take-aways

• This book is designed to help you make better decisions, invest better and get a better understanding of life through mastering basic truths, human nature and core principles from a wide range of disciplines
• Munger’s values - lifelong learning, perseverance, intellectual curiosity, sobriety, avoidance of envy and resentment, reliability, learning from the mistakes of others, objectivity, willingness to test one’s own beliefs and many more
• Successful investing is simply a byproduct of his carefully organized and focused approach to life
• Looks at both internal workings as well as larger, integrated “ecosystem” in which it operates before investing - must use multiple mental models in broad fields such as history, psychology, physiology, math, engineering, biology, physics, chemistry, statistics, economics and so on. Enables Charlie to reduce the inherent chaos and

confusion of a complex investment problem into a clarified set of fundamentals. Everything is linked and interconnected

• Knowing what to avoid more important than making great decisions
• Judge yourself by your preparation and decision making, not by the outcome
• “We try more to profit from always remembering the obvious than from grasping the esoteric. It is remarkable how much long term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
• Learn vicariously from others mistakes as much as possible
• People don’t think about the consequences of the consequences. So important to consider these secondary and tertiary effects
• Getting the incentives right is a very, very important lesson.
• In a career look for 3 things - don’t sell anything you wouldn’t buy yourself, don’t work for anyone you don’t respect of admire, work only with people you enjoy
• Learning how to “invert” problems/decisions cannot be more important. Figure out exactly what you don’t want to happen and avoid those things at all costs
• Psychology may be the most important mental model to grasp. The misery-caused mental misdirection and incentives should both be highlighted
• Lollapalooza effects, very big effects, tend to only come from large combinations of factors
• If you can get really good at destroying your own wrong ideas, that is a great gift
• The acquisition of wisdom is a moral duty.
• “I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition.”
• Independence is the end that wealth serves for Charlie, not the other way around
• Focus on the task immediately in front of you and control spending
• Munger a big fan of Cicero - lifelong learning, get better with old age, patience and no complaining
• Do the job right the first time no matter how small and be responsible
• Munger able to focus completely on the task at hand - zoning out anything else going on around him
• Values durability, ritual and tradition (Brooks Brothers)
• In anything he does, he wants to understand and get to the bottom of everything - whether he’s interested in it or not
• Find out what you’re best at and keep pounding away at it
• Many of these mental models are self taught - part of the reason he considers Ben Franklin a role model of his
• “Simplicity is the end of long, hard work, not the starting point.” - Frederick Maitland
• Makes only a handful of very large bets when he is very sure and it falls within his circle of competence
• Attempts to understand beyond all else a company’s competitive advantage and its durability - it’s “moat”
• A great business at a fair price is superior to a fair business at a great price
• Far more time is dedicated to reading and thinking than doing
• His most basic guiding principles, his fundamental philosophy of life: preparation, discipline, patience, decisiveness
• Honesty and integrity are vital and in the long run pay amazing dividends
• “I would argue passion is more important then brainpower.”
• “I think it’s dangerous to rely on special talents - it’s better to own lots of monopolistic businesses with unregulated prices.”
• “It’s [their investment approach] is not difficult, but it looks difficult because it’s unconventional.”
• Temperament is extremely important. But so too is being aggressive when it’s time.
• “Our game is to recognize a big idea when it comes along, when one doesn’t come along very often. Opportunity comes to the prepared mind.”
• “Beta and modern portfolio theory and the like - none of it makes any sense to me. We’re trying to buy business with sustainable competitive advantages at a low, or even a fair, price.”
• “…there are some things you should pay up for, like quality businesses and people.”
• Learn to take criticism constructively and learn from it.
• The biggest mistakes they’ve made at Berkshire have been mistakes of omission.
• Munger advises that if you’re young, go work with very small stocks, searching for unusual mid priced opportunities but warns that it’s such a small world
• Don’t utilize the popular cost of capital - they measure every investment against the alternatives
• ”The ethos of not fooling yourself is one of the best you could possibly have. It’s powerful because it’s so rare.”
• “Organized common (or uncommon) sense - very basic knowledge - is an enormously powerful tool…Part of [having uncommon sense] is being able to tune out folly, as opposed to recognizing wisdom. If you bat away many things, you don’t clutter yourself.”
• If your behavior brings some unpopularity with your peer group, then the hell with them

Psychological Tendencies from “The Psychology of Human Misjudgment” and mental models

• Reward and Punishment Superresponse Tendency

  • “Never, ever, think about something else when you should be thinking about the power of incentives.”

  • “We should also heed the general lesson implicit in the injunction of Ben Franklin in Poor Richard’s Almanack: ‘If you would persuade, appeal to interest and not to reason.‘”

  • Incentives & Perverse Incentives:

    • “As usual in human affairs, what determines the behavior are incentives for the decision maker … getting the incentives right is a very, very important lesson … Appeal to interest and not to reason if you want to change conclusions … Another thing to avoid is being subjected to perverse incentives. You don’t want to be in a perverse incentive system that’s rewarding you if you behave more and more foolishly, or worse and worse. Perverse incentives are so powerful as controllers of human cognition and human behavior that one should avoid their influence.”

  • Incentive-Caused Bias:

    • “A natural cognitive drift toward the conclusion that what is good for the professional is good for the client and the wider civilization.”

  • Prompt rewards much more effective than delayed rewards in changing and maintaining behavior

  • Incentive-caused bias - man slowly drifts into immoral behavior in order to get what he wants if the incentives are improper. Man can rationalize anything

    • Should often distrust or at least take with a grain of salt whatever is being sold to you when the salesman has a lot to gain

  • Behavior, whether good or bad, is intensely habit-forming when it is rewarded. Make sure you reward what you want

  • Man “games” every system he can - avoid as much as possible rewarding people for what can easily be faked

  • Granny’s rule - first do the unpleasant and necessary tasks before rewarding yourself by proceeding to the pleasant tasks

• Liking/Loving Tendency

  • “Man will generally strive, lifelong, for the affection and approval of many people not related to him.”
  • “What will a man naturally come to like and love, apart from his parent, spouse and child? Well, he will like and love being liked and loved.”
  • “One very practical consequence of Liking/ Loving Tendency is that it acts as a conditioning device that makes the liker or lover tend (1) to ignore faults of, and comply with wishes of, the object of his affection, (2) to favor people, products, and actions merely associated with the object of his affection (as we shall see when we get to ‘Influence-from-Mere-Association Tendency,’ and (3) to distort other facts to facilitate love.”
  • “The phenomenon of liking and loving causing admiration also works in reverse. Admiration also causes or intensifies liking or love. With this ‘feedback mode’ in place, the consequences are often extreme, sometimes even causing deliberate self-destruction to help what is loved.”

• Disliking/Hating Tendency

  • “In a pattern obverse to Liking/Loving Tendency, the newly arrived human is also ‘born to dislike and hate’ as triggered by normal and abnormal triggering forces in its life.”
  • “Disliking/Hating Tendency also acts as a conditioning device that makes the disliker/hater tend to (1) ignore virtues in the object of dislike, (2) dislike people, products, and actions merely associated with the object of his dislike, and (3) distort other facts to facilitate hatred.”

• Doubt-Avoidance Tendency

  • “The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision.”
  • “What triggers Doubt-Avoidance Tendency? Well, an unthreatened man, thinking of nothing in particular, is not being prompted to remove doubt through rushing to some decision. As we shall see later when we get to Social-Proof Tendency and Stress-Influence Tendency, what usually triggers Doubt-Avoidance Tendency is some combination of (1) puzzlement and (2) stress.”
  • Institute a “delay before decision” rule into your life and you will thank yourself over and over

• Inconsistency-Avoidance Tendency

  • “The rare life that is wisely lived has in it many good habits maintained and many bad habits avoided or cured. And the great rule that helps here is again from Franklin’s Poor Richard’s Almanack: ‘An ounce of prevention is worth a pound of cure.’ What Franklin is here indicating, in part, is that Inconsistency-Avoidance Tendency makes it much easier to prevent a habit than to change it.”

  • “Also tending to be maintained in place by the anti-change tendency of the brain are one’s previous conclusions, human loyalties, reputational identity, commitments, accepted role in a civilization, etc.”

  • “People tend to accumulate large mental holdings of fixed conclusions and attitudes that are not often reexamined or changed, even though there is plenty of good evidence that they are wrong.”

  • We have a reluctance to change, which is a form of inconsistency avoidance. Eliminating bad habits is a rare trait.

  • Form good habits as early as possible

  • Also tend to be maintained in place - previous conclusions, human loyalties, reputational identity, commitments, accepted role in a civilization, etc.

  • Consider skillful counterarguments to any position you hold before making a decisions

  • Must intensively consider any evidence tending to disconfirm any hypothesis you might have, especially one you think is particularly good

• Curiosity Tendency

  • “In advanced human civilization, culture greatly increases the effectiveness of curiosity in advancing knowledge.”
  • “Curiosity, enhanced by the best of modern education (which is by definition a minority part in many places), much helps man to prevent or reduce bad consequences arising from other psychological tendencies. The curious are also provided with much fun and wisdom long after formal education has ended.”

• Kantian Fairness Tendency

  • “Kant was famous for his ‘categorical imperative,’ a sort of a ‘golden rule’ that required humans to follow those behavior patterns that, if followed by all others, would make the surrounding human system work best for everybody.”
  • Tolerating a little unfairness should be okay if it means a greater fairness for all. The example Munger uses is letting in other drivers on the freeway knowing they will reciprocate in the future.

• Envy/Jealousy Tendency

  • “Envy/jealousy is extreme in myth, religion, and literature wherein, in account after account, it triggers hatred and injury.”
  • “My guess is that people widely and generally sense that labeling some position as driven by envy/ jealousy will be regarded as extremely insulting to the position taker, possibly more so when the diagnosis is correct than when it is wrong. And if calling a position ‘envy-driven’ is perceived as the equivalent of describing its holder as a childish mental basket case, then it is quite understandable how a general taboo has arisen.”
  • “It is not greed that drives the world, but envy.” - Warren Buffett
  • So much of what we do and how we react is driven by envy/jealous but it has become such a taboo that even though it is so ubiquitous, it is rarely talked about and is even left out of most psychology textbooks.

