Founders: #295 I had dinner with Charlie Munger

David Senra David Senra 3/21/23 - Episode Page - 1h 21m - PDF Transcript

One of my favorite things about making this podcast is that I get to talk to so many founders.

Now, a lot of those founders are dead.

So I get to have one-sided conversations in the form of reading their biographies or reading

their autobiographies.

And this is what Charlie Munger refers to as becoming friends with the eminent debt.

But in addition to that, because so many founders listen to this podcast, I get to actually

meet and talk to people still building companies today.

And a recurring theme that pops up again and again in these conversations is that a large

part of your life is actually searching for your life's work.

And so almost all of us are looking for something that is unique to us that we can do forever.

And in almost every single case that requires starting more than one company.

As you're about to hear, that was certainly the case in Charlie Munger's life.

He was in his 40s before he was finally doing full time what he was put on this earth to

do.

And so this reoccurring theme that you're likely going to have to start more than one company

before you find in life's work is so common that the presenting sponsor of this episode,

Tiny, has built an entire business around buying other businesses.

And the founders of Tiny, Andrew and Chris, are doing something really smart.

They know that there's a ton of entrepreneurs that listen to this podcast that are building

businesses, some of which will have a business that they want to sell today, and some of

which will have a business that they want to sell in the future.

And what I like about Tiny is the way they differentiate their offering compared to other

people that buy businesses.

There's just no BS when you deal with Tiny.

And so when a founder goes to tiny.com and says, hey, I want to sell my business, they

get a response within 48 hours, there's an offer made within seven days, and they close

within a month, and you get a bag full of cash.

If you're a founder that wants to sell your business now or in the future, make sure you

go to tiny.com.

And one more thing before we jump into the episode, one of the things I got to ask Charlie

was you're known for not really liking VCs, and that's putting it really politely, yet

you publicly praise Sequoia, like what's the deal with that?

And his response was very simple, and he's like, it's because of their record.

And one of the former partners of Sequoia that's responsible for that record was just

on one of my favorite podcasts.

It's to invest like the best.

If you're listening to this, you probably already follow that show.

In case you don't, please follow it and whatever podcast you're listening to it in, and listen

to episode 318, Doug Leone, Lessons from a Titan, he tells a story of how him and Mike

Moritz takes Sequoia from a $150 million partnership into an $85 billion global investment company.

Doug Leone has founder mentality, and it'll be obvious if you listen to that episode.

I 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 scene in one of my favorite documentaries.

This is a documentary you can watch on HBO, it's called The Defiant Ones.

It's about the partnership between Jimmy Ivey and Dr. Dre.

That is the description that it will say the documentary is about.

What 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 documentary is when Eminem is describing the very first

time he met Dr. Dre.

Eminem is completely unknown at this time.

He's not assigned.

He's not assigned 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 rewatched that clip from the documentary because 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 it where 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 want

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 died when I was too young to remember him.

The other one is a psychopath and a monster and dumber than a bucket full of rocks.

And so that grandfather-like mentorship happened from a farce, 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 decade

reading biography after biography after biography every day for hours and then record what I

learned and put it out into the world, would I possibly, there's no possible way I 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 advance of 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 going to want

it being disappointed.

I had the opposite experience with him.

Not only was he unbelievably smart, but he was unfailingly polite.

He was a gentleman with brains.

And so I thank them privately, but it's important for me to thank them publicly as well.

Andrew Wilkinson and Chris Barling are 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 hear is going to be a little different.

What I did was the week leading up to the dinner with Charlie, I reread the towel 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 commentary and other lessons and interesting stories

that 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 enigma wrapped

in a paradox.

He is both a mystery and a contradiction at the same time.

Warren Buffett said, Charlie's most important architectural feat was the design of today's

bookshare.

The blueprint he gave me was simple.

Forget what you know about buying fair businesses at wonderful prices and instead buy wonderful

businesses at fair prices.

Consequently, Berkshire has been built to Charlie's blueprint.

My role has been that of general contractor with the CEOs of Berkshire subsidiaries doing

the real work as subcontractors.

How is it that Charlie, who trained as a meteorologist and a lawyer and never took a single college

course in economics, marketing, finance, or accounting, became one of the greatest business

and investing geniuses of the 20th and 21st centuries?

There and lies the mystery.

Charlie spent much of his youth reading and that is where he discovered a larger world

than 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 jobs was working for Warren's grandfather at 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 others while accomplishing a joint

task, and running the cash register where money, the lifeblood of the business, flowed.

Omaha in the 1930s had distinct ethnic immigrant neighborhoods.

Many immigrants worked for the railroad and meatpacking plants whose operations were centered

in Omaha.

Charlie went to public school with the children of those immigrants and as a result developed

an appreciation not only of their cultures, but also of the commercial aptitude and the

willingness to work unbelievably hard to give their children a better life.

That's actually something that Charlie's going to talk about later in the book as well, where

he talks about the difference between the work ethic of up-and-coming countries, people

with immigrant mentality, compared to people born in rich countries.

When comparing the two different approaches to their work ethic, he says something funny.

The only people that are surprised when they lose to people like that are idiots.

Back to this overview of Charlie's early life.

After high school, 17-year-old Charlie enrolled 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, California to study meteorology.

There he fell in love with the sunny Southern California weather.

While the teenage Warren Buffett was busy learning about odds and probability at the

horse-facing track in Omaha, Charlie was learning this important investment skill while playing

poker with his army buddies.

And there's actually two maxims that I've heard from Pete that 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

man in an ass-kicking contest.

And another thing that he repeats is 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 learned to fold his hand when the odds were against

him and 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 Nebraska and family friend,

he was admitted.

He has never forgotten the importance of having friends in high places.

After Law School, Charlie moved back to Los Angeles where he joined a prestigious corporate

law firm.

One of my favorite quotes that I've ever heard Peter Thiel say is 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 paragraph I'm about to read to you.

