentor.And I was like, what's going on?Like, why can't I, I forgot the exact way it said.It's like, why does like,I asked him like why Jim kept a low profilethat it's just so hard to find speeches or writings of Jim.And Charlie's simple answer wasthat's because he was busy working.I thought there was a lesson there.And then Charlie brings up the factthat 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 quote unquote,richest person in the world right now,Bernardo Nott has built his fortuneon the power, the magic of brands.And so they didn't understand,Warren and Charlie didn't understand the magic of brandsuntil they bought See's Candies.It says, when we bought See's Candies,we didn't know the power of a good brand.Over time, we just discoveredthat we could raise prices by 10% 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' mindsand 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 businessesis by buying a bunch of bad businesses first.Charlie and Warren have both owneda few bad businesses in their day,department store, a windmill manufacturer,a textile factory, and an airline.Why are those businesses bad?Because they are involvedin intensely competitive industries.Think about what Jeff Bezos told us,differentiation is survival.Because they're involved in intensely competitive industriesthat beat each other up over price,which brings their profit margins down,kills their cashflow, and diminishes their chancesof long-term survivability.Now we know that the secret is alwaysto go with the better businessthat 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 rack with equanimityto market price decline at 50%,

[51:08]

Questionertwo or three times a century,you're not fit to be a common shareholderand you deserve the mediocre resultyou're going to get compared with the peoplewho do have the temperament,who can be more philosophicalabout these market fluctuations.

QuestionerI would condense that down even furtherinto an aphorism that you and I can takewith us in the future,tough times don't last, but tough people do.

QuestionerAverage out betting on the quality of a businessis better than betting on the quality of the management.But very rarely you find a manager who is so goodthat you're wise to follow himinto what looks like a mediocre business.And so they use this example of Rose Blumkin, Mrs. B,who's my favorite characterin all of 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 in Omaha in 1937.She grew it into the most successful furniture storein the United States.Berkshire bought 90% of the company from herwhen she was 89 years old,and she stayed on 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 storeacross the street.What harm can a 94-year-old woman doto a multi-billion dollar conglomerate?In no time at all,she had taken so much of Nebraska Furniture Mart's businessthat Berkshire was forced to spend millions of dollarsbuying her out a second time.But this time around,they had her sign a non-complete clause,a very wise thing to do,given that she went on to work seven days a week,open to close, so she passed away at the age of 104.But as a general rule, bet 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.

QuestionerMrs. B is gonna make another appearanceunder the section of master plans, which is hilarious.At Berkshire, there's never been a master plan.Anyone who wanted to do it, we firedbecause it takes on a life of its ownand doesn't cover new reality.We want people taking into account new information.

QuestionerThat's a great way to describe it.I think they described it even better in episode 286.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

[53:18]

Otheras we go along.Whenever I think of master plans,I remember Nebraska Furniture Mart's founder, Mrs. B,who, in response to a questionabout 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 this idea, it ties together these two ideas,the importance of continuing advancing your thinkingand then know when to stretch for great opportunities.And so there's this company called Iscar.It's actually the first time they boughta wholly owned company outside the United States.And so Charlie was gonna describe it now.He says, we didn't know when we were youngwhich things to stretch for,but by the time we reached Iscar,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.Iscar is an Israel-based worldwide makerof precision carbide metal cutting tools used in industry.It is the dominant player in its field.So Berkshire bought 80% of the company in 2006 for $4 billionand then purchased the final 20% in 2013 for $2 billion,which shows that it was a better business in 2013than it was in 2006.Benjamin Graham would have never bought itbecause it wasn't selling below book value.Charlie and Warren learned with the purchaseof Nebraska Furniture Martthat if the dominant player is large enoughand well enough entrenched with its customer base,the cost of entry into its market is much too highfor potential competitors.Size and market domination can create,this is the punchline,size and market domination can create their own kindof durable competitive advantage,which is what Iscar had in spades.So something Charlie brought up at dinner as wellis the people he greatly admired.We were talking a lot about Benjamin Franklin.He says there was unlikely to ever be another lifeas remarkable as Ben Franklin's.And another person that he greatly admires,and I saw a bunch of books about, was Lee Kuan Yew.I'm gonna actually do a podcast on Lee's book,which is called From Third World to First Singapore Story,because it says in this bookthat that book is well worth reading,and actually says Charlie became so enamored of Leethat he commissioned a bronze bust of himto keep the one he owns of Benjamin Franklin Company.So I thought that was interesting.This is what Charlie said about Lee and Singapore.In a democracy, everyone takes turns,