• Reciprocation Tendency

  • “The automatic tendency of humans to reciprocate both favors and disfavors has long been noticed as extreme … The tendency clearly facilitates group cooperation for the benefit of members.”
  • “What both human and ant history suggest is (1) that nature has no general algorithm making intraspecies, turn-the-other-cheek behavior a booster of species survival, (2) that it is not clear that a country would have good prospects were it to abandon all reciprocate-disfavor tendency directed at outsiders, and (3) if turn-the-other-cheek behavior is a good idea for a country as it deals with outsiders, man’s culture is going to have to do a lot of heavy lifting because his genes won’t be of much help.”
  • “Like other psychological tendencies, and also man’s ability to turn somersaults, reciprocate-favor tendency operates to a very considerable degree at a subconscious level. This helps make the tendency a strong force that can sometimes be used by some men to mislead others, which happens all the time.”
  • “The standard antidote to one’s overactive hostility is to train oneself to defer reaction.”
  • Reciprocation is built into us that it often operates at a subconscious level, allowing others to easily mislead us if they want to
    • If you want to protect yourself as much as possible, avoid favors, especially from vendors, at all costs
  • Guilt is caused by wanting to be consistent and reciprocate but also being pulled in the opposite direction by the reward super response tendency

• Influence-from-Mere-Association Tendency

  • “The most damaging miscalculations from mere association do not ordinarily come from advertisers and music providers. Some of the most important miscalculations come from what is accidentally associated with one’s past success, or one’s liking and loving, or one’s disliking and hating, which includes a natural hatred for bad news.”
  • “People disagree about how much blindness should accompany the association called love. In Poor Richard’s Almanack Franklin counseled: ‘Keep your eyes wide open before marriage and half shut thereafter.’ Perhaps this ‘eyes-half-shut’ solution is about right, but I favor a tougher prescription: ‘See it like it is and love anyway.‘”
  • “The proper antidote to creating Persian Messenger Syndrome and its bad effects is to develop, through exercise of will, a habit of welcoming bad news.”
  • “A final serious clump of bad thinking caused by mere association lies in the common use of classification stereotypes.”
  • We can be easily manipulated by mere association. It can be a group of people, the quality of a product, advertising, etc.
  • “some of the most important miscalculations come from what is accidentally associated with one’s past success, or one’s liking and loving, or one’s disliking and hating, which includes a natural hatred for bad news.”
  • Carefully examine each past success, looking for accidental, non-causative factors associated with the success that might mislead you to making correlative assumptions and look for dangerous aspects of the new undertaking that were not present when past success occurred
  • Hating and disliking cause equally many miscalculations based on mere association
    • Undervalue the competency and morals of people/businesses/products you dislike
  • Must develop a habit of welcoming bad news in order to live in reality
  • Be cautious of using classification stereotypes to judge others

• Simple, Pain-Avoiding Psychological Denial

  • “The reality is too painful to bear, so one distorts the facts until they become bearable.”
  • “We all do that to some extent, often causing terrible problems. The tendency’s most extreme outcomes are usually mixed up with love, death, and chemical dependency.”
  • “In chemical dependency, wherein morals usually break down horribly, addicted persons tend to believe that they remain in respectable condition, with respectable prospects. They thus display an extremely unrealistic denial of reality as they go deeper and deeper into deterioration.”

• Excessive Self-Regard Tendency

  • “We all commonly observe the excessive self-regard of man. He mostly misappraises himself on the high side.”
  • “Even man’s minor possessions tend to be overappraised. Once owned, they suddenly become worth more to him than he would pay if they were offered for sale to him and he didn’t already own them. There is a name in psychology for this overappraise-your-own-possessions phenomenon: the ‘endowment effect.’ And all man’s decisions are suddenly regarded by him as better than would have been the case just before he made them.”
  • “Excessive Self-Regard Tendency diminishes the foolish bettor’s accuracy in appraising his relative degree of talent.”
  • “There is a famous passage somewhere in Tolstoy that illuminates the power of Excessive Self-Regard Tendency. According to Tolstoy, the worst criminals don’t appraise themselves as all that bad. They come to believe either (1) that they didn’t commit their crimes or (2) that, considering the pressures and disadvantages of their lives, it is understandable and forgivable that they behaved as they did and became what they became.”
  • “The best antidote to folly from an excess of self-regard is to force yourself to be more objective when you are thinking about yourself, your family and friends, your property, and the value of your past and future activity. This isn’t easy to do well and won’t work perfectly, but it will work much better than simply letting psychological nature take its normal course.”
  • We all think we’re above average. This is where overconfidence comes from. Also tend to over-appraise our belongings (endowment effect)
    • If allow people to personalize anything (choose own numbers in the lottery, make own speculative bet) they will believe much more whole-heartedly that they will win
  • The greatest type of pride should be taking pride in being trustworthy to avoid developing an ego
  • Tend to like people more who are similar to ourselves and this leads to cliques
  • Underweight face-to-face encounters and overweight an applicant’s past record. The past is the strongest indicator of future results
  • Fixable but unfixed bad performance is bad character and tends to create more of itself
  • Do not give excuses, simply perform and behave as you should
  • “Of all forms of pride, perhaps the most desirable is a justified pride in being trustworthy.”

• Overoptimism Tendency

  • “Man displays not only Simple, Pain-Avoiding Psychological Denial but also an excess of optimism even when he is already doing well … an excess of optimism being the normal human condition, even when pain or the threat of pain is absent.”
  • “One standard antidote to foolish optimism is trained, habitual use of the simple probability math of Fermat and Pascal, taught in my youth to high school sophomores.”

• Deprival-Superreaction Tendency

  • “I include the natural human reactions to both kinds of loss experience—the loss of the possessed reward and the loss of the almost-possessed reward—under one description, Deprival-Superreaction Tendency.”

  • “The quantity of man’s pleasure from a ten-dollar gain does not exactly match the quantity of his displeasure from a ten-dollar loss. That is, the loss seems to hurt much more than the gain seems to help. Moreover, if a man almost gets something he greatly wants and has it jerked away from him at the last moment, he will react much as if he had long owned the reward and had it jerked away.”

  • “In displaying Deprival-Superreaction Tendency, man frequently incurs disadvantage by misframing his problems. He will often compare what is near instead of what really matters.”

  • “A man ordinarily reacts with irrational intensity to even a small loss, or threatened loss, of property, love, friendship, dominated territory, opportunity, status, or any other valued thing.”

  • “It is almost everywhere the case that extremes of ideology are maintained with great intensity and with great antipathy to non-believers, causing extremes of cognitive dysfunction. This happens, I believe, because two psychological tendencies are usually acting concurrently toward this same sad result: (1) Inconsistency-Avoidance Tendency, plus (2) Deprival-Superreaction Tendency.”

  • Loss aversion - having something taken away hurts more than being given something feels good

    • Applies to things we already possess and those things we nearly possess
    • Applies to property, love, friendship, territory, opportunity, status, anything that is valued

  • One antidote to intense, deliberate maintenance of groupthink is an extreme culture of courtesy, kept in place despite ideological differences (Supreme Court) and the other is to deliberately bring in able and articulate disbelievers (devil’s advocates)

• Social-Proof Tendency

  • “An automatic tendency to think and act as man sees others around him thinking and acting.”
  • “Triggering most readily occurs in the presence of puzzlement or stress, and particularly when both exist.”
  • “Because both bad and good behavior are made contagious by Social-Proof Tendency, it is highly important that human societies (1) stop any bad behavior before it spreads and (2) foster and display all good behavior.”
  • “In social proof, it is not only action by others that misleads but also their inaction. In the presence of doubt, inaction by others becomes social proof that inaction is the right course.”
  • “Social-Proof Tendency often interacts in a perverse way with Envy/Jealousy and Deprival-Superreaction Tendency.”
  • One of the most important skills you can foster is learning to ignore the examples of others when they are wrong
  • “Another advantage of scale comes from psychology. The psychologists use the term ‘social proof.’ We are all influenced—subconsciously and, to some extent, consciously—by what we see others do and approve.”

• Contrast-Misreaction Tendency

  • “Because the nervous system of man does not naturally measure in absolute scientific units, it must instead rely on something simpler. The eyes have a solution that limits their programming needs: the contrast in what is seen is registered. And as in sight, so does it go, largely, in the other senses. Moreover, as perception goes, so goes cognition. What we see tends to be what we believe. The result is man’s Contrast-Misreaction Tendency.”
  • “Contrast-Misreaction Tendency is routinely used to cause disadvantage for customers buying merchandise and services. To make an ordinary price seem low, the vendor will very frequently create a highly artificial price that is much higher than the price always sought, then advertise his standard price as a big reduction from his phony price.
  • when something crappy is compared to something even crappier, it seems less crappy.
  • “When a man’s steps are consecutively taken toward disaster, with each step being very small, the brain’s Contrast-Misreaction Tendency will often let the man go too far toward disaster to be able to avoid it. This happens because each step presents so small a contrast from his present position.”

