#286 Warren Buffett and Charlie Munger

In the episode featuring Peter Bevelin's book "Seeking Wisdom: From Darwin to Munger," the host explores the simplicity and common sense that underpin Warren Buffett and Charlie Munger's investment philosophy. Bevelin's narrative, recommended by Eric Jorgensen, author of "The Almanac of Naval Ravikant," delves into Buffett and Munger's approach to embracing mistakes, focusing on prevention, and the importance of deep thought and reading in gaining wisdom. The host, drawing from personal reverence for Buffett and Munger as surrogate grandfather figures, highlights their insights on survival through inevitable bad decisions, the folly of multitasking, and the power of focus. The discussion underscores the duo's emphasis on learning from others' mistakes, the avoidance of complexity, and the value of simplicity in business decisions. Through anecdotes and direct quotes, the episode encapsulates the investment titans' strategies for enduring success and the avoidance of common pitfalls in business and life.

• Peter Bevelin has been writing memos to himself for five years as a learning method.
• The memos are written as discussions between four characters, focusing on a seeker's journey to a library of wisdom.
• Key characters include Warren Buffett, Charlie Munger, a librarian, and a seeker.
• The memos emphasize the efficiency, simplicity, and common sense of judgment that Buffett and Munger are known for.
• The goal of Bevelin's book is to understand how Buffett and Munger think.

"For the last five years, I've been writing a memo to myself. I have found this to be an excellent way to learn."

The quote stresses the effectiveness of writing memos for personal learning and reflection.

• Buffett and Munger are likened to "Einsteins of business and wisdom."
• They have the ability to eliminate folly, simplify complex issues, and focus on simple, timeless truths.
• The book aims to capture their thought processes and share their insights.

"Both have a remarkable ability to eliminate folly, simplify things, boil down issues to their essence, get right to the point, and focus on simple and timeless truths."

This quote highlights the key characteristics of Buffett and Munger's decision-making and thought processes.

• Munger acknowledges that making mistakes is normal and not something to agonize over.
• Buffett concurs, emphasizing that mistakes are a part of life and decision-making.
• The key is to structure life and business to survive inevitable bad decisions.
• Buffett uses a humorous analogy to describe their cautious approach.

"Mistakes are a fact of life. I'm not gnashing my teeth over them or suffering or enduring them. I regard it as perfectly normal to fail and to make bad decisions."

Munger's quote conveys acceptance of mistakes as an integral part of life and learning.

• Munger believes wisdom is about prevention.
• Buffett uses the story of Noah's ark to illustrate the importance of thinking ahead.
• Gaining wisdom requires dedicated time for reading and thinking.

"Wisdom is prevention."

Munger's quote succinctly captures the essence of wisdom as proactive avoidance of problems.

• Buffett and Munger prioritize having time to read and think without the interruption of meetings.
• They believe that this practice is crucial for becoming more intelligent and making high-quality decisions.
• Munger criticizes the common practice of over-scheduling, likening it to a dentist's schedule.

"At Berkshire, we don't have any meetings or committees, and I can think of no better way to become more intelligent than sit down and read."

Buffett's quote emphasizes his preference for uninterrupted time to read and reflect over attending meetings.

• Buffett and Munger worry about the lack of focus and the trend of multitasking.
• They believe that multitasking leads to a loss of deep thought and gives others an undue advantage.
• Munger credits his success to having a long attention span and a simple approach to decision-making.

"What worries me and Charlie most is a lack of focus."

Buffett's quote underlines their shared concern about the negative impact of multitasking on focus and productivity.

• Munger and Buffett stress the importance of aiming to be consistently not stupid.
• They advise against letting others' thoughts interfere with one's own.
• They believe that success can lead to folly if one is not cautious.

"I would say if Charlie and I have any advantage, it is because we're rational and we very seldom let extraneous factors interfere with our own thoughts."

Buffett's quote reveals their belief in the strength of independent, rational thought.

• Munger and Buffett often use inversion to avoid failure by considering what doesn't work.
• They study the decline and death of businesses to understand how to thrive.
• The process of inversion helps them keep things simple and focus on the essentials.

"Invert, always invert. I sought good judgment, mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes."

Munger's quote explains the inversion principle and its application to developing good judgment.

• Buffett and Munger have learned much from observing others' mistakes.
• They believe in the value of vicarious learning to avoid repeating the same errors.
• History provides perspective and helps them recognize patterns in human behavior and decision-making.

"We have been a student of other people's folly, and it has served us well."

Buffett's quote underscores the educational value of studying others' failures.

• Buffett and Munger advocate for focusing on the core aspects of any problem or situation.
• They believe in keeping things simple and avoiding unnecessary complications.
• Repetition is used as a tool for learning and reinforcing important ideas.

