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 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.
[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.