📖 Poor Charlie’s Almanack by Charlie Munger

Topic: Business & Investing  |  Rating: 3.5/5

Summary

Charles Munger is a billionaire investor and besties with Warren Buffett. This book is a biography, and shares his philosophy on business and investing.

Why I read this book

Because Ben Francis recommended this book in one of his videos. 🤣 Some of the principles learnt in this book, he has applied in his own business.

Three notes

1. Invest in your circle of competence 📊

Going against the grain of diversification, Charles made fewer investments however based on a thorough understanding of the business. He focuses on characteristics including competitive advantage which withstands any economic climate. So invest time in understanding before investing.

“We have three baskets for investing: yes, no, and too tough to understand.” (Munger 2005, p.65)
“Be a business analyser, not a market, macroeconomic, or security analyst.” (Munger 2005, p.75)

2. Use multiple mental models 📚

People typically view the world from a few perspectives. But as we know the world is a lot more complex. This highlights the importance of challenging our automatic biases and continually learning new concepts. Know the big ideas in the big disciplines and use them routinely.

“To the man with a hammer, the world looks like a nail.” (Munger 2005, p.133)

3. Understand the psychology of human misjudgement 🧠

Humans are emotional creatures. We make different decisions based on perceived rewards/punishments, social proof, stress and more. To be cognitive of these tendencies is important in mitigating potential errors. Charles uses a psychology checklist when making decisions.

“Cognition is ordinarily situation-dependent so that different situations often cause different conclusions, even when the same person is thinking in the same general subject area.” (Munger 2005, p.448)