The Munger Approach to Life, Learning and Decision-Making

• great appetite for hard work

• incredible curiosity

• patient demeanor

• Charlie has an original, self-developed approach to life, learning and decision-making

  • comprehensive analysis of internal workings and larger relevant ecosystem
  • make big bets on the few things you are 100% sure of
  • identify the obvious missteps, and avoid them at all costs
  • only after identifying what to avoid, consider what to do
  • avoid overconfidence, remember the system is far more complex than we can grasp
  • the psychological factors are very important to consider
  • multidisciplinary approach which uses mental models from all variety of disciplines

Munger's Investment evaluation process

• ; circle of competence : know where you are smart and where you are not. Stay were you are smart

• stay within you circle of competence.

• Intentionally develop you COC.

• look for understandable, dominant franchise that can thrive in all market environments

• does not rely on financial statements for the true health of the company

• looks for management that is "able, trustworthy, and owner-oriented"

• critical to understand the companies competitive advantage: i.e. the moat

  • this includes an analysis of the factors that contribute to erosion of advantage over time
  • few business survive over multiple generations

• calculates intrinsic value to approximate true per share value

• proper timing is also critical –> "prior to pulling the trigger" checklist

• preparation is the measure of success, outcomes are not 100% controllable

• "extreme patience combined with extreme decisiveness"

• recommended reading

  • Guns, Germs, and Steel, The Selfish Gene, Ice Age, Darwin's Blind Spot

An investing principles checklist

Charlie strongly believes in using checklists!

1. Risk: Always start by measuring risk, especially to one's reputation
2. Independence: ignore the crowd, focus on the process
3. Preparation: The only way to win is work, work, work, work
4. Intellectual humility: knowing and staying with the circle of competence
5. Analytical rigor: scientific method and use of effective checklists
6. Allocation: proper allocation is the investors entire job
7. Patience: don't act just to feel productive
8. Decisiveness: luck is rare, act decisively when you have a great opportunity
9. Change: be stubborn about continual growth and change
10. Focus: keep things simple

The lollapalooza (cascading positive effects) follow preparation, discipline, patience, and decisiveness.