Posts Tagged "Poor Charlie’s Almanac"

For this last monday in May, I thought I’d end with this great statement by Charles Munger regarding one of Berkshire Hathaway’s keys to success:

“We don’t claim to have perfect morals, but at least we have a huge area of things that, while legal, are beneath us.  We won’t do them.  Currently, there’s a culture in America that says that anything that won’t send you to prison is okay.

We believe there should be a huge area between everything that you should do and everything you can do without getting into legal trouble.  I don’t think you should come anywhere near that line.  We don’t deserve much credit for this.  It helps us make more money.  I’d like to believe that we’d behave well even if it didn’t work.  But more often, we’ve made extra money from doing the right thing.” – Charles Munger

I’m a firm believer in doing what is right, regardless of the cost.  It’s great to see a company as successful as Berkshire Hathaway taking this stance.

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In April of 1996 Charles Munger spoke to a group of students at Stanford University Law School. This talk was later published in Outstanding Investor Digest twice (December 29, 1997 and March 13, 1998). During the question and answer section of this discussion, one student asked Munger the following question (remember, this was in 1996):

“You discussed Coke’s mistake. Do you have any thoughts about where Apple went wrong” – Student

Munger’s answer was one that far too few people are willing to give:

“That’s not a field in which I’m capable of giving you any special insight” – Charles Munger

He didn’t have any insight into where Apple went wrong…so he said so. Why can’t more people simply admit that they don’t know something, rather than give a confident answer when they have no real knowledge related to the question or topic of discussion?

One word: Pride.

Pride gets in the way. Too many people are afraid to admit that they don’t know something, even when it’s something they really can’t be expected to know.

I learned this lesson the hard way my first two years of college. I would NEVER go and ask professors for help. If I didn’t understand something, I would try and tough it out by myself. I would work all alone at trying to solve problems and grasp concepts that were completely new to me. I would avoid answering questions in class and stubbornly do poorly test after test. I just couldn’t humble myself to go and ask for help. I beat myself up, wondering why I didn’t just get it. Why were other students enjoying class and acing the tests?

Then I noticed over time that the students that were really excelling were the ones that were with the professor during his/her office hours. They were with the TA during their office hours. They were willing to admit they didn’t know it all. They didn’t “just get it”. They worked at it, and asked for help when they got stumped.

Pride is a terrible thing. Humbleness is something we can all use more of. I’ve noticed that I’m realizing it’s value more and more lately.

Now of course, Munger didn’t JUST say he didn’t have an answer to the student’s question. He took the opportunity to beautifully illustrate the importance of admitting when one doesn’t know something:

“There’s another type of person I compare to an example from biology: When a bee finds nectar, it comes back and does a little dance that tells the rest of the hive, as a matter of genetic programming, which direction to go and how far. So about forty or fifty years ago, some clever scientist stuck the nectar straight up. Well the nectar’s never straight up in the ordinary life of a bee. The nectar’s out. So the bee finds the nectar ad returns to the hive. But it doesn’t have the genetic programming to do a dance that says straight up. So what does it do?

Well, if it were Jack Welch, it would just sit there. But what it actually does is to dance this incoherent dance that gums things up. And a lot of people are like that bee. They attempt to answer a question like that. And that is a huge mistake. Nobody expects you to know everything about everything.

I try to get rig of people who always confidently answer questions about which they don’t have any real knowledge. To me, they’re like the bee dancing it’s incoherent dance. They’re just screwing up the hive.” – Charles Munger

Don’t screw up the hive. Be humble, and don’t lead others astray because you want to appear to know it all.

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In 1986 Charles Munger gave the graduation speech at the Harvard School in Los Angeles (now Harvard-Westlake). His speech was an expansion on Johnny Carson’s graduation speech given at the Harvard School years prior, in which Carson gave his prescription for a life filled with misery. Munger’s speech is WELL worth reading in it’s entirety. However, I’d like to focus this post on Munger’s first prescription for misery – Be Unreliable.

“First, be unreliable. Do not faithfully do what you have engaged to do. If you will only master this one habit, you will more than counterbalance the combined effect of all your virtues, howsoever great. If you like being distrusted and excluded from the best human contribution and company, this prescription is for you.” – Charles Munger, 1986

This is so true, and so many people are doomed to mediocrity in my opinion because of their lack of reliability. How many people do you know that say they will do something and never follow through? How many people do you know that you CAN’T count on?

