It’s no secret that Charlie Munger idolizes Benjamin Franklin. Warren Buffett makes the point in the forward to the excellent “Poor Charlie’s Almanack” that Munger has sought to emulate and improve where possible on Franklin’s thinking. (Buffett notes that Munger’s only addition to his predecessor’s essay “Advice on the Choice of a Mistress” was simply his trademark “I have nothing to add”).
|Buffett on Munger's humility.|
Like Franklin, Munger worked very hard at 12 virtues his coryphaeus identified, though doesn’t seem to have bothered with anything like Franklin’s attempt to master the 13th virtue: humility. Perhaps this is the result of Munger’s take on opportunity cost, “Opportunity cost is a huge filter in life. If you’ve got two suitors who are really eager to have you and one is way the hell better than the other, you do not have to spend much time with the other. And that’s the way we filter out buying opportunities.” Acquiring humility, for Munger, might have seemed a fabulous waste of time given Franklin’s opinion that acquiring humility wasn’t really possible. Franklin wrote, “for, even if I could conceive that I had compleatly overcome [my pride], I should probably be proud of my humility.”
Munger has even been quoted as saying, “In my whole life, nobody has ever accused me of being humble. Although humility is a trait I much admire, I don’t think I quite got my full share.” He mentions, in a comedic vein, that he has only managed to partly overcome his defect of the conventional definition of humility by “becoming very rich, and generous…it takes both to overcome a defect like that.”
I was quite surprised to come across a video in which Munger makes the claim that both he and Buffett are massively humble. Munger redefines the concept of humility. “If you know the edge of your own competency and you aren’t arrogantly stepping over the boundary. I’m very good at that. But within my own area of competency, my best friend wouldn’t not adore me for my humility.”
In fact, he defines this characteristic as being key to his success. When asked with the question why a couple of guys from Omaha do so much better “I think we know the edge of our own competency better than other people do. And that’s humility in the umbrella sense. And that is a very important thing to know.” (The topic of humility comes up at about the 9 minute mark of the video above).
Using Munger’s ‘Umbrella Humility’
Warren Buffett and Charlie Munger were in a reflective mood at their latest ‘woodstock for capitalists’ gathering for the Berkshire Hathaway annual shareholders meeting. The pair even offered a prospective look at what the next 50 years is likely to bring for their conglomerate—the most successful in the history of the world.
Buffett’s and Munger’s recent treatise is already well-worn ground, and has been covered much better by those vastly more qualified (and interested) than I. Yes, the talk of succession planning—some remarked that succession planning is Buffett’s and Munger’s most glaring blind-spot—has people obsessed with who’s next at Berkshire. More than that, though, it was the recent death of fellow Graham super-investor Edward Schloss—and the fine retrospective by his son—that turned my attention to a related but even more important question. Rather than finding a replacement at Berkshire, what if one could instead find the next Berkshire, the next Buffett?
Now, I don’t think there’s much chance that anyone will come along and duplicate Buffett and more than anyone will come along and be the next Michael Jordan (though LeBron’s ability to, as Haralabos Voulgaris tweeted, “reinvent himself into hyper usage Lebron. #witness” is perhaps even more superhuman than Jordan—as Buffett wrote about ‘superinvestor’ Bill Guerin, “Size is the anchor of performance. There is no question about it. It doesn’t mean you can’t do better than average when you get larger, but the margin shrinks.”—and Curry’s handle, quick release and range are qualities I’m sure even Jordan would have wished for). While I’m sure whomever takes over the CEO position at Berkshire will be extraordinarily capable, and Berkshire will be just fine. But if I were looking for performance anything like Buffett’s own, I’d look somewhere that more closely resembled Buffett’s starting point rather than his (near) end point. I’d want to find a person or team that had some room to grow.
Charlie Munger frames the issue well, speaking about Jack Welsh he averred, “What you want is a nut, and one young enough to have a good long run…”. I’ve taken some time off from this blog to pursue an advanced degree. Anything resembling a loyal reader I’d attracted along the way is no doubt long gone, alienated by my year-long hiatus. That’s too bad. I’ve never been interested in most of the stuff that people are looking for—even, probably, from this blog itself—either the path to riches or a strong, functional body. I’ve been concerned with the process—what processes make people fit intellectually and physically? But this post will actually deliver on the good people are looking for: where do I find the next Berkshire, and how will I know when I see it?
Greg Glassman has spelled out the basic fundamentals in physical fitness more explicitly, but both Glassman and Munger offer compelling accounts of how we can train our minds and bodies. Glassman’s general physical preparedness is very much like Munger’s latticework of mental models. Use either and you’re likely to do quite well in this world. They’re both pretty simple, but neither is anything but easy.
So people continue to look for get-rich and get-fit schemes that take shortcuts and somehow cheat the process. Glassman’s method certainly won’t help anyone who doesn’t use it. For proof, just look at Glassman himself. What about Munger’s?