Charlie thought a lot about business during that time.

He 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 that 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 going to see that he has perfect timing because he is about to find something

else.

This 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 going

to 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 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 something that was just incredible.

It 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 that he was talking about one of the best things

that Ben Franklin did and you see it in that entire book was Ben Franklin was like 48 years

old when he sought out and tried to build a relationship with George Washington.

George Washington I think was like 20 or 21 years old at 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 did was 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 that Andrew Carnegie did

this as well.

And I just went into great detail of how Andrew did that on episode 284 because one of the

people one of these eight players that he that he sought out was Henry Clay Frick.

And so after Charlie explained this to us I asked him a follow up question I was like

well is this something that that 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 going to stop practicing law and I'm going to 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 going to follow up with another question

I got to ask Charlie about this part of his life was this is the thought that came to

my mind when 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 about the younger version of Charlie Munger the younger version

of Warren Buffett because the decisions that that Charlie and that that Warren made at

this point in their lives the the page literally the pages I'm looking at the decisions they're

doing on these pages will affect everything that happens after the same applies to you

and I.

And I think reading biographies and thinking about the younger versions of not only Charlie

and Warren just everybody that you and I talked about in spec is like that is going to motivate

you and I to make the most of what we're doing right now because we know the effect that

it's going to have on 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's in that he was willing to take on a lot of debt to 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 over

by the Canadian government.

The takeover price was $22 a share BCP was selling for $19 a share Charlie brought all

the shares of BCP he could get his hands on and ended up putting all of his partnerships

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 share and Charlie made out like a bandit.

And so that was obviously a risk that Charlie would take early in his career when he didn't

have a lot of money that he wouldn't take now right in the mid 1960s Charlie and Warren

were busy scouring over the pink sheets.

So that's like a pre-internet daily publication of 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 out is because this is an important idea that they're going

to use forever.

Charlie at this point is in his mid 40s.

Warren is in his late 30s.

So says blue chip was a trading stamp company.

Other businesses would buy trading stamps from blue chip to give them to their customers

who would then redeem them for prices that blue chip was offering.

This is going to be confusing to our modern day David Clark the author does a great job

he's like listen just think of this as an early form of a rewards program.

What made the company interesting to Charlie was that blue chip had a pool of money called

float.

Again this is an important idea that they're going to use forever.

They had a pool of money called float that was created by the lag time between the selling

of the stamps and the customers redeeming them.

What made blue chips stock attractively priced was the fact that the US government have filed

an antitrust action against the company.

That's why they're getting a deal.

Similarly as a lawyer thought the lawsuit would be resolved in favor of blue chip which

it was Charlie through his partnership and Warren through Berkshire eventually took control

of the company and Charlie became its chairman by the late 1970s.

The float at blue chip had grown to approximately a hundred million dollars money that Charlie

and Warren could invest blue chips business model eventually became obsolete.

Under Charlie's direction blue chip used its surplus capital to purchase a hundred

percent of C's candies and 80 percent of a finance company called Wesco.

Just as Warren had taken capital out of Berkshire's failing textile operation to buy a thriving

insurance company Charlie took the excess capital out of blue chip stamp and invested

it in profitable businesses.

So that is one good idea that's going to lead to the discovery of another good idea and

they're going to combine these two ideas for decades and decades.

In 1968 Charlie teamed up with Warren and Sandy Goatsman to form a diversified retail

company DRC acquired a department store called Hosh Child Cone for twelve million dollars

Hosh Child Cone was bought at a bargain price but it had no competitive advantage and was

constantly having to spend precious capital keeping up with the competition.

This mistake is going to lead to the discovery of this great idea I just mentioned earlier

during that time Charlie started seeing the advantages of investing in better businesses

that didn't have big capital requirements and did have lots of free cash that could

be reinvested in expanding operations or 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 introduction and what did Warren

Buffett said Charlie's most important architectural feat was 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 businesses at wonderful prices that's cigar but Ben Graham strategy right.

So forget about buying fair business 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 and I realized the biggest takeaway what there was I mean Charlie's genius like I just

cannot believe that I got a chance to talk to him like I remember there's like I got

to sit next to him at dinner and he like he looks at you in the eye like he'll turn his

head and then look at you and I just I could not believe I had the thought multiple times

and I'm not trying to embarrass myself but you know I truly love Charlie Munger like

he is a hero of mine he is the wise grandfather I never had and so I had this idea is 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 like the role that Charlie Munger has played

in my life and so there's a ton of great ideas that I got and a ton of notes I took after

I got back to my hotel after the dinner but I think the thing that that resonated with

me the most is that Charlie has an almost complete indifference to 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 lessons

that he's trying to impart on others you realize what he's saying is like you can problems

are inescapable you're gonna have some level problems but you can reduce the amount of

problems that you have in your life by aiming for quality high quality business and high

quality people produce less problems so one of the notes I left myself after this is 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

life if you're in a great business and you surround yourself by great people and at this

point in the book you're seeing Warren and Charlie work themselves through 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 gonna become a great strategy so it says when Charlie closed his

fund in 1975 it had ten million dollars in assets and showed an average annual rate of

return of almost 25 percent for the 14 years it was in operation what is interesting is

that in the final years of Charlie's fund in the year in the final years of the fund

Charlie was running a highly concentrated portfolio the holding in blue chip stamp alone accounted

for 61% of the funds investments and this is something that Charlie and Warren repeat

over and over again he has never been a fan of diversification as an investment strategy

there's a great quote that I have in my read wise from something I read either a biography

or maybe Warren shareholder large in the past what Warren said diversification is for people

who 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 Garni even

if they never made an investment outside their company they own if they had 100% of their

net worth in their companies they'd still be fantastically rich back to this in 1979 Charlie

became Berkshire Hathaway's first vice chairman in 1983 blue chip stamp merged with Berkshire