• Stress-Influence Tendency

  • “Everyone recognizes that sudden stress, for instance from a threat, will cause a rush of adrenaline in the human body, prompting faster and more extreme reaction. And everyone who has taken Psych 101 knows that stress makes Social-Proof Tendency more powerful.”
  • “In a phenomenon less well recognized but still widely known, light stress can slightly improve performance—say, in examinations—whereas heavy stress causes dysfunction.”
  • “But few people know more about really heavy stress than that it can cause depression. For instance, most people know that an ‘acute stress depression’ makes thinking dysfunctional because it causes an extreme of pessimism, often extended in length and usually accompanied by activity-stopping fatigue.”
  • Pavlov found that he could classify dogs to predict how easily they would breakdown, the dogs hardest to break were also the hardest to return to pre-breakdown state, any dog could be broken and he couldn’t reverse a breakdown without reimposing stress

• Availability-Misweighing Tendency

  • “Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it. And the brain can’t use what it can’t remember or what it is blocked from recognizing because it is heavily influenced by one or more psychological tendencies bearing strongly on it. And so the mind overweighs what is easily available and thus displays Availability-Misweighing Tendency.”
  • “One consequence of this tendency is that extra-vivid evidence, being so memorable and thus more available in cognition, should often consciously be underweighed while less vivid evidence should be overweighed.”
  • “The great algorithm to remember in dealing with this tendency is simple: An idea or a fact is not worth more merely because it is easily available to you.”
  • Checklists or a set of rules can help with this tendency.
  • Embrace disconfirming evidence
  • Surround yourself with people who are skeptical and who oppose your views

• Use-It-or-Lose-It Tendency

  • “All skills attenuate with disuse.”
  • “Throughout his life, a wise man engages in practice of all his useful, rarely used skills, many of them outside his discipline, as a sort of duty to his better self. If he reduces the number of skills he practices and, therefore, the number of skills he retains, he will naturally drift into error from man with a hammer tendency.”
  • “The hard rule of Use-It-or-Lose-It Tendency tempers its harshness for the diligent. If a skill is raised to fluency, instead of merely being crammed in briefly to enable one to pass some test, then the skill (1) will be lost more slowly and (2) will come back faster when refreshed with new learning. These are not minor advantages, and a wise man engaged in learning some important skill will not stop until he is really fluent in it.”
  • Consistently practice skills that you can’t afford to lose
  • Create checklists to routinely use
  • If you truly understand the skill, instead of just cramming it in, you will lose it

more slowly and it will come back quicker when refreshed

• Drug-Misinfluence Tendency

  • “This tendency’s destructive power is so widely known to be intense, with frequent tragic consequences for cognition and the outcome of life, that it needs no discussion here to supplement that previously given under Simple, Pain-Avoiding Psychological Denial.”
  • Avoid drugs at all costs

• Senescence-Misinfluence Tendency

  • “With advanced age, there comes a natural cognitive decay, differing among individuals in the earliness of its arrival and the speed of its progression.”
  • “Practically no one is good at learning complex new skills when very old. But some people remain pretty good in maintaining intensely practiced old skills until late in life.”
  • “Continuous thinking and learning, done with joy, can somewhat help delay what is inevitable.”

• Authority-Misinfluence Tendency

  • “Living in dominance hierarchies as he does, like all his ancestors before him, man was born mostly to follow leaders, with only a few people doing the leading. And so, human society is formally organized into dominance hierarchies, with their culture augmenting the natural follow-the-leader tendency of man.”
  • “But automatic as most human reactions are, with the tendency to follow leaders being no exception, man is often destined to suffer greatly when the leader is wrong or when his leader’s ideas don’t get through properly in the bustle of life and are misunderstood. And so, we find much miscognition from man’s Authority-Misinfluence Tendency.”
  • Be careful who you put in power because they will be hard to remove and have a

lot of influence over their followers

• Twaddle Tendency

  • “Man, as a social animal who has the gift of language, is born to prattle and to pour out twaddle that does much damage when serious work is being attempted.”
  • “Some people produce copious amounts of twaddle and others very little.”
  • “It’s a very important part of wise administration to keep prattling people, pouring out twaddle, far away from the serious work.”

• Reason-Respecting Tendency

  • “This tendency has an obvious implication. It makes man especially prone to learn well when a would-be teacher gives correct reasons for what is taught, instead of simply laying out the desired belief ex cathedra with no reasons given. Few practices, therefore, are wiser than not only thinking through reasons before giving orders but also communicating these reasons to the recipient of the order.”
  • “Unfortunately, Reason-Respecting Tendency is so strong that even a person’s giving of meaningless or incorrect reasons will increase compliance with his orders and requests.”
  • Few practices are wiser than not only thinking through reasons before giving orders but also communicating these reasons to the recipient of the order
  • Must tell Who was to do What, Where, When and Why
  • Continuously ask “Why?” of everything and everyone
  • Reasons, even poor/meaningless reasons, will increase compliance in others
  • Some people just want the answers, not the reasons or a better understanding.

• Lollapalooza Tendency

  • “The tendency to get extreme consequences from confluences of psychology tendencies acting in favor of a particular outcome.”
  • “This tendency was not in any of the psychology texts I once examined, at least in any coherent fashion, yet it dominates life.
  • “The most important thing to keep in mind is the idea that especially big forces often come out of these one hundred models. When several models combine, you get lollapalooza effects; this is when two, three, or four forces are all operating in the same direction. And, frequently, you don’t get simple addition. It’s often like a critical mass in physics where you get a nuclear explosion if you get to a certain point of mass—and you don’t get anything much worth seeing if you don’t reach the mass. Sometimes the forces just add like ordinary quantities and sometimes they combine on a breakpoint or critical-mass basis … Really big effects, lollapalooza effects, will often come only from large combinations of factors (factors which reinforce and greatly amplify each other).”

• Inversion:

  • “‘Invert, always invert,’ Jacobi said. He knew that it is in the nature of things that many hard problems are best solved when they are addressed backward … It is not enough to think problems through forward. You must also think in reverse.”

• Circle of Competence:

  • “You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence … Rise quite high in life by slowly developing a circle of competence—which results partly from what they were born with and partly from what they slowly develop through work … In effect, you’ve got to know what you know and what you don’t know. What could possibly be more useful in life than that?”

• Compound Interest:

  • “Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.”

• Opportunity Cost:

  • “Opportunity cost is a superpower, to be used by all people who have any hope of getting the right answer.”

• Competitive Destruction:

  • “When technology moves as fast as it does in a civilization like ours, you get a phenomenon that I call competitive destruction. You know, you have the finest buggy whip factory, and, all of a sudden, in comes this little horseless carriage.”

• Surfing:

  • “When these new businesses come in, there are huge advantages for the early birds. And when you’re an early bird, there’s a model that I call ‘surfing’—when a surfer gets up and catches the wave and just stays there, he can go a long, long time.”

• Advantages of Scale:

  • “The very nature of things is that if you get a whole lot of volume through your operation, you get better at processing that volume. That’s an enormous advantage … Being so well known has advantages of scale—what you might call an informational advantage … Occasionally, scaling down and intensifying gives you the big advantage. Bigger is not always better … The great defect of scale, of course, which makes the game interesting—so that the big people don’t always win—is that as you get big, you get the bureaucracy. And with the bureaucracy comes the territoriality—which is again grounded in human nature.”

• Man-with-a-Hammer Tendency:

  • “To a man with only a hammer, every problem tends to look pretty much like a nail.”

• Five Ws:

  • “The five Ws—you had to tell who was going to do what, where, when, and why … If you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply. Even if they don’t understand your reason, they’ll be more likely to comply.”

• Not Fooling Yourself:

  • “It is, of course, irritating that extra care in thinking is not all good but also introduces extra error. But most good things have undesired ‘side effects,’ and thinking is no exception. The best defense is that of the best physicists, who systematically criticize themselves to an extreme degree, using a mindset described by Nobel laureate Richard Feynman as follows: ‘The first principle is that you must not fool yourself, and you’re the easiest person to fool.‘”

• Disconfirming Evidence:

  • “Darwin paid special attention to disconfirming evidence, particularly when it disconfirmed something he believed and loved. Routines like that are required if a life is to maximize correct thinking … If you can get really good at destroying your own wrong ideas, that is a great gift.”

• Deserve What You Want:

  • “The safest way to try to get what you want is to try to deserve what you want. It’s such a simple idea. It’s the golden rule. You want to deliver to the world what you would buy if you were on the other end.”

• Chauffeur Knowledge:

  • “In this world I think we have two kinds of knowledge: One is Planck knowledge, that of the people who really know. They’ve paid the dues, they have the aptitude. Then we’ve got chauffeur knowledge. They have learned to prattle the talk. They may have a big head of hair. They often have fine timbre in their voices. They make a big impression. But in the end what they’ve got is chauffeur knowledge masquerading as real knowledge.”

• Unfairness:

  • “Tolerating a little unfairness to some to get a greater fairness for all is a model I recommend to all of you.”

• Second-Order Thinking:

  • “Consequences have consequences, and the consequences of the consequences have consequences, and so on.”

• Avoid Chemicals/Addiction:

  • “While susceptibility varies, addiction can happen to any of us through a subtle process where the bonds of degradation are too light to be felt until they are too strong to be broken. And yet, I have yet to meet anyone, in over six decades of life, whose life was worsened by fear and avoidance of such a deceptive pathway to destruction.”

• Envy, Resentment, Revenge, & Self-Pity:

  • “Generally speaking, envy, resentment, revenge and self-pity are disastrous modes of thought. Self-pity can get pretty close to paranoia. And paranoia is one of the very hardest things to reverse. You do not want to drift into self-pity … The best way to avoid envy, recognized by Aristotle, is to plainly deserve the success we get.”

• Unreliability:

  • “Reliability is essential for progress in life and while quantum mechanics is unlearnable for a vast majority, reliability can be learned to great advantage by almost anyone.”

• Pavlovian Association:

  • “If people tell you what you really don’t want to hear—what’s unpleasant—there’s an almost automatic reaction of antipathy. You have to train yourself out of it.”

• Serpico Effects:

  • “If enough people are profiting in a general social climate of doing wrong, then they’ll turn on you and become dangerous enemies if you try and blow the whistle.”

• Crowd Folly:

  • “The tendency of humans, under some circumstances, to resemble lemmings, explains foolish thinking of brilliant men and much foolish behavior.”

