RIP: Charlie Munger

In case you didn't hear Charlie Munger passed away this week.

Who is Charlie Munger?

For those that don't know Charlie Munger is a highly respected investor and the vice-chairman of Berkshire Hathaway. In short he was Warren Buffet's right hand man. He's renowned for his sharp business acumen and insightful investment strategies. He reminded me of Yoda as he would give such in-depth insights in a simple way. Fortunately he has left behind one of the greatest pieces of reading for anyone wanting to get into investing in the book below.

Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger

What is "Poor Charlie's Almanack"?

"Poor Charlie's Almanack" is a compilation of speeches and thoughts from Charlie Munger. It's a guidebook that offers wisdom on investing, decision-making, and life philosophies. The term "Almanack" here is a nod to old-fashioned annual publications that contained useful information and forecasts or a Book of Knowledge.

Core Concepts of the Book:

1. Mental Models: Munger advocates for the use of a broad range of mental models, which are frameworks for understanding different aspects of the world, like psychology, economics, and physics. Each model offers a unique lens to view problems and make decisions.

   Application to Passive Wealth Investing: By employing diverse mental models, an investor can better analyze investment opportunities, understand market behaviors, and make well-rounded decisions, leading to more robust and resilient investment strategies.

2. Circle of Competence: This concept involves recognizing and operating within your areas of expertise. Munger advises that understanding the boundaries of what you know and don't know is crucial for making informed decisions.

   Application to Passive Wealth Investing: Investors should stick to investment vehicles and markets they are familiar with. Venturing outside your circle of competence can lead to misjudgments and increased risk. If you don’t know get an advisor or trusted representative that does know about that area to guide you.

3. Latticework of Models: Munger suggests that interlinking different mental models creates a powerful tool for thinking and problem-solving. It’s about how various principles and ideas from different fields can interact and provide deeper insights.

   Application to Passive Wealth Investing: By combining various perspectives, like economic trends and company fundamentals, investors can gain a more comprehensive view of potential investments, leading to more informed and strategic decisions.

4. Avoiding Mistakes: Munger places a strong emphasis on avoiding errors. He believes that steering clear of significant mistakes is often more important than making brilliant decisions.

   Application to Passive Wealth Investing: Investors should focus on risk management and due diligence to avoid common pitfalls in investing, such as emotional decision-making or chasing high-risk, high-return investments without proper analysis

5. Inversion: This strategy involves approaching problems backward. Instead of focusing on what you want to achieve, consider what you want to avoid. This reverse thinking can often lead to more practical solutions.

   Application to Passive Wealth Investing: Inversion encourages investors to consider what could go wrong with an investment and plan accordingly, helping to minimize losses and safeguard returns.

6. Patience: Munger advocates for patience in decision-making. He believes that good opportunities come to those who wait and that impulsive decisions often lead to poor outcomes.

   Application to Passive Wealth Investing: This one is about FOMO and wanting to jump into something without understanding it or having and investment criteria. In short patient investors wait for investments that meet all their criteria, rather than acting on impulse or fear of missing out, leading to more thoughtful and potentially profitable investments.

7. Learning from Others: Munger encourages learning from both the successes and failures of others. Observing and understanding others' experiences can be a valuable tool for personal and professional growth.

   Application to Passive Wealth Investing: By studying other investors' successes and mistakes, one can gain insights into effective strategies and common traps, helping to refine one's own investing approach. I heard of it explained this way. There are 3 kinds of people in this world. Dumb people, smart people and geniuses. Dumb people keep making the same mistake over and over again. Smart people make mistakes and learn from them. Geniuses learn from others mistakes and avoid making themselves.

In essence, "Poor Charlie's Almanack" distills Munger’s wisdom into accessible principles. It's about using a variety of thinking tools, understanding your strengths, learning continuously, and being patient and deliberate in your choices, especially in the realms of investing and life decisions. The book serves as a guide to developing a more comprehensive and effective approach to problem-solving and decision-making.

Invest into things you understand, learn from others, be patient, think of things in multiples angles.

Until next week

Jake