[55:29]

Otherbut if you really want a lot of wisdom,it's better to concentrate decisionsand process in one person.So to repeat that, if you really want a lot of wisdom,it's better to concentrate decisionsand process in one person.It is no accident that Singaporehas had a much, much better recordgiven where it started than the United States.There, power was concentratedin an enormously talented person, Lee Kuan Yew,who was the Warren Buffett of Singapore.And so the reason I wanted to include thatin the discussion you and I are having todayis because when I read that,I didn't think about Lee Kuan Yew,and I didn't think about Warren Buffett.I actually thought about Steve Jobs.And it's something that I read in,I read the biography of Johnny Ive,which was fantastic for episode 178.And this idea that founders have absolute control, right?It's better to concentrate decisionsand process in one person.And there's a story in that bookwhen Steve comes back to Apple,where he's getting a lot of pushbackby some of the people over there.And Jobs just refused to take no for an answerbecause he had absolute control and absolute authority.He could do so.So there's a paragraph in 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 38 reasons they couldn't do it,Jobs recalled.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 the traitthat you and I share this idea like lifelong learningand self-improvement lasts as long as the breath lastsbecause why?Because it's so valuable.There's a compounding effect to knowledge.In Charlie's own life, when he was practicing law,he implemented a self-education regime of one hour a dayto learn such things as real estate development,stock investing.It was slow going at first,but after a great number of yearsand thousands of books read,he started to see how different areas of knowledgeinterplay with each otherand how knowledge like money can compound,making one more and more awareof the world in which he or she lives.I'm usually pretty suspect of formulas,but I actually think this three-part formulais actually really good.These are Charlie Munger's three rules for a career.

[57:32]

OtherNumber one, don't sell anything you wouldn't buy yourself.Number two, don't work for anyoneyou don't respect and admire.And three, work only with people you enjoy.

QuestionerAnd so when I was rereading my highlights last night,because I knew I was gonna sit downand 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 lifewithout many mistakes.In fact, one trick in life is to getso you can handle mistakes.And so one of my favorite quotes on thisactually came from the founder of IKEA.I read his autobiography all the way back on,just like years ago, it was episode 104.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 bureaucracyand 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?The fact is that you have to get to a pointwhere you can handle them.I would also say something he mentioned a few timesis the importance of learning from mistakes.And so he brought up a few times throughout the nightsome mistakes that he had madeand then what he learned from them.And it reminded me of this.He has a, there's a short chapter in his bookcalled Admitting Stupidity.And this is the quote from Charliethat I feel that he definitely applied to his own life.He says, I like people admittingthat they were complete stupid horse's asses.I know I'll perform betterif I rub my nose in my mistakes.This is a wonderful trick to learn.And so before sitting down and rereading this bookfor like the second or third time or whatever it was,I had listened to the entire audio bookand I heard, once I heard 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 ideasthat I'm trying to use in my own work.He says, extreme specialization is the way to succeed.Most people are way better off specializingthan trying to understand the world.

[59:37]

OtherAnd this is the commentary by David Clark.

OtherSpecialization 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 entryto 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 headwith everyone else. But if we specialize in something and excel at it,the specialization will set us apartfrom the rest of the crowd. Do we take our Porsche to the local car mechanicwho 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 rateand gets away with it because it is a Porsche specialist. It is specialists who make the big bucks.

OtherAnd then this next one is titled Secret of Success,which usually I'm very skepticalwhen I hear things like this,but I really do believe it does most of the heavy lifting. If we believe, and 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 surround yourself with great peopleand get into great businesses,wisdom is prevention. It's gonna eliminate most of the problemsthat you're gonna have in lifethat 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 anythingin which I was not very interested. If you can't somehow find yourselfvery interested in something,I don't think you'll succeed very mucheven if you're fairly smart. There's another way that I've heard him explainthis exact same idea,and that he says an intense interest in any subjectis indispensable if you want to excel.