• Reduce Material Needs:

  • “Most people will see declining returns (due to inflation). One of the great defenses if you’re worried about inflation is not to have a lot of silly needs in your life—you don’t need a lot of material goods.”

charlie’s checklist

• The Two-Track Analysis

  • What are the factors that really govern the interests involved, rationally considered? (macro and micro-level economic factors?
  • What are the subconscious influences, where the brain at a subconscious level is automatically forming conclusions? (influences from instincts, emotions, cravings and so on)

• Investing and Decision Making Checklist

  • Risk
    • all investment evaluations should begin by measuring risk, especially reputational
    • Incorporate an appropriate margin of safety
    • Avoid dealing with people of questionable character
    • Insist upon proper compensation for risk assumed
    • Always beware of inflation and interest rate exposures
    • Avoid big mistakes; shun permanent capital loss
  • Independence
    • always look for disconfirming evidence
    • Objectivity and rationality require independence of thought
    • Remember that just because other people agree or disagree with you doesn’t make you right or wrong - the only thing that matters is the correctness of your analysis and judgment
    • Mimicking the herd invites regression to the mean (merely average performance)
  • Preparation
    • the only way to win is to work, work, work and hope to have a few insights
    • Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day
    • More important than the will to win is the will to prepare
    • Develop fluency in mental models from the major academic disciplines
    • If you want to get smart, the question you have to keep asking is why, why, why?
  • Intellectual humility
    • Acknowledging what you don’t know is the dawning of wisdom
    • Stay within a well-defined circle of competence
    • Identify and reconcile disconfirming evidence
    • Resist the craving for false precision, false certainties, etc.
    • Above all, never fool yourself, and remember that you are the easiest person to fool
  • Analytic rigor
    • use of the scientific method and effective checklists minimizes errors and omissions
    • Determine value apart from price; progress apart from activity; wealth apart from size
    • It is better to remember the obvious than to grasp the esoteric
    • Be a business analyst, not a market, macroeconomic, or security analyst
    • Consider totality of risk and effect; look always at potential second order and higher level impacts
    • Think forwards and backwards - invert, always invert!
  • Allocation
    • proper allocation of capital is an investor’s number one job
    • Remember that highest and best use is always measured by the next best use (opportunity cost)
    • Good ideas are rare - when the odds are greatly in your favor, bet (allocate) heavily
    • Don’t “fall in love” with an investment -be situation-dependent and opportunity-driven
  • Patience
    • Resist the natural human bias to act
    • Compound interest is the eighth wonder of the world” - Einstein; never interrupt it unnecessarily
    • Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake
    • Be alert for the arrival of luck
    • Enjoy the process along with the proceeds, because the process is where you live
  • Decisiveness
    • when proper circumstances present themselves, act with decisiveness and conviction
    • Be fearful when others are greedy, and greedy when others are fearful
    • Opportunity doesn’t come often, so seize it when it does
    • Opportunity meeting the prepared mind: that’s the game
  • Change
    • live with change and accept unremovable complexity
    • Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you
    • Continually challenge and willingly amend your “best-loved” ideas
    • Recognize reality even when you don’t like it - especially when you don’t like it
  • Focus
    • keep things simple and remember what you set out to do
    • Remember that reputation and integrity are your most valuable assets - and can be lost in a heartbeat
    • Guard against the effects of hubris and boredom
    • Don’t overlook the obvious by drowning in minutiae
    • Be careful to exclude unneeded information or slop: “A small leak can sink a great ship”
    • Face your big troubles; don’t sweep them under the rug

• Ultra-Simple, general Problem-Solving Notions

  • Decide the big “no-brainer” questions first
  • Apply numerical fluency
  • Invert (think through the problems in reverse)
  • Apply elementary multidisciplinary wisdom, never relying entirely upon others
  • Watch for combinations of factors - the Lollapalooza Effect

Charlie’s talks

• Harvard School Commencement Speech 1986 - A Guide to Misery

  • Munger “inverts” as he often does and instead of offering tips for a happy life, offers sure fire ways to be miserable, namely - ingest chemicals, envy others, resent others, be unreliable, don’t learn from others mistakes, give up after getting knocked down one, two or three times, do not look at problems backward (do not invert), do not look for evidence that disconfirms your beliefs, don’t aim to minimize objectivity.

• A Lesson on Elementary, Worldly Wisdom As It Relates To Investment Management & Business

  • Can’t simply know isolated facts, they must hang together on a “latticework” of theory
  • Must have multiple mental models to draw upon in order to avoid the fallacy of “everything looking like a nail to the man who has a hammer.”
  • In investing, need the mental models of math, accounting, always communicate the why with yourself and others, engineering, biology/physiology, psychology (especially of misjudgment)
  • He uses a two track analysis - thinks of factors that really govern the interests involved as well as the subconscious influences
  • Microeconomics, advantages of scale are ungodly important (geometry, information advantage, social proof, specialization)
  • As you get bigger though, you also get bureaucracy and other limiting factors, Pavlovian association (dislike those who being bad news)
  • The absence of change is often the friend of investors (Wrigley’s gum…)
  • You’ve got to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence
  • “It’s not given to human beings to have such talent that they can just know everything about everything all the time. But it is a given to human beings who work hard at it - who

look and soft the world for a mispriced bet - that they can occasionally fine one. And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time they don’t. It’s just that simple.”

• Getting the incentives right is a very, very important lesson.
• The trick is getting into better businesses since over the long term you will not make a return much different than what the underlying business earns. Recommends trying to find great businesses when they’re still small - something he might do if he were young but BRK can’t do that
• Management matters but if you have to bet on business momentum or the managers, bet

on momentum

• Great companies that can raise prices but haven’t, pricing power, are no brainers. For a while, Disney was an example of this

• How Warren and Charlie evaluate a possible acquisition - “We’re light on financial yardsticks; we apply lots of subjective criteria. Can we trust management? Can it harm our reputation? What can go wrong? Do we understand the business? Does it require capital infusions to keep going? What is the expected cash flow? We don’t expect linear growth; cyclically is fine as long as the price is appropriate.”

• In a career look for 3 things - don’t sell anything you wouldn’t buy yourself, don’t work for anyone you don’t respect or admire, work only with people you enjoy.

• To cope with challenges - set expectations low, have a sense of humor, learn to live with change and adapt to it and surround yourself with the love of friends and family

• A Lesson on elementary, Worldly Wisdom, Revisited

  • Speaks again of the importance of learning and utilizing many different mental models in your decision making process
  • Heavy ideology is one of the most extreme distorters of human cognition
  • Life is one damn relatedness after another - hence, the importance of utilizing many mental models
  • Psychology may be the most important mental model to grasp. The misery-caused mental misdirection and incentives should both be highlighted
  • Must develop a mental model checklist. Having this to rely upon will save you when others are losing their minds
  • It’s much better to let some things go uncompensated - to let life be hard - than to create systems that are easy to cheat.
  • If you want to change behavior you have to change motivations
  • We simply look for no brainers…we’ve succeeded by making the world easy for ourselves, not by solving hard problems.
  • “I’m just trying to give you a method you can use to sift reality to obtain an occasional opportunity for rational reaction.”
  • Both Warren and I are very good at changing our prior conclusions. We work at developing that facility because, without it, disaster often comes
  • “I don’t want you to think we have any way of learning or behaving so you won’t make a lot of mistakes. I’m just saying that you can learn to make fewer mistakes than other people - and how to fix your mistakes faster when you do make them.”
  • “In life you’ve got to know what you know and what you don’t know. What could possibly be more useful in life than that?”
  • When you don’t have any special competence, don’t be afraid to say so
  • If you’re forced to reach a bit in your thinking, the idea gets pounded in better
  • What works best in most cases is to appeal to a man’s interests
  • The human mind is not constructed so that it works well without having reasons
  • Is there something you [Munger] are irrationally passionate about? - “yeah, I’m passionate about wisdom. I’m passionate about accuracy and some kinds of curiosity…I believe in the discipline of mastering the best that other people have figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart…”
  • Aim to make human systems as cheating-proof as possible even if it leaves some human misery unfixed

• Practical Thought about practical thought

  • The first helpful notion is that it is usually best to simplify problems by deciding big “no-brainer” questions first
  • The importance of numerical fluency cannot be overemphasized
  • Invert, always invert. Many problems cannot be solved thinking forward, you just approach them by thinking backwards. What must you avoid because you don’t want it?
  • The best and most practical wisdom is elementary academic wisdom but you must think in a multidisciplinary manner
  • Lollapalooza effects, very big effects, tend to only come from large combinations of factors
  • The best way to avoid envy, recognized by Aristotle, is to plainly deserve the success we get
  • the need for more multidisciplinary skills from prefessionals
  • Multidisciplinary approach helps alleviate incentive caused bias (what good for professional is not necessarily good for the client) and it gives you more tools to work with
  • Uses pilot training as the gold standard for training multidisciplinary skills. It covers 6 elements - wide enough to cover practically everything useful in piloting, learned

knowledge must reach practice based fluency, must be able to think in forward and reverse fashions, most important training gets the most time, checklist routines are mandatory, consistent and specific training to prevent atrophy

• Schools must interweave classes so that they combine multiple disciplines in their teachings to give students a more complete education

• The fundamental organizing ethos - use and rank disciplines in order of fundamentals, master to rested fluency and routinely use the truly essential parts of chemistry, math, physics and engineering, must explain things in the simplest way (may not be the discipline you are most comfortable with), if step 3 doesn’t work you must hypothesize and test to establish new principles

• To be successful must take a simple idea and take it very seriously

• Why are multidisciplinary skills important?

  • They are able to bring together a number of ideas and perspectives from across different subjects, and therefore may be able to offer alternative ways of looking at issues or problems. This can help identify new, innovative solutions to particular situations.

• How can I improve my multidisciplinary skills?

  • Understand who does what and why. Members of a multidisciplinary team will have different qualifications, training, and methods of working. …
  • Learn from each other.
  • Respect other points of view.
  • Prevent power struggles.
  • Cut the confusing jargon.
  • Build a community within the workplace.
  • Use the right communication tools.

