10 Ways You Can Think and Succeed like Charlie Munger

10 Ways You Can Think and Succeed like Charlie Munger by John Szramiak was originally published on Vintage Value Investing

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In 2007, Charlie Munger gave the commencement speech at the graduation ceremony for the USC Gould School of Law.This commencement address is one of his most famous and most popular speeches. You can listen to it below via YouTube or download a nice PDF transcript of the speech right here.

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In his speech, Charlie Munger listed 10 ideas that have helped him succeed in life.

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Here they are:

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1. To get what you want, deserve what you want.

This is such a simple idea. Charlie Munger says this is essentially the golden rule, and there is no ethos that is better for any person to have. You want to deliver to the world what you would buy if you were on the other end.

2. There is no love that’s so right as admiration-based love

According to Charlie Munger, “there is no love that’s so right as admiration-based love.” He says that the love that torments you and causes misery – like the love in “Of Human Bondage” – is a sick kind of love and should be eliminated. It’s all about love based on respect and admiration. And, Munger says, that includes love of what he calls the instructive dead – in other words, the great thinkers and writers of the past who have written works that you can learn from today.

3. Wisdom acquisition is a moral duty

Charlie Munger says that becoming wiser is something that is your moral duty, not something that you do just to advance in life.

And as a corollary to that, it means that you’re hooked for lifetime learning. Munger says he constantly sees “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 when they got up and boy does that help, particularly when you have a long run ahead of you.”

4. Learn all the big ideas from the big disciplines and make them a part of your mental routine

Charlie Munger is famous for using a “latticework of mental models” in his head. What he does, is he studies all the big ideas from fields outside of finance and outside of law – engineering, physics, history, philosophy, etc. – and he uses those big ideas and applies them to new situations and new problems he faces.

According to Munger, this interdisciplinary mental model approach to thinking has “made life more fun, it’s made me more constructive, it’s made me more helpful to others, it’s made me enormously rich, you name it, that attitude really helps.”

Charlie Munger continues: “If you do that I solemnly promise you that one day you’ll be walking down the street and you’ll look to your right and left and think, “My heavenly days! I’m now one of the few most competent people of my whole age cohort.””

5. Invert, always invert

Charlie Munger says that sometimes the best way to solve complex problems is to turn them around in reverse. For example, instead of thinking “what are the characteristics that will lead to a great life?” ask yourself “what are the characteristics that can do the most harm in life?”

Munger says there are seven things you should avoid in life:

  1. Sloth
  2. Unreliability
  3. Intense ideology
  4. Self-serving bias
  5. Perverse incentives
  6. Perverse associations
  7. Influences that will compromise your objectivity

6. Get the power to the people who actually have the knowledge, not the people who pretend to have knowledge

 

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Charlie Munger frequently tells the story of:

“Max Planck when he won the Nobel prize and went around Germany giving lectures on quantum mechanics, and the chauffeur gradually memorized the lecture and he said, “Would you mind Professor Planck, because it’s so boring just staying in our routines, would you mind if I gave the lecture this time and you just sat in front with my chauffeur’s hat?” And Planck said, “Sure.”

And the chauffeur got up and gave this long lecture on quantum mechanics after which a physics professor stood up in the rear and asked a perfectly ghastly question and the chauffeur said, “Well, I’m surprised that in an advanced city like Munich I get such an elementary question, I’m going to ask my chauffeur to reply.”

The point of that story, according to Charlie Munger, is that there are tow types of knowledge in the world:

  • Planck knowledge: These people truly have the knowledge and have paid the dues and have the aptitude
  • Chauffeur knowledge: These people have learned to prattle the talk, they have a big head of hair, and a nice voice, and they make “a heal of an impression,” but in the end they just have chauffeur knowledge.

It’s important to get the opportunities and the power to make decisions into the hands of people with Planck knowledge, and out of the hands of people with chauffeur knowledge.

7. You’re more likely to be really good at something if you have a natural interest in it

According to Charlie Munger, an intense interest in the subject is indispensable if you are really going to excel. Munger says he “could force myself to be fairly good in a lot of things, but I couldn’t be really good in anything where I didn’t have an intense interest.”

So you want to drift into doing something in which you really have a natural interest.

8. You need to have assiduity and discipline

“Assiduity” means showing great care and perseverance. Charlie Munger says he likes the word assiduity because it means “sit down on your ass until you do it.”

Munger also says that life will have terrible, horrible, unfair blows in it. You have to find the silver-lining in those blows, avoid self-pity, and carry on.