Hathaway and Charlie took over as chairman of Westco it was from those two positions

that Charlie would help Warren make the investment and management decisions that would take Berkshire

Hathaway from a net income of 148 million in 1984 to approximately 24 billion in 2016

that is when this book was was published and Warren wraps up the introduction for us in

a perfect way Warren and summing up Charlie's impact on his investment style over the last

57 years said Charlie shoved me in the direction of 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 on from 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 quotes from Steve Jobs Steve realized

the exact same thing that Charlie and Warren realized in everything I've done this is what

Steve said in everything I've done it really pays to go after the best people in the world

let me read that part again Warren and summing up Charlie's impact on his investment style

over the last 57 years said Charlie shoved me in the direction of 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 on from Graham's limiting view it was the power of Charlie's mind and

that was the end of the introduction of the book that I'm going to talk to you about today

and the one I've read for the second time now the towel or maybe actually maybe three

or four times the towel Charlie Munger a compilation of quotes from Berchard 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 probably read this three or four times because the very first time

I read it was all the way back in 2019 it was episode 78 of founders but I have the hard

cover Kindle and all the audible versions of this book that's how important it is I

hope I can convince you if you don't already own it to order it by the time you finish

listening to this podcast but I've re listened I re listened to the audible version over

and over and over again and I think having the hard cover the physical copy of the book

and just leave it out on the table your desk because it's the way it's set up is like you

have these tiny chapters just like hundred or you know hundred fifty different chapters

and they just start off with quotes from Charlie and 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 you know five ten fifteen minutes a day read some of Charlie's words

he's going to give you something to think about so I want to jump into one of his quotes

right here Charlie says life is like a poker game wherein you have to learn to quit sometimes

when holding a much loved hand you must learn to handle mistakes and new facts that change

the odds and so this is some context provided by David Clark Charlie experienced this with

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 involved in

the mortgage business as time went on Freddie's management branched out into a new line of

business in which they were using their quasi governmental status to aggressively borrow

short short term money and then lend it out long term the same financial equation that

eventually put Lehman brothers into bankruptcy seeing the dramatic increase in risk and the

change in the attitude of Freddie Mac's management Berkshire sold its much loved investment at

a profit in nineteen ninety nine nine years later check out this out by two thousand eight

Freddie Mac was in receivership the old management had been fired and the stock was worth a tiny

fraction of what it had been when Berkshire showed its shares and then the next page is

another quote by Charlie says my idea of shooting a fish in a barrel is draining the barrel

first and so will pop to my mind when I read that is something that's very common in all

these that history is pretty common you'll see over and over again if you read their

biographies is they're always trying to figure out how 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 and 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 and a wonderful business

and a truly great business that would have horrified Graham and so he says well even if

they horrified Graham we started thinking about better businesses and 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 he 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 Charlie and Warren

realized that some businesses have exceptional economics working in their favor that will

cause their intrinsic value to increase over time and so the numbers are going to 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 with that investment alone has grown to over

$17 billion but that does not include all the dividends that I 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 and 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 then engaging in a lot of buying and selling Charlie knows that time

is a good friend to the 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 pops up in these stories time carries most of the weight and

the reason that's so important to repeat over and 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 destroyed by competition it's going to

be destroyed by you and so there's another chart line that Charlie repeats that 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 this over

and over again it's really important repetition first of all is the mother of all learning

but its repetition is also persuasive and so and the most important for us to person

for us to persuade is 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 repeats over and over again the

worshiping at the altar of diversification I think is really crazy this is the note I

love myself and something I'm trying to apply in my life one truly great business will make

your unborn grandchildren wealthy and then on the next page there's one line there's

one line from Charlie and I'm like over here writing novels about it so I'll tell you what

pops up to my mind mimicking the herd invites regression to the mean so that's what Charlie

says mimicking the herd were invites regression to the mean now we're getting to my novel

and 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 our thinking then I grabbed a quote from episode

286 which is titled I think Warren Buffett and 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 rational and we very seldom let extreme extraneous

factors interfere with our own thoughts we do not let other people's opinions interfere

and this also made me think of something that happened when we were having dinner with Charlie

Andrew or Chris I can't remember which one from tiny asked Charlie a fantastic question

and there were 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 questions and ideas I want to talk

to Charlie about and I never looked at my phone one time and so they asked like were

you motivated with like part of your your desire to be successful like this drive to

succeed did have anything to do with like proving or like getting the the appreciation

or the like what did you do it because of your relationship with like your dad or your

mom which is a good question because this appears over and over again in the biographies

that you and I talk about this idea that came from Francis Ford Coppola's biography but

was really in almost every single story and it's the idea that you can always understand

the son by the story of the father that the story of the father is embedded in the son

and so Charlie's answers 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 it for him he did it because

he wanted to do these things he was interested in them not because 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 Munger probably 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 uses 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 do and doesn't give a fuck about the ideas or thoughts of others think all of that ties

back to what Charlie's saying here 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 a desire to mimic the herd go back to what Warren says I would say if Charlie

and I have any advantage it is because we're rational and we very seldom let extraneous

factors interfere 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 a different way he talks about the like why are you worrying about prediction

I have never been able to predict accurately I don't make money predicting accurately we

just tend to get into good businesses and stay there again what I write on this page

whatever note to myself on this page time carries most of the weight stop over complicating

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

will 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 advance

they use financial crisis because everybody else again it goes against human nature everybody

else runs away they run towards and they actually wind up growing their businesses by leaps

and bounds by investing and 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 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

and also not let them kill you like your business should have redundancy so you can survive

them right he's another way that Charlie says is 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

crisis is are just in the nature of capitalism random recessions and crashes are programmed

into Charlie's buying strategy he lets cat 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 dollars 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 they talk about the importance of patience over

and over again and they have one line here I'm actually going to read the full quote

this comes from a episode 286 to tell Charlie Munger it says I succeeded I succeeded because

