From 1733 to 1758, Ben Franklin dispensed useful and timeless advice through Poor

Richards Almanack. Among the virtues extolled were thrift, duty, hard work, and simplicity. Subsequently, two centuries went by during which Bens thoughts on these subjects were regarded as the last word. Then Charlie Munger stepped forth. Warren Buffett From the Foreword Poor Charlies Almanack For the first time ever, the wit and wisdom of Charlie Munger is available in a single volume: all his talks, lectures and public commentary. And, it has been written and compiled with both Charlie Munger and Warren Buffett's encouragement and cooperation. So pull up your favorite reading chair and enjoy the unique humor, wit and insight that Charlie Munger brings to the world of business, investing and life itself. Charles Helman Lea once said, It will generally be admitted that the true test of all books is the influence they have upon the lives and conduct of their readers. We hope this book passes that test, exerting a lasting influence on you.

Introduction by Peter D. Kaufman You are about to embark on an extraordinary journey toward better investing and decision making. You may also arrive at a better understanding of life as well, all thanks to the wit, wisdom, speeches and writings of Charlie Mungerthis generations answer to Benjamin Franklin. Charlies unique worldview, what he calls his multidisciplinary approach, is a selfdeveloped model for clear thinking and simplicityyet his concepts and models are anything but simplistic. Notice how well Charlies thinking stands the test of time: the earliest talk in this collection is almost twenty years old, yet it is as relevant today as the day he first delivered it. As you will soon discover, Charlies observations and conclusions are based on fundamental human nature, basic truths, and core principles from a wide range of disciplines. Throughout the book, Charlie reveals his intellect, wit, values, and no end of rhetorical fl air. His encyclopedic knowledge allows him to cite references from classical orators to eighteenth- and nineteenth-century European literati to pop culture icons of the moment. Where else would you find Demosthenes and Cicero juxtaposed against Johnny Carson, or todays investment managers set against Nietzsche, Galileo and a one-legged man in an ass-kicking contest. Or how about Ben Franklin versus Bernie Cornfeld in a battle of worldly wisdom? Using self-deprecation and imagination to great effect, Charlie cheerfully compares himself to a counting horse, proposes Glotzs sugared, caffeinated water as a marketing-bereft label for Coca-Cola, and attests, at least when I was young I wasnt a total klutz. In one talk (Practical Thought About Practical Thought?), Charlie even takes on the challenge of building, from scratch, a two-trillion dollar business, and then walks us through his diverse mental models to accomplish that mighty feat. The quotes, talks, and speeches presented here are rooted in the old-fashioned Midwestern values for which Charlie has become known: lifelong learning, intellectual curiosity, sobriety, avoidance of envy and resentment, reliability, learning from the mistakes of others, perseverance, objectivity, willingness to test ones own beliefs, and many more. But his advice comes not in the form of stentorian admonishments; instead, Charlie uses humor, inversions (following the course set by the great algebraist, Jacobi, to Invert, always invert), and paradox, to provide sage counsel about lifes toughest challenges. Charlie also employs historical and business case studies to great effect. In these presentations, he makes his points with subtlety and texture, often using a story-like context instead of abstract statements of theory. He regales his audience with humorous anecdotes and poignant tales, rather than with a blizzard of facts and figures. He well knows, and wisely exploits, the traditional role of the storyteller as purveyor of complex and detailed information. As a result, the lessons hang together in a coherent latticework of knowledge, available for recall and use when needed.

It is clear throughout these talks and speeches that Charlie places a premium on life decisions over investment decisions. His mental models, drawn from every discipline imaginable, recur repeatedly and, at their core, focus not on business portfolio strategy or beta or Cap M. Rather, they focus on fundamental truth, human accomplishment, human foibles, and the arduous path to wisdom. Charlie once said, I wanted to get rich so I could be independent, like Lord John Maynard Keynes. Independence is the end served by wealth for Charlie, not the other way around. About the Book: We open with a brief Portrait biography that chronicles Charlies progress from his modest Omaha childhood to his prodigious financial successall while retaining his deeply ingrained Midwestern values. Next, we summarize Charlies approach to life, learning, decision-making, and investing. This section details both his unconventional methods and the extraordinary work ethic required to succeed at the high level he has maintained for decades. Our Mungerisms: Charlie Unscripted section presents insightful and humorous remarks he has made at past Berkshire Hathaway and Wesco Financial annual meetings. In the balance of the book, Charlie speaks to us in his own words through a series of talks and lectures twenty years in the making. The Ten Talks section includes speeches covering a wide spectrum of Charlies interests, ranging from the acquisition of worldly wisdom, application of his Multiple Mental Models approach to business, improving investment practices at charitable foundations, and more. The tenth Talk is a special compilation on The Psychology of Human Misjudgment that Charlie prepared specifically for this book. Each is well worth your time not only to read and enjoy, but also to study carefully for the rich assortment of ideas and practices Charlie has used to achieve success. You may never find a better opportunity to learn from someone this smart and successful. In these selections, Charlie simply opens up and tells it like it is. A word about the style and layout of the book: Charlie is imbued with a remarkable curiosity about nearly everything he bumps into in life. Accordingly, as we bump into people, places and subjects cited by Charlie in his Talks, we have taken the liberty of supplementing his original text with a modicum of background information, photographs and topical graphics. The frequent sidebars peppered throughout the talks, for example, serve to explain concepts, add a supporting voice, or emphasize an important idea that we trust Charlie would want you to better appreciate and understand. They might even inspire you to pursue these incidental subjects further on your own. I wish you good reading and the gift of bright illumination and dry humor that those of us who know him have come to treasure and expect from Charlie Munger.

