You need a different checklist and different mental models for different companies. I can never make it eary by saying, ‘Here are three things.’ You have to derive it yourself to ingrain it in your head for the rest of your life.” —Munger
Today I finished reading the great book Poor Charlie’s Almanack – The Wit and Wisdom of Charles T. Munger.
I have read all of the talks included in the book earlier, but re-reading them is a true pleasure.
Listening to what Schopenhauer had to say about good books, I think I might pick it up again once or twice.
“Any book, which is at all important, should be reread immediately.” —Arthur Schopenhauer
In the book, Charlie talks about the importance of having different checklists and using them properly when making decisions in different situations.
This to avoid making foolish judgmental mistakes.
“No wise pilot, no matter how great his talent and experience, fails to use his checklist.”
In keeping with our intent to observe “how he seems to do it,” we will recap his approach by using the “checklist” methodology he advocates. (For Charlie’s own words of wisdom on the value and importance of checklists, see Talk Five and page 320.)
The following principles are not employed by Charlie on a one-by-one or one-time fashion as the checklist format might seem.
They can’t be easily prioritized by apparent or relative importance. Rather, each must be considered as part of the complex whole or gestalt of the investment analysis process, in much the same way that an individual tile is integral to the larger mosaic in which it appears.
1. Risk—All investment evaluations should begin by measuring risk, especially reputational
2. Independence—“Only in fairy tales are emperors told they are naked”
3. Preparation—“The only way to win is to work, work, work, work, and hope to have a few insights”
4. Intellectual humility—Acknowledging what you don’t know is the dawning of wisdom
5. Analytic rigor—Use of the scientific method and effective checklists minimizes errors and omissions
6. Allocation—Proper allocation of capital is an investor’s number one job
7. Patience—Resist the natural human bias to act
8. Decisiveness—When proper circumstances present themselves, act with decisiveness and conviction
9. Change—Live with change and accept un-removable complexity
10. Focus—Keep things simple and remember what you set out to do
Since humans began investing, they have been searching for a magic formula or easy recipe for instant wealth.
Charlie’s superior performance doesn’t come from a magic formula or business-school-inspired system.
It comes from his “constant search for better methods of thought,” a willingness to “prepay” through rigorous preparation, and from the extraordinary outcomes of his multidisciplinary research model.
In the the end, it comes down to Charlie’s most basic guiding principles, his fundamental philosophy of life: Preparation. Discipline. Patience. Decisiveness.
Each attribute is in turn lost without the other, but together they form the dynamic critical mass for a cascading of positive effects for which Munger is famous (the “lollapalooza” ).
Finally, a word or two on why this overview of Charlie’s investment philosophy has focused so much on the subject of “what to buy” and so little on “when to sell.” ‘the answer, in Charlie’s own words, serves as a wonderful summation of the “Munger School” of highly-concentrated, focused investing described here:
“We’re partial to putting out large amounts of money where we won’t make another decision. If you buy something because it’s undervalued, then you have to think about selling it when it approaches your calculation if its intrinsic value. That’s hard. But, if you can buy a few, great companies, then you can sit on ass. That’s a good thing.”
Like his hero, Benjamin Franklin, Charlie Munger painstakingly developed and perfected unique approaches to personal and business endeavors.
Through these methods, and the development and maintenance of sound, lifelong habits, he has achieved extraordinary success.
https://www.oldschoolvalue.com/blog/investing-perspective/charlie-munger-investing-principles-checklist/
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