OtherAnd this is the commentary by David Clark. Charlie often says that the keyto being a great business manageris to have a passion for the business. For people who have that,they are artists whose passion for their workdrives and defines their lives. Here, Charlie's pointing out that this theoryapplies 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 succeedat what we do. As Steve Jobs said,work is going to fill a large part of your life,

[1:01:44]

Otherand the only way to be truly satisfiedis to do what you believe is a great work. And the only way to do great work is to love what you do. And I wanna summarize that again by repeating this,an intense interest in any subject is indispensableif you want to excel at it. A few pages later, he goes right back at it. This time, it's from the opposite anglethat 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 maximthat's gonna come out of this podcastthat I'll remember the most. Oh, it's just so useful dealing with people you can trustand getting all the others the hell out of your life. Wise people want to avoid other peoplewho are just total rat poison, and there are a lot of them. Wise people want to avoid other peoplewho are just total rat poison, and there are a lot of them. When I read this quote from Charlie,it made me think of somethingthat I read in Warren Buffett's shareholder letters. And it's really this application of the ideathat they only want to work with other great people. And what Warren's, I'm gonna read this paragraphfrom his shareholder letters real quick. And really what he's talking about is just most businessesare poorly run to average run. And so he says, our major contributionto the operations of our subsidiaries is applause,but it is not the indiscriminate applause of a Pollyanna. This is Warren writing, by the way. Rather, it is informed applausebased upon the two long careersthat we have spent intensively observingbusiness performance and managerial behavior. Charlie and I have seen so much of the ordinary in businessthat we can truly appreciate a virtuoso performance. Another piece of advice from Charlie,there is no cookie cutter solutions. Think about his answer when he was asked,hey, if you ever had to teach like a class,a business class or a finance class, what would you do? And he's like, I would take a hundred studiesof company history and just talk aboutwhat they did correctly and what they did incorrectly. Earlier in the book, he said, hey,you're better off reading hundreds of biographiesthan just reading a hundred business books. And this is why, it's like when you're doing that,you're just watching game tape. It's no different than a young Kobe Bryantwatching videotape of Michael Jordan and Magic Johnsonand just constantly being exposedto a million different game scenarios

[1:03:48]

Questionerand then using that knowledge in his own workwhen 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 Clinicis different from the right cultureat a Hollywood movie studio.You cannot run all these placeswith a cookie cutter solution.And then Charlie talks about the importanceof being a learning machine.And you see this, what's amazing to meis you know, I've read every single bookthat I can find on Charlie Munger.Hopefully I've covered them all.Charlie at 41 or 45 would get his ass kickedby the 65 year old Charlie, the 70 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 skills have markedly increasedsince he turned 65.Having watched the whole process with Warren,I can report that if he had stoppedwith what he knew at earlier points,the record would be a pale shadow of what it is.And this commentary by David Clarkis one of my favorite sections in this entire book.There is another point that I've noticedwith men and women who truly excelat 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 learnednot only through the experience,but they spent a ton of time readingand then talking to smart people.This is actually another idea that I stole from Charlieand I'm using.I don't know if I told you this.Hopefully this podcast is,you're learning something and being entertained by thisbecause I still feel like I'm on the highthat this happened.The reason I bring that up isbecause I can't remember if I told youthat I got a chance to write a letter to Charliebefore I met up with him.And it was really short, just explaining 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 wrote him a letter.It's like, I'm using a collection of your ideasas a blueprint for building my business.And I just listed off some of them.And this is just part, a few of them.Become friends with the imminent dead.

[1:05:46]

OtherAim 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 and Warren make me look 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 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 tried to bring up, he knew the founder, he knew the company history, he knew the outcome. It was remarkable. And again, just meeting Sam, talking to him, talking to Charlie, it's like, okay, I get done with this. 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 made me think of that. Something I also wrote down to myself after I had dinner with him. I said, Charlie looks at nearly everything through the lens of history. You aren't changing human nature. Things will just keep repeating forever.

[1:07:54]

OtherAnd so he says, all human beings work betterwhen they get what psychologists call reinforcement.If you get constant rewards, even if you're Warren Buffett,you will respond.Learn from this and find out how to prosperby 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 peoplewith more credentials than you,whose cognition is impaired by incentive-caused biasor some similar psychological forcethat is obviously present.But there are also cases where you have to recognizethat you have no wisdom to addand 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 ageis a well-spent life preceding it.I wrote down on this pageafter I reread the highlights last night,another takeaway from my dinner with Charlie, he did this.The best armor of old ageis a well-spent life preceding it.And so this is some of his best advicebecause I think it applies specificallyto people like you and I.These like 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 knowhave not heeded this advice yetand their lives are worse off at 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 is 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 directlywhen I had lunch with Sam Zell.In my whole life, I have known no wise peoplewho didn't read all the time, none, zero.You'd be amazed at how much Warren readsand how much I read.My children laugh at me.They think I'm a book with a couple of legs sticking out.Charlie has always been a voracious reader.As a child, he lived in the downtown Omaha Public Librarywhere, exploring the stacks,he met the towering intellectuals of both the pastand present in books.By the age of eight,both Thomas Jefferson and Benjamin Franklinhad permanent places on the bookshelf above his bed.It is reading that helped put him ahead of the pack.