Table of Contents
Foreword by Warren E. Buffett Introduction by Peter D. Kaufman Chapter One: A Portrait of Charles Munger Chapter Two: The Munger Approach to Life, Learning, and Decision-Making Chapter Three: Mungerisms: Charlie Unscripted

The Ten Talks: 20 Years of Charlie Telling It Like It Is

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Harvard School Commencement Speech A Lesson on Elementary Worldly Wisdom A Lesson on Elementary Worldly WisdomRevisited Practical Thought about Practical Thought?

Harvard Law School Fiftieth Reunion Address Investment Practices of Leading Charitable Foundations Philanthropy Round Table The Great Financial Scandal of 2003

Academic Economics The Psychology of Human Misjudgment A special compilation talk, with new material written exclusively by Charlie for this book.

oughness, however, does not cause him to forget that sometimes the maximization or minimization of a single factor (notably specialization, as he likes to point out regarding Costcos discount warehouses) can make it disproportionately important. Charlie treats nancial reports and their underlying accounting with a Midwestern dose of skepticism. At best, they are merely the beginning of proper intrinsic valuation, hardly the end. The list of additional factors he examines is seemingly endless and includes such things as the current and prospective regulatory climate; state of labor, supplier and customer relations; potential impact of changes in technology; competitive
You need to have a passionate interest in why things are happening. That cast of mind, kept over long periods, gradually improves your ability to focus on reality. If you dont have the cast of mind, youre destined for failure even if you have a high I.Q.

strengths and vulnerabilities, pricing power, scalability, environmental issues and, notably, an intense search for hidden exposures (Charlie knows that there is no such thing as a riskless investment candidate, hes searching for those with few risks that are easily understandable). He recasts all nancial statement gures to t his own view of reality, including the actual free or owners cash being produced, inventory and other working capital assets, xed assets, and such frequently over-stated intangible assets as goodwill. He also completes an assessment of the true impact, current and future, of the cost of stock options, pension plans, and retiree medical benets. He applies equal scrutiny

Warren and Charlie on Moats

Buffett: So we think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business. And we tell our managers we want the moat widened every year. That doesnt necessarily mean the prot will be more this year than it was last year because it wont be sometimes. However, if the moat is widened every year, the business will do very well. When we see a moat thats tenuous in any wayits just too risky. We dont know how to evaluate that. And therefore, we leave it alone. We think that all of our businessesor virtually all of our businesseshave pretty darned good moats. And we think the managers are widening them. Charlie? Munger: How could you say it better? Buffett: Sure. Have some peanut brittle on that one. From the 2000 Berkshire Hathaway annual meeting

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I think indexing is a wiser choice for the average foundation than what it is now doing in unleveraged equity investmentand particularly so as its present total croupier costs exceed 1 percent of principal per annum. Indexing cant work well forever if almost everybody turns to it. But it will work all right for a long time.

The Mutual Fund Scandal

The business of selecting investment managers was recently shown to be even harder by the revelation that a signicant fraction of mutual fund managers took bribes to betray their own shareholders. It was as if a man came up and said, Why dont we kill your mother and well split the insurance money? And many people said, Why, yes, Id like some of that insurance money. And many of them think what happened to them was unjust.