I have a long attention span that's still a fantastic quote but I like that 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 only focus

on this this is something I actually like I got an idea from Charlie and 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 shoulder that 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 book is under the headline patience

something that I heard Charlie say a long time ago that I've never forgotten and I think

reading biographies and obviously listening to found podcasts like founders are just going

to play the role that Barron's magazine played in his life and so he like another way to

talk about the importance of patience is he tells the stories like well you know I made

four or five hundred million dollars from reading Barron's magazine for 50 years and

people like what what what are you talking about and so his whole point is like listen

I read Barron's magazine for 50 years I only found at the entire time I found one idea

that I could act on only one I made 80 million dollars on that idea basically risk-free then

I took that 80 million dollars and I gave it to Lee Lu and he turned it into four or

five hundred million dollars and so that is how I learned how I made four or five hundred

million dollars from reading Barron's for 50 years that is one of the greatest anecdotes

you could ever hear about the importance of patience and then this is Charlie on the dangers

of overconfidence smart people are not exempt from professional disasters from overconfidence

another way to think about that is 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 patience

and waiting for great opportunities I love this sentence because again it could just

the reason that we could shout this these things from the rooftops most humans are

never going to do it just because it goes against human nature and they're incapable

of going against our nature right and Charlie and Warren are capable of going of bucking

the trend one of the reasons Charlie and Warren have never worried about anyone mimicking

their investment style because no other institution or individual has the discipline or the patience

to wait as long as they can he then talks about the importance of making sure that you

can endure problems and isolated example that's very rare is much easier to endure than a perfect

sea of misery that never ceases and again this all ties back to that main theme where

it's like the formula is simple but not easy great businesses and great people getting

great businesses surround yourself with great people that's going to take care of most of

the avoid what one of the best things that Charlie said on episode 286 right that it's

crazy how much information he's able to convey to us in three words and I think they are

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 you get

into great businesses and you surround yourself with great people Charlie is talking about

the difference between an excellent company which might confront a major problem a few

times in 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 people

is because that they are a perfect sea of misery that 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 translates to that person can drown in a cup of water on the next page Charlie

says something that I'm doing in my life and it's something that jumped out at me basically

think of something I learned from Ed Thorpe and Jeff Bezos he says move only when you

have the advantage you have to understand the odds and have the discipline to bet only

when the odds are in your favor something that popped up when I when I read this page

as well is 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 letter that 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 you 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 raised on everything

became overpriced and Warren could no longer find anything cheap enough to buy so rather

than alter his investment strategy Warren shut down his hedge fund and return the money

to his partners putting the vast majority of his own money into cash equivalents Charlie

kept on investing and enjoyed great returns until 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 cash because everything running up to the

crash had been overpriced suddenly found himself surrounded by dozens of wonderful companies

selling at bargain prices another thing 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 company with a durable competitive advantage has business economics that will

expand the 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 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's make sure you have an accurate representation of your business

in your mind I think once you recognize reality even when one doesn't like it indeed especially

when one doesn't like it they talk of monger and Buffett talk about the importance of stepping

on problems early like the type of the right time when you have a problem to act is right

now monger 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 known

of Charlie monger's quotes it's remarkable how much long term advantage people like

us have gotten by trying to be consistently not stupid instead of trying to be very intelligent

there must be some wisdom in the folks that say it's the strong swimmers who drown Charlie's

interested in a simple strategy that 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 again is the ability to recognize it's not just good enough

to recognize an opportunity when it's presented to you you have to act on it you do get an

occasional opportunity to get into a wonderful business that's being run by a wonderful

manager and of course that's hog heaven day Charlie believes that if you aren't buying

like crazy when you have the opportunity to buy a business that has huge potential it

is a big mistake and then he has a hilarious story his whole thing is like listen if you

have an exceptional exceptional business will just keep on earning money over 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 time drinking heavily and

chasing movie stars his banker called him in and said that he was very nervous about

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 history is a form of leverage the fact

is so few people can do this that and you see this because financials the financial disasters

of today are almost completely forgotten in a year or two and so this goes back to the

idea that 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 sentence and without looking

up any notes I just wrote down I go okay what are other people what are a list of other

entrepreneurs that you and I have studied that other people said that 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 through every single episode

or biography read so far for founders the list would be a lot longer than that this goes

back to patients and again this idea of like breaking down what you're trying to say and

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 so 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 investment that would meet Charlie's standards is almost

zero so you settle for something less when you could have gotten something more if you

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 away and that this is actually a great

way to expand your business we have a history when things are really horrible of 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 four seasons and so this came up a few times at dinner he tells these wonderful

stories with amazing recalls like all these different deals or businesses or ideas they

came across as they built you know Berkshire over the last was 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

money because we had cash and we could move fast think about how crazy that is that that

could be a advantage obviously you're getting you're seeing these deals too which is a you

know another advantage that you have to figure out like how to build up in your own business

but once you are getting the deal flow and actually seeing the opportunities that are

coming to you right the idea is like we're just we just made a lot of money because

we had cash and we could move fast and then the book goes into something that obviously

Charlie and I share the fact that we're both biography nuts hope one day to catch him although

now I know I've having seen his bookshelves I have to step my game way up he was on 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 mind if I look at

your bookshelves like go ahead do whatever you want just on I just could not believe

how generous he was so I saw the reason I bring this up is because you know I'm thinking

