Charlie Munger World's Most Humble? Believe it. Plus, the Next Investor Armed With 'Umbrella Humility'.

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[1] his coryphaeus identified, though doesn’t seem to have bothered with anything like Franklin’s attempt to master the 13^th 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. 

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[1] 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.

Understanding Charlie Munger's 'Practical Thought About Practical Thought?'

 What Can Be Learned from 'Practical Thought About Practical Thought?'?

Charlie Munger's talk 'Practical Thought About Practical Thought?' from 'Poor Charlie's Almanack'

Nasdaq.com published an interesting piece on one of Charlie Munger’s most interesting (and most infamously inscrutable) talks recently: "Practical Thought About Practical Thought?".  The piece is interesting. What Munger is up to, I think, is providing a user’s guide to his concept of Mental Models.  Munger’s speech is an elaborate demonstration in how he applies his latticework of mental models. We can better understand (and better use) Munger's insights if we can recognize and think through a misunderstanding of how Munger is teaching us, and what can learn from his writing.

Munger laments that most don’t grasp the ideas in ‘Practical Thought’, which is published in “Poor Charlie’s Alamnack”, even upon reading it multiple times. The writing, like most of Munger’s, is clear enough and peppered with interesting, evocative allusions. What Munger is providing, though, is quite difficult because of his argument’s high level of abstraction.

Nasdaq.com’s contributor GuruFocus loves the piece because in it Munger deploys a “rarity of real life examples” that in turn make ‘Practical Thought’ “especially valuable”.  I don’t think that’s quite right. Munger begins with a counterfactual scenario—he uses an actual brand name, Coca-Cola—but the ‘real life’ aspect of Munger’s method ends there. He proceeds from that hypothetical starting point to examine how he’d go about solving the series of problems it presents. Obviously, he couldn’t possibly have anticipated issues like those covered in this recent Wall Street Journal piece, but doing so wasn’t the speech’s aim, anyway.

Munger gives himself the following task to solve: “You were in the year 1884 and to be chosen as the other partner in Coca-Cola's business, you must demonstrate, in 15 minutes, that your business plan will make Coca-Cola worth $2 trillion 150 years later, in the money of that time, despite paying out a large part of its earnings each year as a dividend.”

The Nasdaq.com piece then proceeds to offer a sparkling summary of Munger’s approach to solving this self-imposed conundrum. I won’t rehearse the summary or Munger’s argument; what I’m interested in is what understanding ‘Practical Thought’ means to those of us who are interested in developing and using a latticework of mental models in a way his thought suggests is possible.

What Should We Understand About How Munger Uses Mental Models in 'Practical Thought'?

It’s not too complicated trying to understand the way Munger deploys the process of simplification, or numerical fluency, or even the psychological principles that he thinks of as comprising his toolkit of mental models in 'Practical Thought'. The reason, to my mind, that people misunderstand the piece is that Munger is more interested in showing us something else. In another post on this blog, I cite an ancient Chinese proverb to explain why “Poor Charlie’s” (and any book or written material) is unlikely to provide us what we’re all looking for in using Munger’s mental models. What Munger is trying to do, though, in the piece ‘Practical Thought’ is to give us as much insight as possible into how he, to use the metaphor of the proverb, uses his chisel to cut a wheel properly. Munger is interested in the piece in showing us what the process of using mental models looks like in practice. 

Poor Charlie's Almanack. The Wit and Wisdom of Charles T. Munger. Expanded Third Edition.

Scientific though many of these models are, the system of using these models once they’re arrayed across a functional latticework (meaning that one can competently use each model individually and in concert with the others as they intersect in practice[1]), doesn’t operate by simply applying inductive reasoning. Munger’s system is bound to disappoint anyone, like Francis Bacon (no, not the one whose triptych recently sold at auction for more money than any other piece of artwork ever had), who in his "Novum Organum"  sought and tried to explicate an inductive method to understand the world. Deduction, rather, and a good deal of it, is required to operate Munger’s system.

