Book: Poor Charlie’s Almanack
Author: Charles T. Munger
Key takeaways: Charlie Munger’s is obviously best known for Buffett’s partner at Berkshire, and those who know the history a tiny bit better, know him as the person who helped Buffett move beyond strict findings of Benjamin Graham (buying companies trading cheap compared to assets–sometimes, even below its net operating assets) to the kind of companies that were cheap once you considered their competitive advantages in every respect–products, markets, trademarks, employees, distribution channels, societal trends and so on, and the durability of that advantage.
Munger’s basic philosophy: Preparation, Discipline, Patience, Decisiveness.
Biographies: According to Munger, it is easier to understand the concepts put forth by the eminent dead if you know the lives that they led.
Pre-trigger Checklist: Munger suggests having a checklist to be used before pulling the trigger on an investment.
- Current price, volume and trading considerations
- Disclosure timing and any other sensitivities that may exist
- Are there any contingent exit strategies
- Are there any better uses of capital? Is capital liquid or will it need to be borrowed?
Cost of capital: Munger and Buffett don’t ever calculate a cost of capital for any business, because according to them it is impossible to find out that number. People simply use look at the opportunity cost i.e. that available alternatives.
5 Ways to practice Practical Thought:
- Best to simplify problems by deciding big no-brainer questions first.
- Use math to figure out whether things make sense
- Should think in reverse to see if it still computes
- Then think about it in a multidisciplinary manner
- Really big effects (Charlie called them lollapalooza effects) than come together from a large combination of factors