"Charlie's got the best 32nd mind in the world. If I call him and describe a problem to him, any kind of situation, he gets to the essence of it immediately."

Buffett's quote highlights Munger's ability to quickly identify the core issues in any situation.

• Compound interest is likened to rolling a snowball down a hill; starting small and growing significantly over time.
• Berkshire Hathaway started as a small business and grew due to the nature of compound interest.
• The key is to get into a good business, stay there, and let time work its magic.
• Patience and consistent sound actions contribute to the compounding effect.

"Buffett says compound interest is a little like rolling a snowball down a hill. You start with a small snowball, and if it rolls long enough, you'll have a real snowball at the end."

This quote emphasizes the power and simplicity of compound interest as described by Warren Buffett, drawing a vivid analogy to the growth of a snowball over time.

• Early birds in new businesses can catch a wave of opportunity and ride it for a long time.
• Charlie Munger uses the surfing analogy to describe staying with a good business.
• Examples like Microsoft and Intel show the long-term benefits of staying on the wave.

"Charlie Munger talks about this as staying on the wave."

Charlie Munger's quote highlights the strategy of sticking with a rising business trend or opportunity, much like a surfer catching a good wave and riding it to success.

• Reinforcement and rewards drive human behavior and performance.
• Mary Kay's philosophy suggests treating everyone as if they need to feel important.
• This approach is effective in sales and managing people within an organization.

"Mary Kay once said, it's so simple, yet makes such a difference. Pretend that every single person you meet has a sign around his or her neck that says, make me feel important."

This quote encapsulates the human-centric approach to business and interpersonal relationships, emphasizing the impact of making others feel valued.

• Most of the world is mediocre; standing out requires working with the best people in the best industries.
• Warren Buffett uses baseball analogies to illustrate the prevalence of mediocrity in business.
• Cutting out mediocre performers and seeking better opportunities is advised.

"Buffett says the real issue is mediocrity. There are too many 240 hitters."

Warren Buffett's quote uses a baseball metaphor to describe the widespread issue of mediocrity in business and the importance of aiming for excellence.

• People's actions reveal their true priorities over their words.
• Warren Buffett finds giving advice often useless as behavior change is personal.
• Understanding human behavior is crucial for running a business.

"It's like, actions express priority. It's one of my favorite maximums."

This quote reflects the principle that actions speak louder than words, highlighting the importance of observing behavior to understand priorities.

• Understanding human nature is vital for business.
• Continuous practice of good ideas is necessary for performance.
• Imitation in the finance industry can lead to panics, bubbles, booms, and busts.

"Munger says, once you have the ideas, of course you must continuously practice."

Charlie Munger's quote underscores the importance of consistent practice in applying valuable ideas to achieve success.

• Warren Buffett and Charlie Munger emphasize the importance of formulating one's own thoughts.
• They avoid outside opinions to focus on facts and their own analysis.
• Studying history and figures like Henry Singleton helps in developing business acumen.

"Buffett says, we do not read other people's opinions. We want to get the facts and then think."

Warren Buffett's quote highlights the importance of independent thinking and analysis in making informed decisions, rather than relying on the opinions of others.

• Successful people often say no to almost everything.
• Warren Buffett and Charlie Munger maintain open calendars for flexibility and thought.
• Buffett writes to his managers to decline all requests on his behalf for time conservation.

"The difference between successful people and very successful people is that very successful people say no to almost everything."

This quote from Warren Buffett emphasizes the importance of being selective with commitments to maintain success and productivity.

• Living within one's means is a key to future wealth.
• Saving and intelligent investing are crucial for long-term financial health.
• Debt, especially leverage, can lead to financial downfall even for the smartest individuals.

"If you want to get rich, you've got to underspend your income."

Charlie Munger's quote stresses the fundamental financial principle of spending less than you earn as a pathway to wealth accumulation.

• It's important to manage reactions to bad people, as you cannot always control their actions.
• Envy, rather than greed, is a powerful driver of human behavior.
• A reputation is built over time and reflects one's true character.

"It's not greed that drives the world, but envy."

Warren Buffett's quote offers insight into human nature, suggesting that envy is a more potent motivator than greed in many aspects of life.

• A reputation is earned over time and cannot be faked indefinitely.
• A brand is a promise and reflects the integrity of a company.
• Understanding what business to avoid is as important as knowing what to pursue.

"Brand is a promise."

Warren Buffett's definition of a brand as a promise encapsulates the importance of consistency and reliability in creating a strong brand reputation.

• Peter Bevelin highlights an uncommon business strategy involving membership fees.
• Membership fees act as a barrier to entry, eliminating undesirable customers.
• This approach aligns with Charlie Munger's advice to avoid unwanted aspects in business.