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During the homecoming dinner, Charlie and Warren realized they shared many ideas. It also became evident to the others at the table that this was going to be a two-way conversation. As the evening progressed, the two young menWarren was 29 and Charlie 35became engrossed in a wide-ranging dialogue covering many aspects of business, nance and history. Where one was knowledgeable, the other was just as excited to learn. Warren was unenthusiastic about Charlies continued practice of law. He said that while law might be a good hobby for Charlie, it was a far less promising business than what Warren was doing. Warrens logic helped Charlie to decide to quit law practice at the earliest point he could afford to do so. When Charlie returned to Los Angeles, the conversations continued via telephone and via lengthy letters, sometimes as long as nine pages. It was evident to both that they were meant to be in business together. There was no formal partnership or contractual relationshipthe bond was created by a handshake and backed by two Midwesterners who understood and respected the value of ones word. There were many benets to their partnership: friendship, investment opportunities, and the unique ability to grasp each others ideas and observations. Later, the two organizations they headed were also beneciaries. As Warren was investing in and acquiring companies, he sent business to Munger Tolles, a practice that allowed him over time to benet from having one of the nations top law rms at his disposal. Munger Tolles, meanwhile, not only got Buffetts legal fees, but also gained because his reputation attracted other blue-chip clients to the rm.
Peas in a Pod Warren and Charlie in Savannah, Georgia, as Nancy puts it, looking alike down to the creases in their trousers. Charlie and I were introduced in 1959 by the Davis family. We were two personalities who tended towards dominance. Yet, weve never had an argument since.

A Portrait of Charlie Munger

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where bottlers of Pepsi and Coke both make a lot of money and many others where they destroy most of the protability of the two franchises. That must get down to the peculiarities of individual adjustment to market capitalism. I think youd have to know the people involved to fully understand what was happening. In microeconomics, of course, youve got the concept of patents, trademarks, exclusive franchises and so forth. Patents are quite interesting. When I was young, I think more money went into patents than came out. Judges tended to throw them outbased on arguments about what was really invented and what relied on prior art. That isnt altogether clear. But they changed that. They didnt change the laws. They just changed the administrationso that it all goes to one patent court. And that court is now very much more pro-patent. So I think people are now starting to make a lot of money out of owning patents. Trademarks, of course, have always made people a lot of money. A trademark system is a wonderful thing for a big operation if its well known. Patent, Trademark, Exclusive Franchise
Patent: A grant made by a government conferring upon the creator of an invention the sole right to make, use, and sell that invention for a set period of time. An invention protected by such a grant. Trademark: A name, symbol, or other device identifying a product, ofcially registered and legally restricted to the use of the owner or manufacturer. A distinctive characteristic by which a person or thing comes to be known. Exclusive franchise: A right or license that is granted solely to an individual or group to market a companys goods or services in a particular territory under the companys trademark, trade name, or service mark and that often involves the use of rules and procedures designed by the company and services (as advertising) and facilities provided by the company in return for fees, royalties, or other compensation; also, a business granted such a right or license.

A Lesson on Elementary, Worldy Wisdom as it Relates to Investment Management and Business

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mistakes than other peopleand how to x your mistakes faster when you do make them. But theres no way that you can live an adequate life without [making] many mistakes. In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke: Youve made an enormous commitment to something. Youve poured effort and money in. And the more you put in, the more that the whole consistency principle makes you think, Now it has to work. If I put in just a little more, then itll work.

ROMBOUTS, Theodor The Card Players Oil on canvas Residenzgalerie, Salzburg

And deprival super-reaction syndrome also comes in: Youre going to lose the whole thing if you dont put in a little more. People go broke that waybecause they cant stop, rethink and say, I can afford to write this one off and live to ght again. I dont have to pursue this thing as an obsessionin a way that will break me. Q: Could you talk about the thoughts that went into your decision to swap your Capital Cities stock for Disney rather than taking cash. In the media, it was reported that

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It is my opinion, as a certied biography nut, that Charles Robert Darwin would have ranked near the middle of the Harvard School graduating class of 1986. Yet he is now famous in the history of science. This is precisely the type of example you should learn nothing from if bent on minimizing your results from your own endowment. Darwins result was due in large measure to his working method, which violated all my rules for misery and particularly emphasized a backward twist in that he always gave priority attention to evidence tending to disconrm whatever cherished and hardwon theory he already had. In contrast, most people early achieve and later intensify a tendency to process new and disconrming information so that any original conclusion remains intact. They become people of whom Philip Wylie observed: You couldnt squeeze a dime between what they already know and what they Charles Darwin
(18091882) Charles Darwin was a British naturalist whose teachings on evolution by natural selection revolutionized the science of biology. His On the Origin of Species sold out immediately and was heavily attacked because it did not support the depiction of creation given in the Bible.

will never learn.

The life of Darwin demonstrates how a turtle may outrun a hare, aided by extreme objectivity, which helps the objective person end up like the only player without a blindfold in a game of Pin the Tail on the Donkey.

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