“Charlie Munger is truly the broadest thinker I have ever encountered,” Bill Gates Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger http://www.poorcharliesalmanack.com/recommendations.html
More people would benefit from Charlie Munger if his thoughts were more accessible and if he was as prolific a writer as he is a reader. The best way by far to know Charlie Munger is to read: http://www.poorcharliesalmanack.com/index.html.
Charlie Munger on Academia:
“Warren once said to me, “I’m probably misjudging academia generally [in thinking so poorly of it] because the people that interact with me have bonkers theories.” … We’re trying to buy businesses with sustainable competitive advantages at a low – or even a fair price. [The reason the professors teach such nonsense is that if they didn’t], what would they teach the rest of the semester? [Laughter] Teaching people formulas that don’t really work in real life is a disaster for the world.”
“There’s a lot wrong [with American universities]. I’d remove 3/4 of the faculty — everything but the hard sciences. But nobody’s going to do that, so we’ll have to live with the defects. It’s amazing how wrongheaded [the teaching is]. There is fatal disconnectedness. You have these squirrelly people in each department who don’t see the big picture.”
“a different set of incentives from rising in an economic establishment where the rewards system, again, the reinforcement, comes from being a truffle hound. That’s what Jacob Viner, the great economist called it: the truffle hound — an animal so bred and trained for one narrow purpose that he wasn’t much good at anything else, and that is the reward system in a lot of academic departments.”
“I think liberal art faculties at major universities have views that are not very sound, at least on public policy issues — they may know a lot of French [however].”
Charlie Munger on Accounting
“Proper accounting is like engineering. You need a margin of safety. Thank God we don’t design bridges and airplanes the way we do accounting.”
“’F.A.S.B’” … ‘Financial Accounts Still Bogus’”.
“I talked to one accountant, a very nice fellow who I would have been glad to have his family marry into mine. He said, “What these other accounting firms have done is very unethical. The [tax avoidance scheme] works best if it’s not found out [by the IRS], so we only give it to our best clients, not the rest, so it’s unlikely to be discovered. So my firm is better than the others.” [Laughter] I’m not kidding. And he was a perfectly nice man. People just follow the crowd…Their mind just drifts off in a ghastly way…”
“…accounting [is] the language of practical business life. It was a very useful thing to deliver to civilization. I’ve heard it came to civilization through Venice which of course was once the great commercial power in the Mediterranean. However, double-entry bookkeeping was a hell of an invention. And it’s not that hard to understand. But you have to know enough about it to understand its limitations - because although accounting is the starting place, it’s only a crude approximation. And it’s not very hard to understand its limitations. For example, everyone can see that you have to more or less just guess at the useful life of a jet airplane or anything like that. Just because you express the depreciation rate in neat numbers doesn’t make it anything you really know
You’ll better understand the evil when top audit firms started selling fraudulent tax shelters when I tell you that one told me that they’re better [than the others] because they only sold [the schemes] to their top-20 clients, so no-one would notice.
“Creative accounting is an absolute curse to a civilization. One could argue that double-entry bookkeeping was one of history’s great advances. Using accounting for fraud and folly is a disgrace. In a democracy, it often takes a scandal to trigger reform. Enron was the most obvious example of a business culture gone wrong in a long, long time.”
I also want to raise the possibility that there are, in the very long term, “virtue effects” in economics— for instance that widespread corrupt accounting will eventually create bad long term consequences as a sort of obverse effect from the virtue-based boost double-entry book-keeping gave to the heyday of Venice. I suggest that when the financial scene starts reminding you of Sodom and Gomorrah, you should fear practical consequences even if you like to participate in what is going on.
Charlie Munger on Acquisitions:
“Two thirds of acquisitions don’t work. Ours work because we don’t try to do acquisitions — we wait for nobrainers.”
At most corporations if you make an acquisition and it turns out to be a disaster, all the paperwork and presentations that caused the dumb acquisition to be made are quickly forgotten. You’ve got denial, you’ve got everything in the world. You’ve got Pavlovian association tendency. Nobody even wants to even be associated with the damned thing or even mention it. At Johnson & Johnson, they make everybody revisit their old acquisitions and wade through the presentations. That is a very smart thing to do. And by the way, I do the same thing routinely.
“We tend to buy things — a lot of things — where we don’t know exactly what will happen, but the outcome will be decent.”
“We’ve bought business after business because we admire the founders and what they’ve done with their lives. In almost all cases, they’ve stayed on and our expectations have not been disappointed.”
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