"How many businesses do you have to pay a membership fee to shop at? That's extremely rare. But why is he unusual? Why is he doing that? Because he's getting to the business he wants by avoiding the things he does not want."

The quote emphasizes the strategic use of membership fees as a selective tool to shape the customer base and streamline business operations.

• Eric Jorgensen discusses the importance of selecting appropriate role models.
• Warren Buffett and Charlie Munger stress the significance of learning from heroes, both living and deceased.
• The practice of emulating admired qualities is deemed feasible and beneficial.

"The best thing I did was to choose the right heroes."

Buffett's quote underscores the profound impact that role models can have on personal and professional development.

• Munger and Buffett believe in the importance of having an intense interest in one's work.
• They argue against the notion that success in one domain guarantees success in another.
• They advocate for working with first-class people and avoiding negative influences.

"In my whole life, I have never been good at something I wasn't very interested in."

Munger's quote reflects the idea that genuine interest is a prerequisite for excellence in any field.

• Jeff Bezos is mentioned for his belief that missionaries, as opposed to mercenaries, make the best products.
• Buffett prioritizes passion, honesty, and a love for the business over money when considering hires.
• This approach is aimed at ensuring alignment with the company's mission and values.

"Do they love the business or do they love the money? This is the first filter."

Buffett's quote establishes the fundamental criterion for evaluating potential hires, emphasizing the importance of intrinsic motivation.

• The speakers discuss the challenge of changing company culture.
• They emphasize the value of autonomy for managers and the avoidance of micromanagement.
• Berkshire Hathaway's operational philosophy is to run businesses autonomously and avoid bureaucratic complexities.

"We try to provide an environment for them, meaning the managers and the CEOs of their businesses, which is exactly like we'd want if we were running a business."

The quote illustrates the speakers' hands-off management approach, which is based on trust and respect for the autonomy of individual managers.

• Warren Buffett describes his competitive advantage as a buyer of businesses.
• He emphasizes the importance of keeping promises and granting autonomy to acquired businesses.
• Buffett's strategy involves being the preferred buyer for family-owned businesses that care about their legacy.

"Our long avowed goal is to be the buyer of choice for businesses, particularly those built and owned by families."

Buffett's quote reveals his strategic goal of being the top choice for sellers who value the future of their businesses post-sale.

• Buffett and Munger highlight the importance of addressing problems promptly.
• Munger's quick decision-making ability is touted as a key asset.
• They discourage wasting time on futile arguments and emphasize the unpredictability of future opportunities.

"When a problem exists, whether it's in personnel or in business operations, the time to act is now."

Buffett's quote stresses the urgency of tackling issues as soon as they arise to prevent escalation.

• Munger expresses skepticism about rigid master planning.
• Buffett and Munger prefer a flexible approach, focusing on durable competitive advantages and attractive pricing.
• They value a simple, adaptable strategy over complex strategic plans.

"We do have a few advantages, perhaps the greatest being that we don't have a strategic plan."

Buffett's quote conveys the advantage of not being constrained by a fixed strategic plan, allowing for adaptability and responsiveness.

• Buffett acknowledges the difficulty of changing people's behavior.
• They prefer to work with individuals whose values align with their own rather than attempting to change others.

"We don't try to change people. It doesn't work well. We accept people the way they are."

Buffett's quote recognizes the limitations of persuasion and the practicality of acceptance in professional relationships.

• Charlie Munger values the practice of explaining the reasons behind orders.
• He references Carl Braun's rule requiring explanations for directives, emphasizing the importance of understanding the 'why'.

"You had to tell who was to do what, where, when, and why."

The quote from Carl Braun, as cited by Munger, encapsulates the essential elements of effective communication in giving instructions.

• Munger's theory suggests that explaining ideas to an unresponsive listener, like an orangutan, can improve decision-making.
• The act of verbalizing thoughts helps to organize and clarify them.

"There's something about smart people explaining ideas to an orangutan that makes their decision making better."

The quote captures the essence of Munger's theory that the process of articulation enhances cognitive clarity.

• Munger discusses the challenges associated with maintaining sanity after achieving extreme success.
• The emphasis is on the psychological impact of wealth and the importance of staying grounded.

"The problem is not getting rich, Munger says. It is staying sane."

Munger's quote highlights the often-overlooked challenge of managing the personal ramifications of wealth.

• Buffett draws a parallel between interest rates and gravity's effect on asset prices.
• He explains the sensitivity of asset values to interest rates and their role in the economic universe.

"Interest rates are to asset prices sort of like gravity is to an apple."

Buffett's quote simplifies the complex relationship between interest rates and asset valuations, likening it to a fundamental force of nature.

• Buffett advises holding on to wonderful businesses due to their rarity.
• He discusses the learning experience from owning Sees Candy and the value of powerful brands.