I'm getting close to 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 valuable and rare interviews with some of history's greatest founders and he

put them in binders that's what I mean is like oh I'm gonna I need to step my game way

up here so there's gonna be a bunch of books coming over the next you know few few months

to few years that 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 repeat myself

but I was just unbelievably impressed with just how much and how dedicated he was to

reading and how he says like that that made all the difference in his life there isn't

a single formula you need to know a lot about business and human nature and the numbers it

is unreasonable to expect that there's a magic system that will do it for you people are

looking for a simple method that they can learn from reading one book that will make

them rich it doesn't happen that way one is actually better off reading a hundred business

biographies and a hundred books on investing why because if we learn the history of a hundred

different business models we learn when the businesses had tough times and how they got

through them we also learn what made them great are not so great and so on the next

page it goes back to this idea where it's like hey we made a lot of money because we

had the cash and we can move fast right and essentially saying hey these opportunities

they present themselves you got to 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 pounce when the opportunity presents itself because in this world opportunities

just don't last very long and so when I got to that section it made me think of one of

my favorite quotes I got to re redo this podcast because the it's Mark and Jason's blog archive

which I still think is fantastic it's episode 50 I'm gonna read two paragraphs from Mark

and Jason's blog archive this was written probably 15 years ago and it's 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 are the consequence of being in the right place at the right time they tend to

present themselves when you're not expecting it and often when you're engaged in other

activities that would seem to preclude you from pursuing them and 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 people who are presented with an opportunity and

pass there's your basic dividing line between the people who shoot up in their careers like

a rocket ship and those who don't right there I am also continually amazed at the number

of people who coast to life and don't go out and see and don't go and seek out opportunities

even when they know in their gut that is what they'd really like to do do not be one of

those people life is way too short and so now we got to the part that I mentioned earlier

where he was talking about the fact that people that they're coming from poor countries or

that they have immigrant mentality they just work so unbelievably hard much harder than

people who grew up using like wealth and comfort and you should not be surprised if a person's

working and putting in you know two or five or ten times the effort that you lose to this

person this is this spawned a bunch of thoughts for me as well as he's talking about the rise

of Korea in the business world and he says Koreans came up from nothing in the auto

business so let me pause right there Chung Ju Young the most I've read you know 300 biographies

so far for the podcast number episode 117 that is the single most inspiring autobiography

that I have read so far it's called born of this land my life story I think Chung Ju

Young was the founder of Hyundai he grew up so poor he had to eat tree bark in the winter

to survive as a kid and he winds up dying as a 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 child came home from grade school and worked with a tutor

for 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 do I think a Chung Ju Young

but I thought of my friend Sam Hinky was on the best like the best podcast and the the

title is find your people I think it's find your people I will I will find the actual

link and put in the show notes for you and Sam it is an authority on the writing of Robert

Karo I think Karo's multiple part series on Lyndon B Johnson is Sam's favorite book

but he says something on the podcast I took these notes years ago or maybe like a year

ago and I thought it was fascinating it relates to exactly what Charlie is saying here and

so Sam is talking about like you know Karo is famous for writing his series on Lyndon

B Johnson and it's famous for writing the power broker on Robert Moses I read the power

broker I'm working my way through the Lyndon Johnson series right now but Sam says something

was fascinating he says Karo profiled two men whose 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 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 there who 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 lesson that Charlie is 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

up that he admired a lot with Sam Walton and so this quote from Charlie made me think

of a quote that 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 five

or ten times throughout my life I just had lunch with somebody that was in town to have

dinner with with Peter Teal and he said something that was fascinating that Peter had mentioned

at dinner I just randomly said oh yeah I was reading this book for 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 just your constantly supposed to see people

that just take things farther than you otherwise would Charlie says we just keep our heads

down and handle the headwinds and tailwinds as best we can and take the result after a

period of years Sam and his fantastic autobiography said when he was asked how did Walmart do it

he says friend we just got after it and we stayed after it and then we're almost to the

end of the book and 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 system goes almost ridiculously

far in maximizing and or minimizing one or a few variables like the discount warehouses

of Costco Costco is obsessed with keeping operating costs to a minimum it does so now David Clark

is giving us some commentary on like how extreme they are and he's going to tie into something

I asked something I got to ask Charlie about Jim Senegal because he knows Jim Senegal he

loves Jim Senegal and it's just hilarious and I love Jim Senegal too and I was well

I'll get there in a minute so it says Costco is obsessed with keeping operating costs to

a minimum it does not provide shopping bags saving Costco 2 to 5 cents each on plastic

bags and 10 to 25 cents each on paper ones this might not seem significant but consider

this there's approximately 150 million customer checkouts every year Costco that's crazy so

let's say that each checkout if they provided bags it cost them 30 cents if you multiply

that 30 cents by the total checkouts that's 45 million dollars a year by simply getting

rid of paper bags to check out 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 agent and its commission by selling directly to

the consumer thereby reducing its costs which allowed it to be more competitive in the pricing

and still maintain its profit margins another example Nebraska Furniture Mart buys huge

quantities of furniture from a single manufacturer at a huge discount which allows its stores

to sell us a sofa cheaper 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 businesses have in common is that they are managed by people

who 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 department or an investor services department

and for many years the annual report was printed on the cheapest paper possible and had no

expensive color photos note in recent years the paper quality has improved and the annual

report now sports one color photo which may be a sign that management is starting to slip

and so there's few people in the world that love Costco more than Charlie Munger I got

to ask him I was like hey I love Jim Cinegal you know the only thing I've ever found him

in writing is the fact that he wrote the introduction to SoulPrices 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 I said it's like why does like I asked him like why Jim kept a low profile that

it's just so hard to find speeches or writings of Jim and Charlie's simple answer was that's

because he was busy working I thought there was a lesson there and then Charlie brings

up the fact that 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 you know richest person in the world

right now Bernardo Naut has built his fortune on the power the magic of brands and so they

didn't understand Warren and Charlie didn't understand the magic of brands until they

bought C's candies and says when we bought C's candies we didn't know the power of a

good brand over time we just discovered that 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 minds and 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 businesses is by buying a bunch of bad businesses first Charlie and Warren

have both owned a few bad businesses in their day department store a windfield man windmill

manufacturer a textile factory in an airline why are those businesses bad because they

are involved in intensely competitive industries think about what Jeff Bezosotus differentiation

is survival because they're involved in intensely competitive industries that beat each other

up over price which brings their profit margins down kills their cash flow and diminishes their

chances of long-term survivability now we know that the secret is always to go with

the better business that 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 equanimity

to market price decline of 50% two or three times a century you're not fit to be a common

shareholder and you deserve the mediocre result you're going to get compared with the people

who do have the temperament who can be more philosophical about these market fluctuations

