《Poor Charlie's Almanack》Top 10 Investment Checklist: Munger's Decision-Making Essence

Mungerism

Multiple Mental Models

Lollapalooza Effect

I looked up the name of this model online, and it seems to only be mentioned in Munger’s book. It’s a thinking model he invented himself. But the name isn’t important, because I also have my Mars Lazy Person’s Lazy Mindset (MLPLM) thinking model.

The name of the model isn’t particularly important, what matters is the content.

Here, the thinking model must be used in your own decision-making process. Exhaust all the various academic theories you’ve learned. For example, in my position, I need marketing, management, psychology, insurance, and product knowledge. By combining various academic theories, I can avoid becoming someone who only has a hammer and wants to nail everything. Munger believes that “preparation, patience, discipline, and objectivity are the most basic guiding principles.”

Break Old Thinking

Don’t let what you’ve learned in the past bind you, and don’t let past experiences make you self-righteous. Because from the past to the present, everything will change. Although the sun still rises in the east, we can’t be sure that human civilization won’t disappear one day, and the east will be changed to the west.

Recognized facts are sometimes not long-term facts.

Accept Complex Facts

Everyone has an upper limit to their abilities, and there is also an upper limit to time, just like in 【EP4】There is a bank that gives you 1440 every day! Whether you have spent it all or not! The next day it will fill up your account with another 1440! But accepting the complexity of things can increase your ability, because being able to understand and solve complex facts through your own thinking model is a kind of growth. However, there is a very interesting case of “reverse thinking” in this.

First figure out what not to do, and then decide what actions to take. "I only want to know where I will die in the future, and that is where I will never go."

Circle of Competence

Investable, Non-Investable, Too Difficult to Understand

Munger uses 3 methods to directly classify the investment problems he encounters: don’t do what is too difficult to understand, don’t do what is not investable, and after understanding what is investable through the thinking model, execute it. If you use the 3-part method to face the problems you may encounter, the probability of success will indeed increase by 66%, because you only do the remaining 33%.

Munger’s Three Investment Principles

A wonderful company at a fair price is superior to a fair company at a wonderful price.

A wonderful company at a fair price is superior to a fair company at a wonderful price.

A wonderful company at a fair price is superior to a fair company at a wonderful price.

This section is just a record and sharing, because for me, it is not difficult to understand his purpose and method at all. However, there is an important content mentioned in the investment goal, that is, whether the investment target has a “moat”, that is, it has an unusually large cost for others to enter. For example, some people set their goal to take down TESLA, but sorry, based on TESLA’s current market share and the unification of charging system specifications, does the threshold seem too high?

Investment Principles Checklist (for reference, purely for record)

1. Risk: All investments must start with risk assessment

1. Estimate an appropriate margin of safety
2. Avoid dealing with people who have ethical issues
3. Insist on reasonable compensation for visible risks
4. Always remember the risks of inflation and interest rates
5. Avoid making big mistakes: avoid continuous losses of funds

2. Independence: Only in fairy tales is the king told that he is not wearing clothes

1. An objective and rational attitude requires independent thinking ability
2. Your right or wrong does not depend on whether others agree or disagree - the only thing that matters is whether your analysis and judgment are correct
3. Following the crowd will only bring you closer to the average (you can only achieve mediocre achievements)

3. Preparation: The only way to win is to work, work, work, work, work, work and hope to have a little insight

1. Cultivate yourself into a lifelong self-learner through extensive reading: cultivate curiosity and strive to make yourself a little smarter every day
2. More important than the willingness to win is the willingness to prepare
3. Master the thinking models of various disciplines
4. If you want to become smart, you must keep asking “why, why, why?”

4. Humility: Acknowledging your ignorance is the beginning of wisdom

1. Only act within your clearly defined circle of competence
2. Identify and check negative evidence
3. Resist the desire to pursue “false precision” and “false certainty”
4. Most importantly, don’t fool yourself, and remember that you are the easiest person to be fooled by yourself

5. Rigorous Analysis: Using scientific methods and effective checklists can minimize errors and omissions

1. Distinguish the difference between value/price, progress/action, wealth/size
2. Remember that the obvious is better than mastering the esoteric
3. Be a business analyst, not a market, economist, or securities analyst
4. Consider the overall risks and benefits, and always pay attention to the second or higher level of potential impact
5. Think forward and backward; think in reverse, always think in reverse.

