Poor Charlie's Almanack

Summary

I think the main insight from Poor Charlie's Almanack is that one needs to have strong mental models in order to deal with the world effectively. This is analogous to an idea from Principles by Ray Dalio. Namely if you can accurately categorize the world into "another one of those" situations, you can act easily. For Munger these mental models come from a set of first principles–from reading the great literature in most basic fields so that you have a basic, yet good understanding of how the world works. He is also for learning from the best minds in history. This idea, and probably to a large extent the thinking of Charlie Munger and this book, is what inspired Shane Parrish to create his blog Farnam Street, where he covers those mental models in much greater detail.

When you have solid intuitions based on a mental framework of how the world works, you are just better equipped to deal with the world. Knowing about supply and demand, opportunity cost, incentives, compound interest and margin of safety, goes a long way toward making better decisions, and those are only a small subset of the useful mental models Munger talks about.

Munger is also discussing the principle of inversion a lot, instead of focusing on success, and how to get there, focus on how things could go wrong, somebody who is rarely wrong, tends to often be right. This reminds me big time of Stoicism and books like the Meditations by Marcus Aurelius. Avoiding biases and mental pitfalls is also a big part of Mungers philosophy. Biases can alter the way we make decisions, usually for the worse, and being aware of and counteracting them, is a big part of being effective in life. Other core ideas of munger are that of patience (invest in one good company, then wait), the power of incentives ("Show me the incentives and I will show you the outcome"), life long learning and improvement (going to bed a little smarter or wiser than the day before), staying within ones circle of competence (knowing what one knows and then sticking to this, while working to expand it), integrity (staying true to ones words and promises), and the power of compound interest (small changes applied consistently over time can lead to big results).

Overall, Charlie Mungers wisdom is old-fashioned. It's principle and value focused, putting emphasis on hard and diligent work, preparation, and humbleness. It is therefore also timeless and classic and similar to a lot of old philosophy like stoicism. It reminds me a lot of the advice given in books like 7 Habits of Highly Effective People by Stephen Covey. At it's core it's about character and virtue, about building a personality and life that you can be proud of because you did good work, and then not being proud about it, but instead humble and working to grow even more.