I would condense that down even further into an aphorism that you and I could take with

us in the future tough times don't last but tough people do average out betting on the

quality of a business is better than betting on the quality of the management but very

rarely you find a manager who is so good that you're wise to follow him into what looks

like a mediocre business and so they use this example of Rose Blumkin Mrs. B who's my favorite

character in 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 into the most successful furniture store in the United States

Berkshire bought 90% of the company from her when she was 89 years old and she stayed on

managing 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 store across the street what harm can a 94 year

old woman do to a multi-billion dollar conglomerate in no time at all she had taken so much of

Nebraska Furniture Mart's business that Berkshire was forced to spend millions of dollars buying

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 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

Mrs. B is gonna make another appearance under the section of master plans which is hilarious

at Berkshire there's never been a master plan anyone who wanted to do it we fired because

it takes on a life of its own and doesn't cover new reality we want people taking into

account new information that's a great way to describe it I think they described 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 as we go along whenever I think of master plans I remember Nebraska

Furniture Mart's founder Mrs. B who in response to a question about 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 the idea ties together these two ideas that the importance of continuing advancing

your thinking and then know when to stretch for great opportunities and so there's this

company called Iscar it's actually the first time they bought a wholly owned company outside

United States and so Charlie was gonna describe it now he says we didn't know when we were

young which 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 maker of precision carbide metal cutting tools used in industry it is the dominant

player in its field so Berkshire bought 80% of the company 2006 for four billion and then

purchased the final 20% in 2013 for two billion which shows that it was a better business in

2013 than it was in 2006 Benjamin Graham would have never bought it because it wasn't selling

below book value Charlie and Warren learning with the purchase of Nebraska Furniture Mart

that if the dominant player is large enough and well enough entrenched with its customer

base the cost of entry into its market is much too high for potential competitors size

and market domination can create this is the punchline size and market domination can create

their own kind of durable competitive advantage which is what Iscar had in spades so something

Charlie brought up at dinner as well as the people he greatly admired we were talking

a lot about Benjamin Franklin he says there was unlikely to ever be another life as remarkable

as Ben Franklans and another person that he greatly admires and I saw a bunch of books

about was Lee Kwan Lee you I'm gonna actually do a podcast on Lee's book which is called

the from third world to first to first Singapore story because it says in this book that that

book is well worth reading and actually says Charlie became so enamored of Lee that he commissioned

a bronze bust of him to 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 but if you really want a lot of wisdom it's better to concentrate decisions

are pro and process in one person so to repeat that if you really want a lot of wisdom it's

better to concentrate decisions and process in one person it is no accident that Singapore

has had a much much better record given where it started than the United States their power

was concentrated in an enormously talented person Lee Kwan Yoo who was the Warren Buffett of Singapore

and so the reason I wanted to include that in the discussion you and I are having today

is because when I read that I didn't think about Lee Kwan Yoo 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 is fantastic for episode 178 and this idea that founders have

absolute control right it's better to concentrate decisions and process in one person and there's

a story in that book when Steve comes back to Apple where he's getting a lot of pushback

with some of the people over there and Jobs just refused to take no for an answer and

because 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 are called 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 trait that you and I share this idea like

lifelong learning and so if improvement lasts as long as the breath lasts because 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 day to learn such things as

real estate development stock investing it was slow going at first but after a great number of years

and thousands of books read he started to see how different areas of knowledge interplay with each

other and how knowledge like money can compound making one more and more aware of the world in

which he or she lives I'm usually pretty suspect of formulas but I actually think this three-part

formula is actually really good these are Charlie Munger's three rules for career number one don't

sell anything you wouldn't buy yourself number two don't work for anyone you don't respect and

admire and three work only with people you enjoy and so when I was rereading my highlights last

night because I knew I was going to sit down and 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 life without many mistakes in fact one trick in life

is to get so you can handle mistakes and so one of my favorite quotes on this actually came from

the founder of Akia I read his autobiography all the way back on just like years ago episode 104

and he has this great line I've never forgotten you know many years since he says only those who

are sleep make no mistakes making mistakes is the privilege of the active the fear of making mistakes

is the root of bureaucracy and 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 going to go through life you're

going to make mistakes right the fact is that you have to get a get to a point where you can handle

them I would also say something he mentioned a few times is the importance of learning from

mistakes and so he brought up a few times so tonight some mistakes that he had made and then

what he learned from them and it reminded me of this he has a there's a short chapter in this book

called admitting stupidity and this is the quote from Charlie that I feel that he definitely

applied to his own life he says I like people admitting that they were complete stupid horses

asses I know I'll perform better if I rub my nose and my mistakes this is a wonderful trick to learn

and so before sitting down and rereading this book for like the second or third time or whatever

it was I had listened to the entire audiobook and I heard once I heard this part in the audiobook

I had the thought I was like oh that's definitely going in the podcast I love this this is another

one of his ideas that I'm trying to to use in my own work he says extreme specialization is the

way to succeed most people are way better off specializing than trying to understand the

world and this is the commentary by David Clark specialization 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 entry to 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 head with everyone else but if we specialize in something

and excel at it the specialization will set us apart from the rest of the crowd do we take our

Porsche to the local car mechanic who 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 rate and gets away with it

because it is a Porsche specialist it is specialist who make the big bucks and then this next one is

titled secret of success which usually I'm very skeptical when 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

if you surround yourself with great people and get into great businesses it eliminates wisdom

is prevention it's going to eliminate most of the problems that you have that you're going to have

in life that 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 anything in which I was not very interested if you can't somehow find yourself very interested

in something I don't think you'll succeed very much even if you're fairly smart there's another

way that I've heard him explain this exact same idea and that he says an intense interest

in any subject is indispensable if you want to excel and this is the commentary by David Clark