"Wonderful businesses are so rare. So if you get into a wonderful business, do not leave it."

Buffett's quote advises cherishing and maintaining association with high-quality businesses for long-term success.

• Buffett speaks on the futility of overanalyzing decisions when the opportunity is clearly advantageous.
• He advocates for a range-based approach rather than seeking precise numbers.

"Working with a range of possibilities is the better approach."

Buffett's quote suggests that a flexible, range-based approach to analysis is more practical than seeking exact precision.

• Peter Bevelin highlights the importance of learning through behavior change rather than mere memorization.
• Warren Buffett and Charlie Munger express skepticism about changing people's ways of thinking but emphasize the importance of sharing their personal calculus.
• True learning is evidenced by a change in behavior and application of knowledge in real-world scenarios.
• The ability to learn from others' experiences offers a significant advantage.

"Charlie and I do not expect to win you over to our way of thinking. We've observed enough human behavior to know the futility of that. But we do want you to be aware of our personal calculus."

This quote underscores Buffett and Munger's understanding that while they cannot expect to change everyone's mindset, they can share their reasoning and decision-making processes.

• Discusses the irrational behavior witnessed in bull markets and the importance of staying rational.
• Emphasizes being opportunity-driven rather than adhering to a fixed master plan.
• The unpredictability of markets is tied to the unchanging nature of human behavior.
• Opportunity-driven strategies can be more effective than rigid planning.

"Wall Street never changes. The pockets change, the suckers change, the stocks change. But Wall Street never changes because human nature never changes."

This quote by Munger highlights the constant nature of Wall Street, driven by the unchanging aspects of human behavior, and implies that recognizing this can be advantageous.

• The value of personal mottos in guiding behavior and decision-making is discussed.
• Notable figures like Stan Lee and Teddy Roosevelt are mentioned for their memorable mottos.
• The theme of action and courage is emphasized, with Munger advising not to be too timid in life.

"Do not be too timid. Go at life with a little courage."

Munger's advice reflects the importance of taking decisive action and facing life's challenges boldly.

• Extreme focus and frugality are identified as twin themes in entrepreneurship history.
• Warren Buffett highlights the competitive advantage of cost-consciousness in business.
• The discussion includes the idea that businesses with the same product can differ vastly based on cost management.

"One of the best moats in many respects, is to be a low-cost producer."

Buffett's quote illustrates that being a low-cost producer can create a significant competitive advantage, likening it to a moat around a business.

• Warren Buffett and Jeff Bezos are cited discussing the importance of customer satisfaction.
• The ability to introduce new items to a base of satisfied customers is a powerful business advantage.
• Buffett acknowledges Amazon's potential impact on various businesses due to its customer focus.

"Nobody that's ever taken good care of the customer has ever lost."

Buffett's quote emphasizes the fundamental principle that prioritizing customer satisfaction is key to business success.

• Buffett and Munger share insights on evaluating competitors and identifying industry leaders.
• Questions about nightmares, silver bullets, and investment bets are used to gauge competitive positions.
• Understanding competitors' strengths and weaknesses can provide valuable industry insights.

"If you had a silver bullet and you could put it through the head of one competitor, which competitor and why?"

Buffett's hypothetical question is a tool for identifying the strongest competitor in an industry.

• Munger and Buffett stress the importance of continuous learning and self-improvement.
• They caution against the complacency that can come with success.
• Maintaining a competitive edge requires a relentless focus on customer satisfaction and cost management.

"Successful places tend to get bloated, fat, complacent. It's the nature of human life."

Munger's quote warns of the dangers of complacency in successful companies, suggesting that it can lead to a decline in competitiveness.

• Discusses the significance of passion in achieving success.
• Buffett uses the story of Eddie Bennett to illustrate the benefits of working with high achievers.
• The concept of aligning oneself with winners is presented as a strategy for success.

"To be a winner, work with winners."

Buffett's quote encapsulates the idea that associating with successful individuals can contribute to one's own success.

• Buffett and Munger discuss the role of talent and light competition in achieving unusual records.
• Competence is relative, and excelling often involves competing against less capable individuals.
• Continuous practice and learning are crucial for staying competitive.

"One of the secrets of life is weak competition."

Munger's quote suggests that finding areas with less intense competition can lead to greater success.

• Buffett and Munger dismiss the utility of economic forecasting and market predictions.
• They emphasize focusing on the fundamentals of being in a good business with good people.
• The history of business demonstrates the impermanence of success, reinforcing the need for continuous learning.

"Forming macro opinions or listening to the macro or market predictions of others is a waste of time."

Buffett's quote reflects his belief that macroeconomic predictions are not useful and that focus should remain on the core aspects of the business.