6. Allocation: Correctly allocating funds is the most important job of an investor

1. Remember that the best use is always compared to the second best use (opportunity cost)
2. Good ideas are hard to come by; when the time is right for you, bet heavily.
3. Don’t “fall in love” with investment projects; be flexible and seize the opportunity.

7. Patience: Restrain the natural tendency to be active

1. Compound interest is the eighth wonder of the world, don’t interrupt it unless necessary
2. Avoid unnecessary transaction taxes and friction costs, and never act for the sake of action
3. Stay sober when luck comes
4. Enjoy the results and enjoy the process, because you live in the process

8. Determination: When the right opportunity arises, take decisive action

1. Be fearful when others are greedy; be greedy when others are fearful
2. Opportunities don’t knock often, so when they come, seize them
3. Opportunity only favors the prepared: investment is such a game

9. Change: Adapt to change and accept inevitable complexity

1. Recognize and adapt to the nature of the world you are in, don’t expect the world to adapt to you
2. Constantly challenge and proactively revise “favorite ideas”
3. Face reality, even if you don’t like it: especially when you don’t like reality, change

10. Focus: Don’t complicate things, remember what you originally wanted to do

1. Remember that reputation and integrity are the most valuable assets: and they can disappear in an instant
2. Avoid arrogance and boredom
3. Don’t lose sight of the forest for the trees
4. Be sure to eliminate unnecessary information interference
5. Don’t be an ostrich when facing big problems

Munger’s Eleven Lectures

This content is very long, I will directly organize it into my observations and reading experience to share with you. Among the content of the eleven lectures, I think the most important content is probably the following key points.

Build Your Own Decision-Making Methods and Confidence

Through learning and practice, you can establish your own decision-making model, and you must also establish a decision-making model that can overthrow yourself. Among the manuscripts of the eleven lectures, what impressed me the most was Munger’s saying: “Today I drank a cup of tea! I must be more advanced than yesterday!” So many golden sentences are really talking about “common sense”! But life really needs so much common sense to make us more advanced. To be honest, if you are not an investor with some seniority, I think this book should be super difficult to read. Because there is a lot of translated content and investment content in it.

But in general, it is to build your own decision-making ability through common sense, just like the question I am most often asked at work: Do you think the decisions you make are all correct? Compared with a few years ago, do you think your decision-making methods or abilities have improved? How much has it improved? How to evaluate it!! Wow, one question asks everyone down!

Don’t Give Up the Miracle of Compound Interest

No matter what investment you have, compound interest and interest rates are always topics you have to pay attention to. Compound interest will bring long-term magical changes, and interest rates (rate of return) are factors that affect changes. Never give up the fact that compound interest brings, because this is the greatest gift God has given.

Passion for Something Will Make You an Influential Person in That Field

If you want to stand out in something, you have to continue to maintain your passion in that field. Munger: As long as you are smarter than others day by day, and continue to persist in the field you are passionate about, you will “have the opportunity” to stand out in that field.

Further Reading

Lazy Conclusion

懶大

金融科技新創 CEO | 獨立財務顧問

“Poor” Charlie has to dig Charlie clean! Of course, sometimes I read books quite critically! There are also some contents that I think are BULL SHIT! However, some “truths” in the book are “factual arguments” that cannot be judged no matter how critically! (And many people in society are not talking about facts in their arguments) This is the difference between instinctive decision-making (or empirical decision-making) and thinking decision-making (or data decision-making)! The most difficult thing is conscious decision-making! Whether it is life decisions or financial decisions. Of course, if you are worried about financial decisions, it is very simple, just do your own financial planning and you are done!

📩

訂閱電子報，獲取更多理財觀點

立即訂閱

🚀 已有 1,000+ 讀者加入理財成長之路

Book Purchase Link