Charlie often says that the key to being a great business manager is to have a passion for the business

for people who have that they are artists whose passion for their work drives and defines their

lives here Charlie's pointing out that this theory applies 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 succeed at what we do as

Steve Jobs said work is going to fill a large part of your life and the only way to be truly

satisfied is 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 want to summarize that again with by repeating this an intense interest in any

subject is indispensable if you want to excel at it a few pages later he goes right back at it this

time it's from the opposite angle that most people are rat poison they're very you should avoid them

the other side of that is obviously go for great right go for great I think is the the maximum

that's coming gonna come out of this podcast I don't remember the most oh it's just so useful

dealing with people you can trust and getting all the others the hell out of your life wise people

want to avoid other people who are just total rat poison and there are a lot of them wise people

want to avoid other people who are just total rat poison and there are a lot of them when I read this

this quote from Charlie it made me think of something that I read in in Warren Buffett

shareholder letters and it's really this application of the idea they only want to work with other

great people and what warrants I'm going to read this paragraph from his shareholder letters real

quick and really what he's talking about is like just most businesses right are poorly run to average

run and so he says our major contribution to 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 applause based upon the two long careers that we have spent intensively

observing business performance and managerial behavior Charlie and I have seen so much of

the ordinary in business that 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 are 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 uh studies of company history and just talk about

what they did correctly and what they did incorrectly early in the book to say hey you're

better off reading hundreds of biographies than just reading you know a hundred business books

and this is why it's like you're when you're doing that you're just watching game tape it's no

different than a young Kobe Bryant watching videotape of Michael Jordan and Magic and Magic Johnson

and just constantly being exposed to a million different game scenarios and then using that

knowledge in his own work when 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 Clinic is different from the right culture at a Hollywood movie studio you cannot run all

these places with a cookie cutter solution and then Charlie talks about the importance of being a

learning machine and you see this that what's amazing to me is you know I've read every single

book that I can find up on Charlie Munger hopefully I've covered them all Charlie of 41 or 45 would

get his ass kicked by 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 increased since he turned 65 having watched the whole process with

Warren I can report that if he had stopped with what he knew at earlier points the record would

be a pale shadow of what it is and this commentary by David Clark is one of my favorite sections in

this entire book there is another point that I've noticed with men and women who truly excel at 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 learned not only through the experience

they spent a ton of time reading and then talking to smart people this is actually another idea that

I that I stole from Charlie and I'm using I don't know if I told you this like hopefully this podcast

is you're like learning something and being entertained by this because I still feel like

like I'm on the high that this happened the reason I bring that up is because I can't remember if I

told you that I got a chance to write a letter to Charlie before I met up with them and it was

really short just explaining like the the influence I had a chance to tell one of my heroes like this

is not hyperbolic your idea has 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 them I wrote them letters like I'm using a collection of your ideas as a blueprint for

building my business and I just listed off some of them and you know this is just part a few of them

become friends with the eminent dead aim 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 were 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 try 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 and 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 maybe think of that something I also wrote down to myself

after after I did it 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 and so he says all human

beings work better when 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 prosper

by 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 people with more credentials than you

whose cognition is impaired by incentive caused bias or some similar psychological force that is

obviously present but there are also cases where you have to recognize that you have no wisdom to

add and 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 age is a well spent life preceding it

I wrote down on this page after I reread the highlights last night another takeaway from my dinner

with Charlie he did this the best armor of old age is a well spent life preceding it

and so this is some of his best advice because I think it applies specifically to 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

know have not heeded this advice yet and 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 directly

when I when I had lunch with Sam Zell in my whole life I have known no wise people who didn't read

all the time none zero you'd be amazed at how much Warren reads and how much I read my children laugh

at me they think I'm a book with a couple of legs sticking out Charlie's always been a

voracious reader as a child he lived in the downtown Omaha Public Library where exploring the stacks

he met the towering intellectuals of both the past and present in books by the age of eight

both Thomas Jefferson and Benjamin Franklin had permanent places on the bookshelf above his bed

it is reading that helped put him ahead of the pack in fact this is my oversight that I have not

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 he that Thomas Jefferson was one of Charlie Munger's

heroes and who he looked up to and influenced his thinking so that that alone is why I need to do it

and I as I'd imagine Charlie Munger would recommend as well next 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 and 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 then you

repeat stop multitasking I think people who multitask pay a huge price it was in one of the books I

can't remember 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 Warren version of Warren Buffett because I think he's like a decade and a half

older and Bill maybe two decades something like that maybe even three but uh Warren uh Warren

and Bill Gates are at a some kind of dinner or meeting and their Bill Gates's dad is there

and he was asking the group they're like in the small group like okay what was uh what was the

one trait or what was most responsible for your success and Warren Buffett and Bill Gates both

answered the same way they said focus and 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 the Microsoft Empire you'd

realize that he had complete focus on 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 uh that Microsoft was going through for the first time since the founding

of Microsoft he was actively looking for a distraction so let's go back to this idea that

Charlie mentioned the fact that this is what Ben Franklin did this is what Andrew Carnegie did this

is what uh him and Warren Buffett did it you've got to try to build this seamless web of trust

with the people that are around you the highest form of civilization can reach as a seamless

web of deserve trust not much procedure just totally reliable people correctly trusting

one another in your own life what you want is a seamless web of deserve trust and if your proposed

marriage contract has 47 pages I suggest you not enter the corporate culture at Berkshire is 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 pity has no utility

at all either I think the attitude of Epicetus is the best he thought that every miss chance in life

was an opportunity to behave well every miss chance in life was an opportunity to 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 you know he says that

studying from history is a form of leverage like hopefully you and I have multiple decades

left in our career and think about all the lessons that we're able to observe from other

people and 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 applied the the the

lesson that he learned to his profit later on in life if he had never experienced troubles with

a business in a very competitive industries like textile shoes retail and airlines he would have

never gained the insight into the wonders of owning a business that had a consumer monopoly

such as Coca-Cola or C's candies he would have never seen how a low-cost producer such as Geico

can have a competitive advantage over its much bigger competitors if he had never experienced

the pain of the market crash of 1973 and 1974 he would have never had the foresight to stockpile

the cash he used to buy Wells Fargo stock in 2008 and 2009 so there's a lesson I learned from

reading two of Arnold Schwarzenegger's autobiographies it's episode 193 that's the autobiography