[1:10:20]

QuestionerIn fact, this is my oversight that I have not done. I have a biography of Thomas Jefferson. I just haven't read it yet. And I haven't done it from the podcast. Forgot that Thomas Jefferson was one of Charlie Munger's heroes and who he looked up to and influenced his thinking. So that alone is why I need to do it. And as I'd imagined, Charlie Munger would recommend as well.

QuestionerNext thing, this is definitely a 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 the great American cowboy actor John Wayne once said, son, I don't care much for quitters.

QuestionerAnd 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.

QuestionerThen he repeats, stop multitasking. I think people who multitask pay a huge price. It was in one of the books, I can't remember if it was on the Bill Gates biography that I just recently did or one of the Warren Buffett biographies, but I read this story where a young Bill Gates and then a slightly older, but still younger version of Warren Buffett, because I think he's like a decade and a half older than Bill, maybe two decades, something like that, maybe even three. But Warren and Bill Gates are at some kind of dinner or meeting and Bill Gates' dad is there. And he was asking the group, they were like in the small group, like, okay, what was the one traitor what was most responsible for your success? And Warren Buffett and Bill Gates both answered the same way. They said, focus.

QuestionerAnd I think if you listen to episode 290 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 it. In fact, I heard Bill speak later in like some kind of documentary where he said he knew something had changed because when he started having to deal with the antitrust suit that Microsoft was going through for the first time since the founding of Microsoft, he was actively looking for a distraction.

[1:12:34]

OtherSo let's go back to this idea that Charlie mentionedthe fact that this is what Ben Franklin did.This is what Andrew Carnegie did.This is what him and Warren Buffett did.It's you've got to try to build this seamless web of trustwith the people that are around you.The highest form that civilization can reachis a seamless web of 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 47 pages,I suggest you not enter.The corporate culture at Berkshireis 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-pityhas no utility at all.Either I think the attitude of Epictetus is the best.He thought that every mischance in lifewas an opportunity to behave well.Every mischance in life was an opportunityto learn something.And that 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,he says that studying from history is a form of leverage.Like hopefully you and I have multiple decadesleft in our career.And think about all the lessonsthat we're able to observe from other peopleand 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 appliedthe lesson that he learned to his profit later on in life.If he had never experienced troubleswith a business in a very competitive industries,like textile, shoes, retail, and airlines,he would have never gained the insightinto the wonders of owning a businessthat had a consumer monopoly,such as Coca-Cola or See's Candies.He would have never seen how a low cost producerssuch as Geico can have a competitive advantageover it's much bigger competitors.If he had never experienced the painof the market crash of 1973 and 1974,he would have never had the foresightto stockpile the cash he used to buy Wells Fargo stockin 2008 and 2009.So there's a lesson I learnedfrom reading two of Arnold Schwarzenegger's autobiographies.It's episode 193.That's the autobiography Arnold wrotewhen he was in like 70.

[1:14:41]

David SenraAnd episode 141, which is the episodethat he wrote when he was like 30.And he kind of, at the very end,the book ends of him calling a shot saying,hey, the same lessons that I would useto become a world champion of bodybuilding,I'm just gonna use to become an actorand build a business empire.So 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 yourselfthat you're gonna get taught.Don't worry, the external world is going to tryto get you to doubt yourself as much as possible,but it's dangerous when you actually believeand you start doubting yourself.This ties into what the storythat Charlie's about to tell you and I.It's like, it's very dangerousif you start lying to yourself.And this is a great little storyto 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 chargeof 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 fantastic advicethat this father gave his son.My father said, remember he's like,oh, don't worry, I'll eat it, 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 wantand 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 advicefrom 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 longterm,the eclipse rate of great civilizationsbeing overtaken is 100%.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 plannedto lay there like everyone else does.And that is where I'll leave it.For the full story, highly recommend.I really think it's crazy if you don't buy this book.To me, it's just a manual 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 itover and over again.And if you buy the book and you use the linkthat's in the show notes in your podcast player

[1:16:49]

David Senraare 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 belowand available at founderspodcast.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 Mungeronly AMA episode soon as well.I had that idea earlier today.That's available down belowin the show notes in your podcast playerand available at founderspodcast.com.And if you want to join my free email newsletterwhere I email the top 10 highlightsfor the books that I read, that link is also below.That is 295 books down.And if I want to catch up with Charlie Munger,10,000 to go and I'll talk to you again soon.