• investment practices of leading charitable foundations - 1998

  • An excess of professionalism may hurt you horribly precisely because the careful procedures themselves often lead to overconfidence in their outcome
  • It is a law that half the population is below average yet 90% think themselves above it
  • Biological creatures ordinarily prefer minimization in routine activities and don’t like removals of long-enjoyed benefits
  • Most good things have undesired side effects and thinking is no exception. Must be extremely self critical - you must not fool yourself and you are the easiest person to fool (Feynman)
  • Pari-mutuel analogy to stock market - a horse (company) may clearly be a favorite but the odds (price) are such that decision in which horse to bet on (invest) is not so obvious
  • breakfast meeting of philanthropy round table
    • Has never tried to make a single dollar, ever, from foreseeing macroeconomic changes I think that one should recognize reality even when one doesn’t like it, indeed, especially when one doesn’t like it. Also, I think one should cheerfully endure paradox that one can’t remove by good thinking
    • Wealth effects have some disgusting effects on spending and aren’t taken into account.
    • Most foundations are unwise through failure to understand their own investment operations, related to a larger system
    • It is paradoxical and disturbing to us that economists have long praised foolish spending as a necessary ingredient of a successful economy. Let us call foolish expenditures “foolexures”
    • “Febezzlement” from excessive investment costs has significant macroeconomic effects
  • Quant Tech thought experiment - never let improper accounting start (stock options should be accounted for as expenses)
  • The social system is fair enough that almost all massive cheating ends in disgrace
  • Standard accounting treatment for stock options is functionally equivalent to simpler types of promotional fraud
  • Moral - honesty is the best policy

• Academic Economics: Strengths and Faults After Considering Interdisciplinary Needs

  • Speaks about the weaknesses of economics and proposes a multidisciplinary focus instead
  • “I also was born with a huge craving for synthesis. And when it didn’t come easily, which was often, I would rag the problem, and then when I failed, I would put it aside, and I’d come back to it and rag it again.”
  • You’ve got to know all the big ideas in all the disciplines more fundamental than your own
  • Taking opportunity costs into consideration and understanding the nature of incentives are superpowers
  • Practically everyone overweighs the stuff that can be numbered because it yields to the statistical techniques they’re taught in academia and don’t mix in the hard to measure stuff that may be more important
  • Use all knowledge plus extreme reductionism when possible
  • I’d rather be generally right than precisely wrong
  • Extreme success is likely to be caused by some combination of the following factors -extreme maximization or minimization of one or two variables (Costco and Nebraska furniture mart), adding success factors so that a bigger combination drives success and often in a nonlinear fashion, an extreme of good performance over many factors (Toyota and Les Schwab), catching and riding some big wave (oracle)
  • You must take into consideration second and third order consequences
  • All human systems are gamed - Niederhoffering
    • Niederhoffer got to Harvard and didn’t want to work very hard for A’s. Noticed that the grad students who worked so hard always got A’s in their classes, so he only signed up for the hardest grad student classes and of course earned all A’s
  • Ricardo’s law of comparative advantage is very important - even if can do all the work more cheaply, main focus should be on why you can make cheaper/better than anybody else
  • The craving for perfect fairness causes a lot of terrible problems in system function. Some systems should be made deliberately unfair to individuals because they’ll be fairer on average for all of us
  • There is not enough attention placed on virtue and vice effects - set up the system so that it is hard to cheat
  • It’s a myth that once you’ve got some capital market, economic considerations demand that it has to be fast and efficient as a casino. It doesn’t. After the south sea bubble, England didn’t have publicly traded stocks and the economy did just fine
  • If you can get really good at destroying your own wrong ideas, that is a great gift
  • Trust is absolutely essential. “Ethical practices aren’t good because they pay; they pay because they’re good.” - Elbert Gary

• USC Gould School of law commencement Address - 2007

  • The safest way to get what you want is to try to deserve what you want
  • There is huge pleasure in life to be obtained from getting deserved trust
  • There’s no love so right as admiration based love and such love should include the instructive dead (stand on the shoulders of giants)
  • The acquisition of wisdom is a moral duty. It’s not something you do just to advance in life. You must be hooked on lifetime learning
  • “I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition.”
  • “Generally speaking, envy, resentment, revenge and self pity are disastrous modes of thought…self pity is always counterproductive. It’s the wrong way to think. And when you avoid it you get s great advantage over everybody else…”
  • You must eliminate the self serving bias and take it into account when dealing with others. Appeal to people’s interest and not their reason, even when your motives are lofty
  • Avoid perverse incentives and being around people you wouldn’t want to be associated with
  • Aim to be working for people you admire
  • Engage in routines that help you maintain objectivity
  • “If at all feasible, you want to maneuver yourself into doing something in which you have an intense interest.”
  • Use each terrible blow that life deals you in a constructive fashion
  • In your life what you want to maximize is a seamless web of deserved trust

• The Psychology of Human Misjudgment

  • Charlie’s magnum opus on why we behave the way we do
  • Very important to recognize patterns to determine how humans behave, both rationally and irrationally
  • “I sought good judgment mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes.” Invert!
  • Big problems in real life touch on many different realms - not enough to focus on just one discipline when many are interacting. Must have many tools in the toolkit
  • 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
  • There will always be paradox - eliminate as much as possible and then manage as best as possible
  • The object is to buy a non dividend paying stock that compounds for 30 years at 15% and pay only a single tax of 35% at the end of the period. That comes out to 13.4% annual rate of return
  • Buffett is the stock picker and Munger is the doubter, the skeptic, the devils advocate, against whom Buffett tests his ideas

The Almanack of Naval Ravikant

• Seek wealth, not money or status. Wealth is having assets that earn while you sleep. Money is how we transfer time and wealth. Status is your place in the social hierarchy.

• Pick an industry where you can play long-term games with long-term people.

• Play iterated games. All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest.

• Learn to sell. Learn to build. If you can do both, you will be unstoppable.

• Specific knowledge is knowledge you cannot be trained for. If society can train you, it can train someone else and replace you.

• Fortunes require leverage. Business leverage comes from capital, people, and products with no marginal cost of replication (code and media).

• Set and enforce an aspirational personal hourly rate. If fixing a problem will save less than your hourly rate, ignore it. If outsourcing a task will cost less than your hourly rate, outsource it.

• Wealth is the thing you want. Wealth is assets that earn while you sleep. Wealth is the factory, the robots, cranking out things. Wealth is the computer program that’s running at night, serving other customers. Wealth is even money in the bank that is being reinvested into other assets, and into other businesses.

• When you find the right thing to do, when you find the right people to work with, invest deeply. Sticking with it for decades is really how you make the big returns in your relationships and in your money. So, compound interest is very important.

• When you’re studying something, like a geography or history class, and you realize you are never going to use the information, drop the class. It’s a waste of time. It’s a waste of your brain energy. I’m not saying don’t do the 99 percent, because it’s very hard to identify what the 1 percent is. What I’m saying is: when you find the 1 percent of your discipline which will not be wasted, which you’ll be able to invest in for the rest of your life and has meaning to you—go all-in and forget about the rest.

• If you are paid for renting out your time, even lawyers and doctors, you can make some money, but you’re not going to make the money that gives you financial freedom. You’re not going to have passive income where a business is earning for you while you are on vacation.

• People seem to think you can create wealth—make money through work. It’s probably not going to work. There are many reasons for that. Without ownership, your inputs are very closely tied to your outputs. In almost any salaried job, even one paying a lot per hour like a lawyer or a doctor, you’re still putting in the hours, and every hour you get paid. Without ownership, when you’re sleeping, you’re not earning. When you’re retired, you’re not earning. When you’re on vacation, you’re not earning. And you can’t earn nonlinearly. If you look at even doctors who get rich (like really rich), it’s because they open a business.

• Essentially, you’re working for somebody else, and that person is taking on the risk and has the accountability, the intellectual property, and the brand. They’re not going to pay you enough. They’re going to pay you the bare minimum they have to, to get you to do their job. That can be a high bare minimum, but it’s still not going to be true wealth.

• There are three broad classes of leverage: One form of leverage is labor—other humans working for you. It is the oldest form of leverage, and actually not a great one in the modern world. I would argue this is the worst form of leverage that you could possibly use. Managing other people is incredibly messy. It requires tremendous leadership skills. You’re one short hop from a mutiny or getting eaten or torn apart by the mob. Money is good as a form of leverage. It means every time you make a decision, you multiply it with money. Capital is a trickier form of leverage to use. It’s more modern. It’s the one that people have used to get fabulously wealthy in the last century. It’s probably been the dominant form of leverage in the last century. You can see this by looking for the richest people. It’s bankers, politicians in corrupt countries who print money, essentially people who move large amounts of money around. If you look at the top of very large companies, outside of technology companies, in many, many large old companies, the CEO job is really a financial job. It scales very, very well. If you get good at managing capital, you can manage more and more capital much more easily than you can manage more and more people. The final form of leverage is brand new—the most democratic form. It is: “products with no marginal cost of replication.” This includes books, media, movies, and code. Code is probably the most powerful form of permissionless leverage. All you need is a computer—you don’t need anyone’s permission.

• Whenever you can in life, optimize for independence rather than pay. If you have independence and you’re accountable on your output, as opposed to your input—that’s the dream.

• What you want in life is to be in control of your time. You want to get into a leveraged job where you control your own time and you’re tracked on the outputs. If you do something incredible to move the needle on the business, they have to pay you. Especially if they don’t know how you did it because it’s innate to your obsession or your skill or your innate abilities, they’re going to have to keep paying you to do it.

• If you have specific knowledge, you have accountability and you have leverage; they have to pay you what you’re worth. If they pay you what you’re worth, then you can get your time back—you can be hyper-efficient. You’re not doing meetings for meetings’ sake, you’re not trying to impress other people, you’re not writing things down to make it look like you did work. All you care about is the actual work itself.

• If you’re a real estate agent out there selling houses, it’s not a great job, necessarily. It’s very crowded. But if you’re a top-tier real estate agent, you know how to market yourself and you know how to sell houses, it’s possible you could sell $5 million mansions in one tenth of the time while somebody else is struggling to sell $100,000 apartments or condos. Real estate agent is a job with input and output disconnected. Building any product and selling any product fits this description. And fundamentally, what else is there? Where you don’t necessarily want to be is a support role, like customer service. In customer service, unfortunately, inputs and outputs relate relatively close to each other, and the hours you put in matter. Tools and leverage create this disconnection between inputs and outputs. The higher the creativity component of a profession, the more likely it is to have disconnected inputs and outputs. If you’re looking at professions where your inputs and your outputs are highly connected, it’s going to be very hard to create wealth and make wealth for yourself in that process. Selling any product fits this description. And fundamentally, what else is there? Where you don’t necessarily want to be is a support role, like customer service. In customer service, unfortunately, inputs and outputs relate relatively close to each other, and the hours you put in matter.