Arnold wrote when he was like 70 and episode 141 which is the the episode that he wrote when he

was like 30 and you kind of at the very end the book ends of him calling his shots and hey the

same lessons that I've used to to become a world champion of bodybuilding I'm just going to use

to become an actor and 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 yourself that

you're going to get don't worry the external world is going to try to get you to doubt yourself as

much as possible but it's dangerous when you actually believe when you start doubting yourself

this ties into what this the story that Charlie's about to tell you and I it's like it's very dangerous

if you start lying to yourself and this is a great little story to 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 charge of 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 what his this fantastic advice

that 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 want and 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 advice from

Charlie Munger to you and I if you have enough sense to become a mental adult yourself you

couldn't 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 long term

the eclipse rate of great civilizations being overtaken is a hundred percent 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 planned to 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 it's crazy if you don't buy

this book it's to me it's just a manual for 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 it over and over again and if you buy the book and you use the link that's in the show

notes in your podcast player are 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

below and 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 Munger only AMA episode soon as well

I had that idea earlier today that's available down below in the show notes in your podcast

player and available at founderspodcast.com and if you want to join my free email newsletter where

I email the top 10 highlights for 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

Machine-generated transcript that may contain inaccuracies.

What I learned from rereading The Tao of Charlie Munger.

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Follow one of my favorite podcasts Invest Like The Best !

[5:45] The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.

[8:48] He has never forgotten the importance of having friends in high places.

[9:04] Most people systematically undervalue their time. — Peter Thiel

[11:08] Franklin & Washington: The Founding Partnership by Edward Larson. Founders #251)

[12:23] Meet You in Hell: Andrew Carnegie, Henry Clay Frick, and the Bitter Partnership That Changed America by Les Standiford. (Founders #284)

[15:02] Charlie took the excess capital out of Blue Chip Stamp and invested it in profitable businesses.

[12:56] Charlie started seeing the advantages of investing in better businesses that didn't have big capital requirements and did have lots of free cash that could be reinvested in expanding operations or buying new businesses.

[17:38] Go for great.

[21:33] In everything I’ve done it really pays to go after the best people in the world. —Steve Jobs

[27:15] 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.

[27:34] One truly great business will make your unborn grandchildren wealthy.

[28:08] All I Want To Know Is Where I'm Going To Die So I'll Never Go There: Buffett & Munger – A Study in Simplicity and Uncommon, Common Sense by Peter Bevelin. (Founders #286)

[34:39] I did not succeed in life by intelligence. I succeeded because I have a long attention span.

[34:54] Charlie Munger on how he made $400 or $500 million by reading Barron’s for 50 years.

[35:11] One of the reasons Charlie and Warren have never worried about anyone mimicking their investment style is because no other institution or individual has the discipline are the patience to wait as long as they can. 

[35:47] Wisdom is prevention.

[36:50] Only play games where you have an edge. — A Man for All Markets: From Las Vegas to Wall Street, How I Beat the Dealer and the Market by Ed Thorp. (Founders #222)

[38:31] Wise people step on big and growing troubles early.

[44:51] I am continually amazed at the number of people who are presented with an opportunity and pass. There’s your basic dividing line between the people who shoot up in their careers like a rocket ship, and those who don’t — right there. — Marc Andreessen's Blog Archive (Founders #50)

[46:28] The most inspiring biography I’ve read so far: Born of This Land: My Life Story by Chung Ju-yung. (Founders #117)

[47:11] Invest Like The Best #204 Sam Hinkie Find Your People

[42:42] Rober Caro’s Books:

The Power Broker

The Path to Power: The Years of Lyndon Johnson I

Means of Ascent: The Years of Lyndon Johnson II

Master of the Senate: The Years of Lyndon Johnson III

The Passage of Power: The Years of Lyndon Johnson IV

[48:46] We just got after it and we stayed after it. — Sam Walton: Made In America by Sam Walton. (Founders #234)

[52:39] Some brand names own a piece of consumer's minds and they do not have any direct competition.

[55:30] We are individual opportunity driven.

[57:08] Size and market domination can create their own kind of durable competitive advantage.

[56:15] Jony Ive: The Genius Behind Apple's Greatest Products by Leander Kahney. (Founders #178)

[1:01:57] Extreme specialization is the way to succeed. Most people are way better off specializing than trying to understand the world.

[1:04:44] Wise people want to avoid other people who are just total rat poison and there are a lot of them.

[1:05:35] Charlie and I have seen so much of the ordinary in business that we can truly appreciate a virtuoso performance.

[1:09:00] Am I Being Too Subtle?: Straight Talk From a Business Rebel by Sam Zell. (Founders #269)

[1:10:15] Charlie looks at nearly everything through the lens of history. You aren't changing human nature. Things will just keep repeating forever.

[1:13:13] 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.

[1:14:40] Hard Drive: Bill Gates and the Making of the Microsoft Empire by James Wallace and Jim Erickson. (Founders #290)

[1:17:00] Arnold Schwarzenegger autobiographies and episodes:

Total Recall: My Unbelievably True Life Story by Arnold Schwarzenegger. (Founders #141)

Arnold: The Education of a Bodybuilder by Arnold Schwarzenegger. (Founders #193)

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