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Charlie Munger: The Complete Investor

Author: Tren Griffin

I liked this book overall. Some great thoughts and I learned more about the Graham investing principles. The principles are made up of several key ideas which I will list below:

First – Treat a share of stock like ownership in a company

Second – Buy at a significant discount to intrinsic value to create a margin of safety

Munger often mentions the idea that many investors involve themselves in so much investment activity that it makes them feel productive, but Munger encourages being much more patient, seeking out the deals, and then betting big. He makes an interesting case against diversification with his quite below:

The Berkshire-style investors tend to be less diversified than other people. The academics have done a terrible disservice to intelligent investors by glorifying the idea of diversification. Because I just think the whole concept is literally almost insane. It emphasizes feeling good about not having your investment results depart very much from average investment results. But why would you get on the bandwagon like that if somebody didn’t make you with a whip and a gun.

Third – Make Mr. Market your servant rather than your master

The idea of Mr. Market is that he is bipolar in the short term. So when Mr. Market is depressed, he will sell you assets at a discount, and when he is excited, he will pay you more than an asset is worth. Mr. Market is considered a blessing, because he gives you options all the time to find deals.

Fourth – Be rational, objective and dispassionate

This one is fairly self explanatory in the title.

Mimicking the herd invites regression to the mean (merely average performance).

Munger talks a lot about the idea of inversion as well which is looking at problems in the opposite. So instead of spending all his time learning what makes a business great, he learns what causes a business to fail, and then tries not to do those things.

To paraphrase a quote he is known for saying is that all he wants to know is where he is going to die, so he will never go there.

Munger is also a big proponent in approaching decision making from “a lattice of mental models.”

What he means by a lattice is that you combine multi-disciplinary ways of thinking to get the best of different perspectives. He draws on disciplines from psychology, history, math, physics, philosophy, biology, etc.

People calculate too much, and think too little.

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.

Chapter 4 discusses the psychology of human misjudgment which is a really interesting chapter that lays out several types of misjudgements.

Chapter 5 lays out “the right stuff” to have as a good investor which are the following:

A lot of people with high IQ’s are terrible investors because they’ve got terrible temperaments.

The ethos of not fooling yourself is one of the best you could possibly have. It’s powerful because it’s so rare.