• Each level has increasing leverage, increasing accountability, increasingly specific knowledge. You’re adding in money-based leverage on top of labor-based leverage. Adding in code-based leverage on top of money and labor allows you to actually create something bigger and bigger and get closer and closer to owning all the upside, not just being paid a salary. You start as a salaried employee. But you want to work your way up to try and get higher leverage, more accountability, and specific knowledge. The combination of those over a long period of time with the magic of compound interest will make you wealthy.

CEOs are highly paid because of their leverage. Small differences in judgment and capability really get amplified.

• Judgment—especially demonstrated judgment, with high accountability and a clear track record—is critical.

• Spend more time making the big decisions. There are basically three really big decisions you make in your early life: where you live, who you’re with, and what you do.

• What you really want is freedom. You want freedom from your money problems, right? I think that’s okay. Once you can solve your money problems, either by lowering your lifestyle or by making enough money, you want to retire. Not retirement at sixty-five years old, sitting in a nursing home collecting a check retirement—it’s a different definition.

• Retirement is when you stop sacrificing today for an imaginary tomorrow. When today is complete, in and of itself, you’re retired.

• I think business networking is a complete waste of time. And I know there are people and companies popularizing this concept because it serves them and their business model well, but the reality is if you’re building something interesting, you will always have more people who will want to know you. Trying to build business relationships well in advance of doing business is a complete waste of time. I have a much more comfortable philosophy: “Be a maker who makes something interesting people want. Show your craft, practice your craft, and the right people will eventually find you.”

• Everybody wants to get rich immediately, but the world is an efficient place; immediate doesn’t work. You do have to put in the time. You do have to put in the hours, and so I think you have to put yourself in the position with the specific knowledge, with accountability, with leverage, with the authentic skill set you have, to be the best in the world at what you do.

• You have to put in the time, but the judgment is more important. The direction you’re heading in matters more than how fast you move, especially with leverage. Picking the direction you’re heading in for every decision is far, far more important than how much force you apply. Just pick the right direction to start walking in, and start walking.

• I used to identify as libertarian, but then I would find myself defending positions I hadn’t really thought through because they’re a part of the libertarian canon. If all your beliefs line up into neat little bundles, you should be highly suspicious. I don’t like to self-identify on almost any level anymore, which keeps me from having too many of these so-called stable beliefs.

• To me, the principal-agent problem is the single most fundamental problem in microeconomics. If you do not understand the principal-agent problem, you will not know how to navigate your way through the world. It is important if you want to build a successful company or be successful in your dealings. It’s a very simple concept. Julius Caesar famously said, “If you want it done, then go. And if not, then send.” What he meant was, if you want it done right, then you have to go yourself and do it. When you are the principal, then you are the owner—you care, and you will do a great job. When you are the agent and you are doing it on somebody else’s behalf, you can do a bad job. You just don’t care. You optimize for yourself rather than for the principal’s assets. The smaller the company, the more everyone feels like a principal. The less you feel like an agent, the better the job you’re going to do. The more closely you can tie someone’s compensation to the exact value they’re creating, the more you turn them into a principal, and the less you turn them into an agent.

• Least understood, but the most important principle for anyone claiming “science” on their side—falsifiability. If it doesn’t make falsifiable predictions, it’s not science. For you to believe something is true, it should have predictive power, and it must be falsifiable. [11] I think macroeconomics, because it doesn’t make falsifiable predictions (which is the hallmark of science), has become corrupted. You never have a counterexample when studying the economy. You can never take the US economy and run two different experiments at the same time.

If I’m faced with a difficult choice, such as: Should I marry this person? Should I take this job? Should I buy this house? Should I move to this city? Should I go into business with this person? If you cannot decide, the answer is no. And the reason is, modern society is full of options. There are tons and tons of options. We live on a planet of seven billion people, and we are connected to everybody on the internet. There are hundreds of thousands of careers available to you. There are so many choices.

• If you find yourself creating a spreadsheet for a decision with a list of yes’s and no’s, pros and cons, checks and balances, why this is good or bad…forget it. If you cannot decide, the answer is no.

• If you have two choices to make, and they’re relatively equal choices, take the path more difficult and more painful in the short term. What’s actually going on is one of these paths requires short-term pain. And the other path leads to pain further out in the future. And what your brain is doing through conflict-avoidance is trying to push off the short-term pain. By definition, if the two are even and one has short-term pain, that path has long-term gain associated. With the law of compound interest, long-term gain is what you want to go toward. Your brain is overvaluing the side with the short-term happiness and trying to avoid the one with short-term pain. So you have to cancel the tendency out (it’s a powerful subconscious tendency) by leaning into the pain. As you know, most of the gains in life come from suffering in the short term so you can get paid in the long term. Working out for me is not fun; I suffer in the short term, I feel pain. But then in the long term, I’m better off because I have muscles or I’m healthier. If I am reading a book and I’m getting confused, it is just like working out and the muscle getting sore or tired, except now my brain is being overwhelmed. In the long run I’m getting smarter because I’m absorbing new concepts from working at the limit or edge of my capability. So you generally want to lean into things with short-term pain, but long-term gain.

• To me, happiness is not about positive thoughts. It’s not about negative thoughts. It’s about the absence of desire, especially the absence of desire for external things. The fewer desires I can have, the more I can accept the current state of things, the less my mind is moving, because the mind really exists in motion toward the future or the past. The more present I am, the happier and more content I will be. If I latch onto a feeling, if I say, “Oh, I’m happy now,” and I want to stay happy, then I’m going to drop out of that happiness. Now, suddenly, the mind is moving. It’s trying to attach to something. It’s trying to create a permanent situation out of a temporary situation. Happiness to me is mainly not suffering, not desiring, not thinking too much about the future or the past, really embracing the present moment and the reality of what is, and the way it is.

• At any given time, when you’re walking down the streets, a very small percentage of your brain is focused on the present. The rest is planning the future or regretting the past. This keeps you from having an incredible experience. It’s keeping you from seeing the beauty in everything and for being grateful for where you are. You can literally destroy your happiness if you spend all of your time living in delusions of the future.

• I think a lot of us have this low-level pervasive feeling of anxiety. If you pay attention to your mind, sometimes you’re just running around doing your thing and you’re not feeling great, and you notice your mind is chattering and chattering about something. Maybe you can’t sit still…There’s this “nexting” thing where you’re sitting in one spot thinking about where you should be next. It’s always the next thing, then the next thing, the next thing after that, then the next thing after that creating this pervasive anxiety. It’s most obvious if you ever just sit down and try and do nothing, nothing. I mean nothing, I mean not read a book, I mean not listen to music, I mean literally just sit down and do nothing. You can’t do it, because there’s anxiety always trying to make you get up and go, get up and go, get up and go. I think it’s important just being aware the anxiety is making you unhappy. The anxiety is just a series of running thoughts. How I combat anxiety: I don’t try and fight it, I just notice I’m anxious because of all these thoughts. I try to figure out, “Would I rather be having this thought right now, or would I rather have my peace?” Because as long as I have my thoughts, I can’t have my peace. You’ll notice when I say happiness, I mean peace. When a lot of people say happiness, they mean joy or bliss, but I’ll take peace.

• To me, the real winners are the ones who step out of the game entirely, who don’t even play the game, who rise above it. Those are the people who have such internal mental and self-control and self-awareness, they need nothing from anybody else. There are a couple of these characters I know in my life. Jerzy Gregorek—I would consider him successful because he doesn’t need anything from anybody. He’s at peace, he’s healthy, and whether he makes more money or less money compared to the next person has no effect on his mental state.

I think of happiness as an emergent property of peace. If you’re peaceful inside and out, that will eventually result in happiness. But peace is a very hard thing to come by. The irony is the way most of us try to find peace is through war. When you start a business, in a way, you’re going to war. When you struggle with your roommates as to who should clean the dishes, you’re going to war. You’re struggling so you can have some sense of security and peace later. In reality, peace is not a guarantee. It’s always flowing. It’s always changing. You want to learn the core skill set of flowing with life and accepting it in most cases.

• The first rule of handling conflict is: Don’t hang around people who constantly engage in conflict. I’m not interested in anything unsustainable or even hard to sustain, including difficult relationships.

A personal metric: how much of the day is spent doing things out of obligation rather than out of interest?

• When I was younger, I really, really valued freedom. Freedom was one of my core values. Ironically, it still is. It’s probably one of my top three values, but it’s now a different definition of freedom. My old definition was “freedom to.” Freedom to do anything I want. Freedom to do whatever I feel like, whenever I feel like. Now, the freedom I’m looking for is internal freedom. It’s “freedom from.” Freedom from reaction. Freedom from feeling angry. Freedom from being sad. Freedom from being forced to do things. I’m looking for “freedom from,” internally and externally, whereas before I was looking for “freedom to.”

• Anyone who has known me for a long time knows my defining characteristic is a combination of being very impatient and willful. I don’t like to wait. I hate wasting time. I’m very famous for being rude at parties, events, dinners, where the moment I figure out it’s a waste of my time, I leave immediately. Value your time. It is all you have. It’s more important than your money. It’s more important than your friends. It is more important than anything. Your time is all you have. Do not waste your time. This doesn’t mean you can’t relax. As long as you’re doing what you want, it’s not a waste of your time. But if you’re not spending your time doing what you want, and you’re not earning, and you’re not learning—what the heck are you doing? Don’t spend your time making other people happy. Other people being happy is their problem. It’s not your problem. If you are happy, it makes other people happy. If you’re happy, other people will ask you how you became happy and they might learn from it, but you are not responsible for making other people happy.

• People who live far below their means enjoy a freedom that people busy upgrading their lifestyles can’t fathom.