I’ve thought a lot about this, and I really believe that a big factor that plays into people’s unreliability is pride. Many people are more interested in themselves and the appearance of success and strength, than in doing the right thing. They are more interested in being “people pleasers”, than being real. If you’ve got better things to do, tell me. If you don’t feel like something is worth your time, say so. If you just can’t handle something, do everyone a favor and let us know!

It comes down to being able to set others expectations appropriately. You aren’t unreliable if you tell me you can’t do something – You ARE unreliable if you don’t do what you tell me you will.

Unreliability is also perpetuated by the culture of many organizations and teams. Without accountability and consequences for being unreliable, people never learn their lesson and correct their behavior. This lax culture of many companies today undermines the very power of a team.

Twenty years after his speech, Munger makes an excellent point about McDonald’s in this respect:

“Indeed, I have often made myself unpopular on elite college campuses pushing this reliability theme. What I say is that McDonald’s is one of our most admirable institutions. Then, as signs of shock come to surrounding faces, I explain that McDonald’s providing first jobs to millions of teenagers, many troubled, over the years, has successfully taught most of them the one lesson they most need: to show up reliably for responsible work. Then I usually go on to say that if the elite campuses were as successful as McDonald’s in teaching sensibly, we would have a better world.” – Charles Munger, 2006

Maybe working at McDonalds should be a prerequisite for every job? But then again, pride would get in the way there too…

Nobody is perfect. To me, being reliable and following through on the things I commit to doing is not something I take lightly. If I forget to do something, or I’m late to a meeting, etc, I genuinely feel bad. I apologize, and correct my mistake as quickly as possible. I feel almost like I’ve lied, because I didn’t follow through. Then I reflect on my mistake, and try my best to not let it happen again.

It’s easy to go with the status quo, to except a behavior because everyone else does. DON’T! That’s a sure fire way to be mediocre, and as many of you know, I absolutely despise mediocrity.

I’ll leave you with one last quote from Munger:

“Master this one habit (being unreliable), and you will always play the role of the hare in the fable, except that instead of being outrun by one fine turtle, you will be outrun by hordes and hordes of mediocre turtles and even some mediocre turtles on crutches.” – Charles Munger, 1986

What do you think causes people to be unreliable?

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“You must know the big ideas in the big disciplines and use them routinely–all of them, not just a few. Most people are trained in one model–economics, for example–and try to solve all problems in one way. You know the old saying: ‘To the man with a hammer, the world looks like a nail.’ This is a dumb way of handling problems.” – Charles Munger

The idea of a diverse background and multiple mental models is one that has always appealed to me. In college I studied Information Technology and Neuroscience. I’ve always been fascinated with the brain. It’s such an incredible creation, and I always felt that if I could understand the brain…the thing that governs thought and decision making, that it would be of great benefit to me in all aspects of life.

Munger’s concept of a latticework of mental models is beautiful:

“What you need is a latticework of mental models in your head. And, with that system, things gradually get to fit together in a way that enhances cognition.” – Charles Munger

This is absolutely true. When reading this quote, I was immediately reminded of one of my professors saying: Neurons that fire together wire together.”

That’s why Munger’s above quote which speaks of not only knowing, but also using all of the big ideas and concepts from the major disciplines routinely, is in my opinion such a gem of wisdom. By using them together routinely, you enhance your ability to analyze and assess problems by quite literally creating a latticework of your mental models. It’s one thing to know them all, and to pull them out when you think that they apply. However, to go through the exercise of evaluating things by forcing yourself to think about them in relation to as many different models as you can will help you build the latticework that Munger speaks about.

Munger identifies many of the basic concepts that one should be familiar with such as: Basic Arithmetic, Compounding Interest, Permutations, Combinations, Probability, Accounting, Bell Curve Model, Backup Systems, Breakpoints, Critical Mass, Basic/Practical Psychology, Psychology of Misjudgment, Microeconomics, and Advantages/Economies of Scale.

I’m going to challenge myself to brush up on all of these concepts and more, and begin consciously evaluating things using as many of them as possible.

I think this quote from Munger best sums up why so many people fail to achieve this level of discipline in analysis and assessment:

“However, my particular approach seldom seems to get through, even to people of immense ability. Things usually die after going to the “Too-Hard” pile.” – Charles Munger

Don’t let hard work discourage you from being the best you can be.

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