Of course, no one will get any smarter who pours over “Poor Charlie’s Almanack” who doesn’t then incorporate the insights the book contains into her own thinking and practice. Both Munger and Buffett consistently stress the importance of learning continually—and that continuously applying his mental models approach is essential to this task. Most people, though, don’t care about acquiring a coherent set of mental models to put to use in solving life’s—or even investing’s!—vexing problems. What most people want is to acquire a lot of money. So, despite the fact that, as Michael Oakeshott points out, “One may purchase a painting, but not an understanding of it,” people realize that they don’t have to understand money to spend it.
While Glassman correctly understands the nature of fitness, his understanding won’t make him any fitter. To be fit he needs to put his understanding into practice. Warren Buffett and, to a lesser extent, Charlie Munger are popular precisely because getting rich doesn’t have this character. It’s no more possible to think like Charlie Munger without taking the steps to cultivate a mind like his than it is to get fit by reading the CrossFit Journal. But a lot of people got rich by simply having enough sense to let their money ride on Berkshire, and the geniuses Buffett and Munger. Those who bought in early enough and stayed in long enough may not be able to think like Charlie Munger or Warren Buffett, but they’re no more likely to feel the sting of the insult, “if you’re so smart, why aren’t you rich?”
Find a Combination of a Genius and a Fanatic…and One Young Enough to Have a Long Run
Charlie Munger is famous for valuing many things over IQ. Clearly, it didn’t take a massive IQ to stick with Berkshire (or Wesco—though, Munger himself did experience a rough patch (note years 1970-1974 in the chart below), leading credence to the idea that taking the long view in investing as in life is a very good idea). The guy who introduced me to Charlie Munger has a near perfect collection of all the stuff Munger prizes. It’s no accident. He’s studied Munger as long as I’ve known him. His name is Allan Mecham, and he runs a fund that does quite well. I don’t know what his IQ is—I’m suspect it doesn’t match Munger’s—but he’s plenty smart. What’s truly amazing is that he’s every bit as disciplined as his idol. You might do well buying into Munger—just take a look at what he’s done at Daily Journal Corp.—but you probably won’t sustain those returns for too many years.
Given that you don’t have to actually be able to acquire and apply Munger’s mental model approach—all you need is to be able to find someone who can—many people are invested in seeking out that kind of person. Few people have that kind of dedication. I attended the University of Utah near the end of Rick Majerus’s run as basketball coach there—Majerus might be on the Mount Rushmore of combining genius with fanaticism. I scheduled afternoon classes in the building adjacent to the team’s practice facility because I loved watching and learning from him. He was singularly devoted to—most would say obsessed with—basketball. He had little life outside the game. In his autobiography, he deflected praise of those who called him a genius saying that if he were he’d go to Wall St. and make real money.
While most of the rest of our circle of friends was concerned with youthful pursuits—like basketball—Mr. 400% was focused on learning from the best. He digested everything he could get his hands on about Buffett and Munger. He had the single-mindedness of Majerus, but the game he was interested in, unlike the ball coach, was Wall St.
I’m grateful to Allan for introducing me to Charlie Munger for the increased understanding Munger’s ideas continually afford me. The rest of you can be grateful for the understanding—and application—Mecham has acquired. Because he’s going to make a lot of people a lot of money. I obviously have no idea what it was like for those who recognized Buffett’s ability early enough to bet on it 50 years ago. But Mecham’s young—I’m not yet 40 and he was a couple grades behind me in school—enough and dedicated enough to have a good 50-year run in him.
The point of this blog was never to be focused on finance, let alone to offer advice on how people might invest their money. But in thinking about Munger’s idea of ‘umbrella humility’, it’s obvious that not everyone will be able to acquire what Oakeshott calls the practical knowledge necessary to invest successfully any more than everyone will be able to beat the market. Recognizing that Munger’s famous aversion to frictional costs in transactions suggests that simply investing in a market index fund is a pretty good way to go. I suspect there’s an even better option, though.
I don't know if Allan Mecham has any more or less conventional humility than Charlie Munger. I do know, though, that he shares with Munger the rare attribute of umbrella humility. He's also got a track record to prove it. Amazingly, he's also got a lot of years ahead of him.
 Here's Franklin's full list:
1. TEMPERANCE. Eat not to dullness; drink not to elevation.
2. SILENCE. Speak not but what may benefit others or yourself; avoid trifling conversation.
3. ORDER. Let all your things have their places; let each part of your business have its time.
4. RESOLUTION. Resolve to perform what you ought; perform without fail what you resolve.
5. FRUGALITY. Make no expense but to do good to others or yourself; i.e., waste nothing.
6. INDUSTRY. Lose no time; be always employ’d in something useful; cut off all unnecessary actions.
7. SINCERITY. Use no hurtful deceit; think innocently and justly, and, if you speak, speak accordingly.
8. JUSTICE. Wrong none by doing injuries, or omitting the benefits that are your duty.
9. MODERATION. Avoid extreams; forbear resenting injuries so much as you think they deserve. 10. CLEANLINESS. Tolerate no uncleanliness in body, cloaths, or habitation.
11. TRANQUILLITY. Be not disturbed at trifles, or at accidents common or unavoidable.
12. CHASTITY. Rarely use venery but for health or offspring, never to dulness, weakness, or the injury of your own or another’s peace or reputation.
13. HUMILITY. Imitate Jesus and Socrates.