• Once you’ve truly controlled your own fate, for better or for worse, you’ll never let anyone else tell you what to do.

• Honesty is a core, core, core value. By honesty, I mean I want to be able to just be me. I never want to be in an environment or around people where I have to watch what I say. If I disconnect what I’m thinking from what I’m saying, it creates multiple threads in my mind. I’m no longer in the moment—now I have to be future-planning or past-regretting every time I talk to somebody. Anyone around whom I can’t be fully honest, I don’t want to be around.

Quotes

the man who is in need of a new thinking tool, but hasn’t yet acquired it, is already paying for it.

“Never, ever, think about something else when you should be thinking about the power of incentives.”

“We should also heed the general lesson implicit in the injunction of Ben Franklin in Poor Richard’s Almanack: ‘If you would persuade, appeal to interest and not to reason.‘”

“One of the most important consequences of incentive superpower is what I call ‘incentive-caused bias.’ A man has an acculturated nature making him a pretty decent fellow, and yet, driven both consciously and subconsciously by incentives, he drifts into immoral behavior in order to get what he wants, a result he facilitates by rationalizing his bad behavior.”

“As usual in human affairs, what determines the behavior are incentives for the decision maker … getting the incentives right is a very, very important lesson … Appeal to interest and not to reason if you want to change conclusions … Another thing to avoid is being subjected to perverse incentives. You don’t want to be in a perverse incentive system that’s rewarding you if you behave more and more foolishly, or worse and worse. Perverse incentives are so powerful as controllers of human cognition and human behavior that one should avoid their influence.”

“A natural cognitive drift toward the conclusion that what is good for the professional is good for the client and the wider civilization.”

“Man will generally strive, lifelong, for the affection and approval of many people not related to him.”

“What will a man naturally come to like and love, apart from his parent, spouse and child? Well, he will like and love being liked and loved.”

“One very practical consequence of Liking/ Loving Tendency is that it acts as a conditioning device that makes the liker or lover tend (1) to ignore faults of, and comply with wishes of, the object of his affection, (2) to favor people, products, and actions merely associated with the object of his affection (as we shall see when we get to ‘Influence-from-Mere-Association Tendency,’ and (3) to distort other facts to facilitate love.”

“The phenomenon of liking and loving causing admiration also works in reverse. Admiration also causes or intensifies liking or love. With this ‘feedback mode’ in place, the consequences are often extreme, sometimes even causing deliberate self-destruction to help what is loved.”

“In a pattern obverse to Liking/Loving Tendency, the newly arrived human is also ‘born to dislike and hate’ as triggered by normal and abnormal triggering forces in its life.”

“Disliking/Hating Tendency also acts as a conditioning device that makes the disliker/hater tend to (1) ignore virtues in the object of dislike, (2) dislike people, products, and actions merely associated with the object of his dislike, and (3) distort other facts to facilitate hatred.”

“The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision.”

“What triggers Doubt-Avoidance Tendency? Well, an unthreatened man, thinking of nothing in particular, is not being prompted to remove doubt through rushing to some decision. As we shall see later when we get to Social-Proof Tendency and Stress-Influence Tendency, what usually triggers Doubt-Avoidance Tendency is some combination of (1) puzzlement and (2) stress.”

“The brain of man conserves programming space by being reluctant to change, which is a form of inconsistency avoidance. We see this in all human habits, constructive and destructive.”

“The rare life that is wisely lived has in it many good habits maintained and many bad habits avoided or cured. And the great rule that helps here is again from Franklin’s Poor Richard’s Almanack: ‘An ounce of prevention is worth a pound of cure.’ What Franklin is here indicating, in part, is that Inconsistency-Avoidance Tendency makes it much easier to prevent a habit than to change it.”

“Also tending to be maintained in place by the anti-change tendency of the brain are one’s previous conclusions, human loyalties, reputational identity, commitments, accepted role in a civilization, etc.” “People tend to accumulate large mental holdings of fixed conclusions and attitudes that are not often reexamined or changed, even though there is plenty of good evidence that they are wrong.”

“In advanced human civilization, culture greatly increases the effectiveness of curiosity in advancing knowledge.”

“Curiosity, enhanced by the best of modern education (which is by definition a minority part in many places), much helps man to prevent or reduce bad consequences arising from other psychological tendencies. The curious are also provided with much fun and wisdom long after formal education has ended.”

“Kant was famous for his ‘categorical imperative,’ a sort of a ‘golden rule’ that required humans to follow those behavior patterns that, if followed by all others, would make the surrounding human system work best for everybody.”

“Envy/jealousy is extreme in myth, religion, and literature wherein, in account after account, it triggers hatred and injury.”

“My guess is that people widely and generally sense that labeling some position as driven by envy/ jealousy will be regarded as extremely insulting to the position taker, possibly more so when the diagnosis is correct than when it is wrong. And if calling a position ‘envy-driven’ is perceived as the equivalent of describing its holder as a childish mental basket case, then it is quite understandable how a general taboo has arisen.”

“The automatic tendency of humans to reciprocate both favors and disfavors has long been noticed as extreme … The tendency clearly facilitates group cooperation for the benefit of members.”

“What both human and ant history suggest is (1) that nature has no general algorithm making intraspecies, turn-the-other-cheek behavior a booster of species survival, (2) that it is not clear that a country would have good prospects were it to abandon all reciprocate-disfavor tendency directed at outsiders, and (3) if turn-the-other-cheek behavior is a good idea for a country as it deals with outsiders, man’s culture is going to have to do a lot of heavy lifting because his genes won’t be of much help.”

“Like other psychological tendencies, and also man’s ability to turn somersaults, reciprocate-favor tendency operates to a very considerable degree at a subconscious level. This helps make the tendency a strong force that can sometimes be used by some men to mislead others, which happens all the time.”

“The most damaging miscalculations from mere association do not ordinarily come from advertisers and music providers. Some of the most important miscalculations come from what is accidentally associated with one’s past success, or one’s liking and loving, or one’s disliking and hating, which includes a natural hatred for bad news.”

“People disagree about how much blindness should accompany the association called love. In Poor Richard’s Almanack Franklin counseled: ‘Keep your eyes wide open before marriage and half shut thereafter.’ Perhaps this ‘eyes-half-shut’ solution is about right, but I favor a tougher prescription: ‘See it like it is and love anyway.‘”

“The proper antidote to creating Persian Messenger Syndrome and its bad effects is to develop, through exercise of will, a habit of welcoming bad news.”

“A final serious clump of bad thinking caused by mere association lies in the common use of classification stereotypes.”

“The reality is too painful to bear, so one distorts the facts until they become bearable.”

“We all do that to some extent, often causing terrible problems. The tendency’s most extreme outcomes are usually mixed up with love, death, and chemical dependency.”

“In chemical dependency, wherein morals usually break down horribly, addicted persons tend to believe that they remain in respectable condition, with respectable prospects. They thus display an extremely unrealistic denial of reality as they go deeper and deeper into deterioration.”

“We all commonly observe the excessive self-regard of man. He mostly misappraises himself on the high side.”

“Even man’s minor possessions tend to be overappraised. Once owned, they suddenly become worth more to him than he would pay if they were offered for sale to him and he didn’t already own them. There is a name in psychology for this overappraise-your-own-possessions phenomenon: the ‘endowment effect.’ And all man’s decisions are suddenly regarded by him as better than would have been the case just before he made them.”

“Excessive Self-Regard Tendency diminishes the foolish bettor’s accuracy in appraising his relative degree of talent.”

“There is a famous passage somewhere in Tolstoy that illuminates the power of Excessive Self-Regard Tendency. According to Tolstoy, the worst criminals don’t appraise themselves as all that bad. They come to believe either (1) that they didn’t commit their crimes or (2) that, considering the pressures and disadvantages of their lives, it is understandable and forgivable that they behaved as they did and became what they became.”

“The best antidote to folly from an excess of self-regard is to force yourself to be more objective when you are thinking about yourself, your family and friends, your property, and the value of your past and future activity. This isn’t easy to do well and won’t work perfectly, but it will work much better than simply letting psychological nature take its normal course.”

“Man displays not only Simple, Pain-Avoiding Psychological Denial but also an excess of optimism even when he is already doing well … an excess of optimism being the normal human condition, even when pain or the threat of pain is absent.”

“One standard antidote to foolish optimism is trained, habitual use of the simple probability math of Fermat and Pascal, taught in my youth to high school sophomores.”

“I include the natural human reactions to both kinds of loss experience—the loss of the possessed reward and the loss of the almost-possessed reward—under one description, Deprival-Superreaction Tendency.”

“The quantity of man’s pleasure from a ten-dollar gain does not exactly match the quantity of his displeasure from a ten-dollar loss. That is, the loss seems to hurt much more than the gain seems to help. Moreover, if a man almost gets something he greatly wants and has it jerked away from him at the last moment, he will react much as if he had long owned the reward and had it jerked away.”

“In displaying Deprival-Superreaction Tendency, man frequently incurs disadvantage by misframing his problems. He will often compare what is near instead of what really matters.”

“A man ordinarily reacts with irrational intensity to even a small loss, or threatened loss, of property, love, friendship, dominated territory, opportunity, status, or any other valued thing.”

“It is almost everywhere the case that extremes of ideology are maintained with great intensity and with great antipathy to non-believers, causing extremes of cognitive dysfunction. This happens, I believe, because two psychological tendencies are usually acting concurrently toward this same sad result: (1) Inconsistency-Avoidance Tendency, plus (2) Deprival-Superreaction Tendency.”

“An automatic tendency to think and act as man sees others around him thinking and acting.”

“Triggering most readily occurs in the presence of puzzlement or stress, and particularly when both exist.”

“Because both bad and good behavior are made contagious by Social-Proof Tendency, it is highly important that human societies (1) stop any bad behavior before it spreads and (2) foster and display all good behavior.”

“In social proof, it is not only action by others that misleads but also their inaction. In the presence of doubt, inaction by others becomes social proof that inaction is the right course.”

