Decision Making
Inversion
Instead of asking how to succeed, ask what would guarantee failure, then refuse to do those things. The failure list is the one you can actually write.
Read the frameworkVice chairman of Berkshire Hathaway, author of Poor Charlie's Almanack
Focus
Decision Making
Instead of asking how to succeed, ask what would guarantee failure, then refuse to do those things. The failure list is the one you can actually write.
Read the frameworkCircle of Competence
Know exactly what you understand deeply and what you do not. Operate primarily within the boundaries of your genuine expertise where you have an edge. The size of your…
Poor Charlie's Almanack / Berkshire Hathaway Shareholder Meetings / A Lesson on Elementary, Worldly Wisdom (USC Speech, 1994)
The Too Hard Pile
Maintain three mental baskets for every opportunity: In, Out, and Too Tough. Most things go in the Too Hard Pile. There is no degree-of-difficulty premium in investing…
Berkshire Hathaway Shareholder Meetings / Poor Charlie's Almanack
Opportunity Cost Framework
Every allocation of finite resources must be measured against the next best available use. Proper capital allocation is an investor's number one job, and the highest and…
Poor Charlie's Almanack / Berkshire Hathaway Shareholder Meetings / A Lesson on Elementary, Worldly Wisdom (USC Speech, 1994)
Moats
Moat Analysis (Durable Competitive Advantage)
A wonderful business is protected by a 'moat' -- a durable competitive advantage that prevents competitors from eroding its economics over time. The moat can take the…
Poor Charlie's Almanack / Berkshire Hathaway Shareholder Meetings
If you cannot explain why a business will still be dominant in 20 years, you do not understand it well enough to invest in it.
When evaluating the durability of a competitive moat
Berkshire Hathaway Shareholder Meetings / Poor Charlie's Almanack
If a business has pricing power (it can raise prices without losing customers), it likely has a strong moat worth investigating further.
When quickly screening businesses for durable competitive advantage
Scaling
If you have a dumb incentive system, you get dumb outcomes.
When designing compensation structures, organizational policies, or evaluating why a system produces bad results
Berkshire Hathaway Shareholder Meetings
If you need to delegate a task, always give the reason why it matters -- people comply far more readily when given reasons (even weak ones).
When leading teams, delegating work, or asking for cooperation
The Psychology of Human Misjudgment (Reason-Respecting Tendency)
Career
If you reduce the number of skills you practice, you will naturally drift toward the man-with-a-hammer tendency -- continuously practice diverse thinking skills.
When considering whether to specialize too narrowly or let skills atrophy
The Psychology of Human Misjudgment (Use-It-or-Lose-It Tendency)
Lifelong learning is not optional -- it is the foundation of all worldly wisdom and competitive advantage.
Munger believed that the world is constantly changing, circles of competence can shrink, and new models become relevant. The only defense is relentless reading and…
Mindset
Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts.
When thinking about personal development and the compounding effect of incremental learning
USC Law School Commencement Address, 2007
Assiduity -- sitting down on your ass until you do it -- is essential. Sustained, focused effort on the most important things produces compounding returns.
Munger used the word 'assiduity' deliberately to emphasize that persistent, focused work on the right problems is the unglamorous foundation of all great achievements.…
USC Law School Commencement Address (2007)
Charlie Munger
builds defensively: understand failure through inversion, eliminate ignorance through the circle of competence, survive surprise through a margin of safety.
takes the other side for company builders. A bad plan is better than no plan, and definite optimism with a concrete vision is what produces transformative outcomes, because iteration without a bold plan will not take you from zero to one.
From Inversion