6.30.24

Poor Charlie’s Almanack

Charlie Munger, lifelong homie of Warren Buffet, sage of Value Investing, died in the last year.

And as part of generally trying to continue to deepen my thinking about – and understanding of – money, I decided to read Munger’s book, Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T Munger. It’s a collection of transcribed lectures and reflections upon them published in 2023.

Munger combines loads of homespun wisdom and virtue with a lot of insights into companies and business, and a whole lot of self-aggrandizing rants against various groups, most notably academics.

In its most useful moment’s Poor Charlie describes (several times) his framework for evaluating opportunities, which is a checklist structured formal sequence of lenses through which to contemplate a potential choice. These are as follows:

Circle of Competence: Munger emphasizes the importance of sticking to what you know. Understanding your own expertise and limitations helps in making informed decisions and avoiding risks. Only invest in opportunities that fall within your circle of competence.

Lollapalooza Effect: This framework involves identifying multiple factors that align to create a powerful outcome. Munger looks for opportunities where several favorable elements come together simultaneously, amplifying the potential for success.

Inversion Thinking: Instead of only considering how to succeed, Munger also thinks about how to avoid failure. By identifying and avoiding potential pitfalls and problems, you can improve your chances of making a successful investment.

Opportunity Cost: Munger always considers the opportunity cost of an investment—what you give up by choosing one option over another. This helps in assessing whether the potential returns of an opportunity are worth the risks and resources involved.

Margin of Safety: This principle involves investing in opportunities where the intrinsic value significantly exceeds the current market price, providing a cushion against errors in judgment or unforeseen events. This conservative approach helps mitigate risk and secure better long-term returns.

A good list, and I do not doubt for a moment that approaching most everything in life with a clear prioritized checklist for evaluating things would lead to consistently highly quality results.

At its worst moments, Poor Charlie reads like an old man ranting, repeating the same corn-pone homilies (“one legged man in an ass kicking contest”) over and over, and smugly pointing out how much smarter he is than all those ivy-league eggheads.

But I enjoyed getting to know Munger, and will definitely attempt to make more formal use of his framework.