“Social-Proof Tendency often interacts in a perverse way with Envy/Jealousy and Deprival-Superreaction Tendency.”

“Because the nervous system of man does not naturally measure in absolute scientific units, it must instead rely on something simpler. The eyes have a solution that limits their programming needs: the contrast in what is seen is registered. And as in sight, so does it go, largely, in the other senses. Moreover, as perception goes, so goes cognition. The result is man’s Contrast-Misreaction Tendency.”

“Contrast-Misreaction Tendency is routinely used to cause disadvantage for customers buying merchandise and services. To make an ordinary price seem low, the vendor will very frequently create a highly artificial price that is much higher than the price always sought, then advertise his standard price as a big reduction from his phony price.”

“When a man’s steps are consecutively taken toward disaster, with each step being very small, the brain’s Contrast-Misreaction Tendency will often let the man go too far toward disaster to be able to avoid it. This happens because each step presents so small a contrast from his present position.”

“Everyone recognizes that sudden stress, for instance from a threat, will cause a rush of adrenaline in the human body, prompting faster and more extreme reaction. And everyone who has taken Psych 101 knows that stress makes Social-Proof Tendency more powerful.”

“In a phenomenon less well recognized but still widely known, light stress can slightly improve performance—say, in examinations—whereas heavy stress causes dysfunction.”

“But few people know more about really heavy stress than that it can cause depression. For instance, most people know that an ‘acute stress depression’ makes thinking dysfunctional because it causes an extreme of pessimism, often extended in length and usually accompanied by activity-stopping fatigue.”

“Man’s imperfect, limited-capacity brain easily drifts into working with what’s easily available to it. And the brain can’t use what it can’t remember or what it is blocked from recognizing because it is heavily influenced by one or more psychological tendencies bearing strongly on it. And so the mind overweighs what is easily available and thus displays Availability-Misweighing Tendency.”

“One consequence of this tendency is that extra-vivid evidence, being so memorable and thus more available in cognition, should often consciously be underweighed while less vivid evidence should be overweighed.”

“The great algorithm to remember in dealing with this tendency is simple: An idea or a fact is not worth more merely because it is easily available to you.”

“All skills attenuate with disuse.”

“Throughout his life, a wise man engages in practice of all his useful, rarely used skills, many of them outside his discipline, as a sort of duty to his better self. If he reduces the number of skills he practices and, therefore, the number of skills he retains, he will naturally drift into error from man with a hammer tendency.”

“The hard rule of Use-It-or-Lose-It Tendency tempers its harshness for the diligent. If a skill is raised to fluency, instead of merely being crammed in briefly to enable one to pass some test, then the skill (1) will be lost more slowly and (2) will come back faster when refreshed with new learning. These are not minor advantages, and a wise man engaged in learning some important skill will not stop until he is really fluent in it.”

“This tendency’s destructive power is so widely known to be intense, with frequent tragic consequences for cognition and the outcome of life, that it needs no discussion here to supplement that previously given under Simple, Pain-Avoiding Psychological Denial.”

“With advanced age, there comes a natural cognitive decay, differing among individuals in the earliness of its arrival and the speed of its progression.”

“Practically no one is good at learning complex new skills when very old. But some people remain pretty good in maintaining intensely practiced old skills until late in life.”

“Continuous thinking and learning, done with joy, can somewhat help delay what is inevitable.”

“Living in dominance hierarchies as he does, like all his ancestors before him, man was born mostly to follow leaders, with only a few people doing the leading. And so, human society is formally organized into dominance hierarchies, with their culture augmenting the natural follow-the-leader tendency of man.”

“But automatic as most human reactions are, with the tendency to follow leaders being no exception, man is often destined to suffer greatly when the leader is wrong or when his leader’s ideas don’t get through properly in the bustle of life and are misunderstood. And so, we find much miscognition from man’s Authority-Misinfluence Tendency.”

“Man, as a social animal who has the gift of language, is born to prattle and to pour out twaddle that does much damage when serious work is being attempted.”

“Some people produce copious amounts of twaddle and others very little.” “It’s a very important part of wise administration to keep prattling people, pouring out twaddle, far away from the serious work.”

“There is in man, particularly one in an advanced culture, a natural love of accurate cognition and a joy in its exercise.”

“This tendency has an obvious implication. It makes man especially prone to learn well when a would-be teacher gives correct reasons for what is taught, instead of simply laying out the desired belief ex cathedra with no reasons given. Few practices, therefore, are wiser than not only thinking through reasons before giving orders but also communicating these reasons to the recipient of the order.”

“Unfortunately, Reason-Respecting Tendency is so strong that even a person’s giving of meaningless or incorrect reasons will increase compliance with his orders and requests.”

“The tendency to get extreme consequences from confluences of psychology tendencies acting in favor of a particular outcome.”

“This tendency was not in any of the psychology texts I once examined, at least in any coherent fashion, yet it dominates life.

“The most important thing to keep in mind is the idea that especially big forces often come out of these one hundred models. When several models combine, you get lollapalooza effects; this is when two, three, or four forces are all operating in the same direction. And, frequently, you don’t get simple addition. It’s often like a critical mass in physics where you get a nuclear explosion if you get to a certain point of mass—and you don’t get anything much worth seeing if you don’t reach the mass. Sometimes the forces just add like ordinary quantities and sometimes they combine on a breakpoint or critical-mass basis … Really big effects, lollapalooza effects, will often come only from large combinations of factors (factors which reinforce and greatly amplify each other).”

“‘Invert, always invert,’ Jacobi said. He knew that it is in the nature of things that many hard problems are best solved when they are addressed backward … It is not enough to think problems through forward. You must also think in reverse.”

“You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose. And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence … Rise quite high in life by slowly developing a circle of competence—which results partly from what they were born with and partly from what they slowly develop through work … In effect, you’ve got to know what you know and what you don’t know. What could possibly be more useful in life than that?”

“Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.”

“Opportunity cost is a superpower, to be used by all people who have any hope of getting the right answer.”

“When technology moves as fast as it does in a civilization like ours, you get a phenomenon that I call competitive destruction. You know, you have the finest buggy whip factory, and, all of a sudden, in comes this little horseless carriage.”

“When these new businesses come in, there are huge advantages for the early birds. And when you’re an early bird, there’s a model that I call ‘surfing’—when a surfer gets up and catches the wave and just stays there, he can go a long, long time.”

“The very nature of things is that if you get a whole lot of volume through your operation, you get better at processing that volume. That’s an enormous advantage … Being so well known has advantages of scale—what you might call an informational advantage … Occasionally, scaling down and intensifying gives you the big advantage. Bigger is not always better … The great defect of scale, of course, which makes the game interesting—so that the big people don’t always win—is that as you get big, you get the bureaucracy. And with the bureaucracy comes the territoriality—which is again grounded in human nature.”

“To a man with only a hammer, every problem tends to look pretty much like a nail.”

“The five Ws—you had to tell who was going to do what, where, when, and why … If you always tell people why, they’ll understand it better, they’ll consider it more important, and they’ll be more likely to comply. Even if they don’t understand your reason, they’ll be more likely to comply.”

“It is, of course, irritating that extra care in thinking is not all good but also introduces extra error. But most good things have undesired ‘side effects,’ and thinking is no exception. The best defense is that of the best physicists, who systematically criticize themselves to an extreme degree, using a mindset described by Nobel laureate Richard Feynman as follows: ‘The first principle is that you must not fool yourself, and you’re the easiest person to fool.‘”

“Darwin paid special attention to disconfirming evidence, particularly when it disconfirmed something he believed and loved. Routines like that are required if a life is to maximize correct thinking … If you can get really good at destroying your own wrong ideas, that is a great gift.”

“The safest way to try to get what you want is to try to deserve what you want. It’s such a simple idea. It’s the golden rule. You want to deliver to the world what you would buy if you were on the other end.”

“In this world I think we have two kinds of knowledge: One is Planck knowledge, that of the people who really know. They’ve paid the dues, they have the aptitude. Then we’ve got chauffeur knowledge. They have learned to prattle the talk. They may have a big head of hair. They often have fine timbre in their voices. They make a big impression. But in the end what they’ve got is chauffeur knowledge masquerading as real knowledge.”

“Tolerating a little unfairness to some to get a greater fairness for all is a model I recommend to all of you.”

“Consequences have consequences, and the consequences of the consequences have consequences, and so on.”

“While susceptibility varies, addiction can happen to any of us through a subtle process where the bonds of degradation are too light to be felt until they are too strong to be broken. And yet, I have yet to meet anyone, in over six decades of life, whose life was worsened by fear and avoidance of such a deceptive pathway to destruction.”

“Generally speaking, envy, resentment, revenge and self-pity are disastrous modes of thought. Self-pity can get pretty close to paranoia. And paranoia is one of the very hardest things to reverse. You do not want to drift into self-pity … The best way to avoid envy, recognized by Aristotle, is to plainly deserve the success we get.”

“Reliability is essential for progress in life and while quantum mechanics is unlearnable for a vast majority, reliability can be learned to great advantage by almost anyone.”

“Another advantage of scale comes from psychology. The psychologists use the term ‘social proof.’ We are all influenced—subconsciously and, to some extent, consciously—by what we see others do and approve.”

“If people tell you what you really don’t want to hear—what’s unpleasant—there’s an almost automatic reaction of antipathy. You have to train yourself out of it.”

“If enough people are profiting in a general social climate of doing wrong, then they’ll turn on you and become dangerous enemies if you try and blow the whistle.”

“The tendency of humans, under some circumstances, to resemble lemmings, explains foolish thinking of brilliant men and much foolish behavior.”

“Most people will see declining returns (due to inflation). One of the great defenses if you’re worried about inflation is not to have a lot of silly needs in your life—you don’t need a lot of material goods.”

References

• https://www.grahammann.net/book-notes/poor-charlies-almanack-charles-munger
• blas summary
• https://www.youtube.com/watch?v=07f8oasWqWg&t=1s&ab_channel=BusinessNL
• https://www.sloww.co/psychology-human-misjudgment-charlie-munger/