Understanding Mental Models Means Knowing How To Use Them

What we’re looking for in trying to come to grips with Munger’s mental models is the ability to use them. As Wittgenstein reminds us, to understand is to know how to do. British thinker Michael Oakeshott, in his essay “Rational Conduct” explains why those looking for an operators manual or instruction list to the mental models will be sorely disappointed. “Doing anything both depends upon and exhibits knowing how to do it,” he writes in a vein quite similar to Wittgenstein. “And though part (but never the whole) of knowing how to do it can subsequently be reduced to knowledge in the form of propositions (and possibly to ends, rules and principles), these propositions are neither the spring of the activity nor are they in any direct sense regulative of the activity.”

Oakeshott thinks that anyone, whether a carpenter, scientist, painter, judge, cook (he doesn’t mention investor like Munger, but his thinking certainly applies to them ) “in the ordinary conduct of his life, and in his relations with other people and with the world around him is a knowledge, not of certain propositions about themselves, their tools (including mental models), and the materials in which they work, but a knowledge of how to decide certain questions.” This knowledge, he goes on to argue, is “the condition of the exercise of the power to construct such propositions.” Looking for Munger’s ‘Practical Thought’ to provide actual answers to concrete situations, in other words, is folly, because, as Oakeshott avers in another context, “a received philosophy is already a dead one.”

To make this case specific, Oakeshott argues, “‘Good’ English is not something that exists in advance of how English is written (that is to say English literature); and the knowledge that such and such is a sloppy, ambiguous construction, or is ‘bad grammar’, is not something that can be known independently and in advance of knowing how to write the language.” His point is just as true for investment as it is for language.

Thinking Clearly About What We Have To Learn

Just as Munger suggests is too often the case with his piece 'Practical Thought', Oakeshott thinks people misunderstand experience because they misapprehend how we come to learn how to do things, such as investing or applying a Munger-like latticework approach to problem solving. The reason?: "we are apt to believe that in order to teach an activity it is necessary to have converted our knowledge of it into a set of propositions—the grammar of a language, the rules of research, the principles of experiment and verification, the canons of good workmanship—and that in order to learn an activity we must begin with such propositions.” Of course, Munger operates under no such illusion. As a result, his speech ‘Practical Thought’ doesn’t offer any conclusions masquerading as ironclad propositions. And that’s much of what makes it difficult for people to understand. Munger, though, in giving us insight into his thought process provides something far better, and vastly more useful. If we can learn what to make of it.

Oakeshott can be of help here, too. Considering the rules and propositions that one might make regarding the practice of any activity, including Munger’s attempt at teaching via his Coca-Cola example in 'Practical Thought,' Oakeshott writes, “it must be observed that, not only are these rules, etc., these propositions about the activity, an abridgment of the teacher’s concrete knowledge of the activity (and therefore posterior to the activity itself), but learning them is never more than the meanest part of education in an activity.” 

Oakeshott’s understanding of what can be learned and taught is instructive—it suggests that there’s much more to learn from Charlie Munger than a set of propositions or rules. He also suggests that the stuff we have to learn beyond rules and propositions is a lot harder to learn than those rules are.

Such rules “can be taught, but they are not the only things that can be learned from a teacher. To work alongside a practiced scientist or craftsman is an opportunity not only to learn the rules, but to acquire also a direct knowledge of how he sets about his business (and, among other things, a knowledge of how and when to apply the rules); and until this is acquired nothing of great value has been learned." This is what we should hope to get out of studying 'Practical Thought'; we should appreciate this speech not because, as GuruFocus would have it, it's peppered with real life examples, but because we're afforded a peek into how Munger actually sets about his business. 

If You Made It This Far...

You're well on your way to understanding both 'Practical Thought About Practical Thought?' and effectively acquiring and using Munger's latticework system of mental models.

Congratulations. 