9. Prepare now for trouble in the future

Charlie Munger says he always thinks of this poem from A. E. Housman:

“The thoughts of others
were light and fleeting,
of lovers’ meeting
or luck or fame.
Mine were of trouble,
and mine were steady;
So I was ready
when trouble came.”

Munger says he’s gone through his entire life preparing for trouble ahead, and that has helped him immensely.

10. The highest form of civilization is not reliant on process and procedure, but on a seamless web of deserved trust.

Finally, Charlie Munger believes that “the highest form which civilization can reach is a seamless web of deserved trust. Not much procedure just totally reliable people correctly trusting one another.”

He says this is how the operating room works at the Mayo Clinic. If a bunch of lawyers were to introduce a lot of processes and procedures, then the patients would all die.

So, what you want in your own life is a seamless web of deserved trust. And if your proposed marriage contract has 47 pages, Munger’s suggestion is do not enter.

USC GOULD SCHOOL OF LAW, COMMENCEMENT SPEECH, MAY 13, 2007 – CHARLIE MUNGER

Download a transcript of the speech right here or read on below.

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Charlie Munger USC Law School Commencement Speech Transcript:

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Ben Graham, the father of value investing, wasn’t born in this century. Nor was he born in the last century. Benjamin Graham – born Benjamin Grossbaum – was born in London, England in 1894. He published the value investing bible Security Analysis in 1934, which was followed by the value investing New Testament The Intelligent Investor in 1949. Warren Buffett, the value investing messiah and Graham’s most famous and successful disciple, was born in 1930 and attended Graham’s classes at Columbia in 1950-51. And the not-so-prodigal son Charlie Munger even has Warren beat by six years – he was born in 1924. I’m not trying to give a history lesson here, but I find these dates very interesting. Value investing is an old strategy. It’s been around for a long time, long before the Capital Asset Pricing Model, long before the Black-Scholes Model, long before CLO’s, long before the founders of today’s hottest high-tech IPOs were even born. And yet people have very short term memories. Once a bull market gets some legs in it, the quest to get “the most money as quickly as possible” causes prices to get bid up. Human nature kicks in and dollar signs start appearing in people’s eyes. New methodologies are touted and fundamental principles are left in the rear view mirror. “Today is always the dawning of a new age. Things are different than they were yesterday. The world is changing and we must adapt.” Yes, all very true statements but the new and “fool-proof” methods and strategies and overleveraging and excess risk-taking only work when the economic environmental conditions allow them to work. Using the latest “fool-proof” investment strategy is like running around a thunderstorm with a lightning rod in your hand: if you’re unharmed after a while then it might seem like you’ve developed a method to avoid getting struck by lightning – but sooner or later you will get hit. And yet value investors are for the most part immune to the thunder and lightning. This isn’t at all to say that value investors never lose money, go bust, or suffer during recessions. However, by sticking to fundamentals and avoiding excessive risk-taking (i.e. dumb decisions), the collective value investor class seems to have much fewer examples of the spectacular crash-and-burn cases that often are found with investors’ who employ different strategies. As a result, value investors have historically outperformed other types of investors over the long term. And there is plenty of empirical evidence to back this up. Check this and this and this and this out. In fact, since 1926 value stocks have outperformed growth stocks by an average of four percentage points annually, according to the authoritative index compiled by finance professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College. So, the value investing philosophy has endured for over 80 years and is the most consistently successful strategy that can be applied. And while hot stocks, over-leveraged portfolios, and the newest complicated financial strategies will come and go, making many wishful investors rich very quick and poor even quicker, value investing will quietly continue to help its adherents fatten their wallets. It will always endure and will always remain classically in fashion. In other words, value investing is vintage. Which explains half of this website’s name. As for the value part? The intention of this site is to explain, discuss, ask, learn, teach, and debate those topics and questions that I’ve always been most interested in, and hopefully that you’re most curious about, too. This includes: What is value investing? Value investing strategies Stock picks Company reviews Basic financial concepts Investor profiles Investment ideas Current events Economics Behavioral finance And, ultimately, ways to become a better investor I want to note the importance of the way I use value here. It’s not the simplistic definition of “low P/E” stocks that some financial services lazily use to classify investors, which the word “value” has recently morphed into meaning. To me, value investing equates to the term “Intelligent Investing,” as described by Ben Graham. Intelligent investing involves analyzing a company’s fundamentals and can be characterized by an intense focus on a stock’s price, it’s intrinsic value, and the very important ratio between the two. This is value investing as the term was originally meant to be used decades ago, and is the only way it should be used today. So without much further ado, it’s my very good honor to meet you and you may call me…