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[1] A fun example from Academic Economics: Strengths and Faults After Considering Interdisciplinary Needs: once you get into the joys of synthesis, you immediately think. “Do these things interact?” Of course they interact. Beautifully. And that’s one of the causes of the power of a modern economic system. I saw an example of that kind of interaction years ago. Berkshire had this former savings and loan company, and it had made this loan on a hotel right opposite the Hollywood Park Racetrack. In due time the neighborhood changed and it was full of gangs, pimps, and dope dealers. They tore copper pipe out of the wall for dope fixes, and there were people hanging around the hotel with guns, and nobody would come. We foreclosed on it two or three times, and the loan value went down to nothing. We seemed to have an insolvable economic problem -- a microeconomic problem.

Now we could have gone to McKinsey, or maybe a bunch of professors from Harvard, and we would have gotten a report about 10 inches thick about the ways we could approach this failing hotel in this terrible neighborhood. But instead, we put a sign on the property that said: “For sale or rent.” And in came, in response to that sign, a man who said, “I’ll spend $200,000 fixing up your hotel, and buy it at a high price on credit, if you can get zoning so I can turn the parking lot into a putting green.” “You’ve got to have a parking lot in a hotel,” we said. “What do you have in mind?” He said. “No, my business is flying seniors in from Florida, putting them near the airport, and then letting them go out to Disneyland and various places by bus and coming back. And I don’t care how bad the neighborhood is going to be because my people are selfcontained behind walls. All they have to do is get on the bus in the morning and come home in the evening, and they don’t need a parking lot; they need a putting green.” So we made the deal with the guy. The whole thing worked beautifully, and the loan got paid off, and it all worked out.

Charlie Munger Donates Second Largest Gift Ever--$100 Mill to University of Michigan

Charlie Munger is an honest guy. He donates $110 million to the University of Michigan, says he deserves little credit for it (and means it), and admits he got the idea for the donation from someone else and that one of the main reasons he's ok celebrating it is because he loves attention.

Charlie Munger Donates $110 Million

Munger was reported as saying he's “cheerfully cooperating in a limited amount of celebration of his gift,” partly out of duty and partly because he enjoys the attention.

“But I particularly want to avoid any perception that I claim large donative merit. After all, I waited until my 90th year before making the gift, then gained friendship and creative joy in working with the university in a very interesting design effort likely to have a good outcome, while I parted with assets I soon won’t need.”

He’s given UM previous donations. Those, though dwarfed in amount by this most recent gift, were similar to this $110 million donation in that the all were aimed at providing facilities improvements that would contribute to students’ ability to study comfortably. He gave $20 million for improvements to the campus’ Lawyers Club housing complex and $3 million to the UM Law School for infrastructure improvements.

The three gifts are and will continue to be hugely beneficial to students. Another Munger gift, though, holds much more promise. That gist was the result of a simple agreement Warren Buffett elicited from Munger at the behest of Peter Kaufman. Kaufman recognized that he was not alone in wishing for a book that complied Munger's wisdom, and so he prevailed upon the Berkshire Hathaway magnate to in turn prevail upon Munger, his long-time business partner, to agree to cooperate in the making of such a book. I'm not sure agreement is a proper description of Munger's attitude, but he, at least, acquiesced. Reportedly on the condition that any proceeds from the book be donated to the Munger Research Center at the Huntington Library.

Munger's Greatest Gift to Date

The resulting book is a tour-de-force. Mostly a collection of speeches he has given over the years, the book contains the ingredients to what Munger takes to be the keys to attaining 'worldly wisdom'. Modeled after Ben Franklin's Poor Richard's Almanack, Poor Charlie's advocates for a multidisciplinary education that integrates the biggest ideas into a coherent worldview.

Munger's ideas provide the impetus for this blog. I recognize in Munger's thought the mental parrallel to Glassman's thinking regarding the body. And I hope to be able, in future posts, to provide some insight as to how to accomplish the widsom Munger thinks is possible. I welcome any suggestions those familiar with Munger's thinking can provide as to how to accomplish this.