Charlie Munger - How to be wise, notes from Richer Wiser Happier by William Green.

 

General principle 

Reduce fooish thinking, idiotic behavior, unoriginal error, and standard stupidities. 

Everyone’s trying to be smart, so try to be non-idiotic. To get ahead, all you have to do is avoid being an idiot and live a long time. 

General tactic

Identify disasters, “what caused it?, avoid that as a way of finding opportunities.

1. Get extreme clarity about what not to do.

2. Collect other peoples’ foolish behaviors.

3. Rub your own nose in your mistakes. 

4. Adopt a few standard practices and unbendable rules.

5. Internalise a checklist of universal errors in decision making.

6. Use a systematic analytical process to think methodically.

7. Prevent toxic emotions arising or insure against them.

Six ways to think like Munger:

1. Garrett Hardin: if somebody asks how to help India, ask what are all the things I could do to really RUIN India? And don’t do those. 1986 Munger speech, prescriptions for guaranteed misery. Unreliable, resentments, revenge, envy, addictions, not learn from others, cling to beliefs, stay down when struck. For any decision, ask “Is this going to be a disaster?” Look for trouble and mess. List all the pitfalls others overlook, work backward, then avoid that. Get extreme clarity about what not to do. “Nothing is more critical than staying away from your ignorance.” Superior is difficult, less inferior is easy. Planning bottom lines: “What would be a bad outcome and how do I avoid that?

2. Collect other peoples’ foolish behavior is an antidote to idiocy. Talk about idiotic mistakes.

3. And your own. Transparency about mistakes makes you unlikely to repeat them. Rub your own nose in your mistakes. 

4. Nothing matters more than averting obvious catastrophic errors. Know what you own: if you or another can’t tell you how you do it, it’s probably bad. Understanding core principles is the best defence against disaster. Always maintain a margin of safety from buying assets for less than they are worth. Standardised requirement for action to force yourself to systematically buy only when you have a sufficiently attractive proposition. Adherence to process is an indispensable safeguard against trouble. Adopt a few standard practices and unbendable rules. For example, don’t fly the plane if you or your copilot don’t have a warm and fuzzy feeling in your stomach during the trip. Give two trusted friends the power to veto decisions. 

5. Internalise a checklist of universal errors in decision making. The most enduring advantages are psychological. The human mind is not built for rational decision making. Use Munger’s list of 25 psychological tendencies to make bad decisions as a checklist. Incentives rule. Ben Franklin, “if you would persuade appeal to interest not reason” - Buffet: “when thinking about how to do anything, start by thinking only about the power of incentives.” Fear advice that benefits the advisor. Honorable behavior signals trust. Incentive structures express values: honorable and unselfish or perverse incentives. Munger: legal standards aren’t a guide, ask “what is beneath me?” Doubt-avoidance defect: tendency to quickly remove doubt by rushing to a decision or conclusion, usually under stress. Inconsistency-avoidance defect: we prioritise information that reinforces what we already believe. Demonsthenes, “nothing is easier than self-deceit, for what each man wishes, that he also believes to be true.” If you desire or fear, then your assessments are biased, say “I suffer desire or fear and my judgement will be colored by it.” Imitate extreme objectivity of scientists like Darwin, Einstein, Feynman by being hard on yourself, work at reducing stupidity, care about thinking things through properly with unflinching determination to disconfirm. Celebrate demolishing a false belief. Take satisfaction in ignorance removal. Seek to destroy your best-loved ideas. A good year is a year you destroy a best-loved idea. Consciously train yourself to study counterarguments as accurately as your own views. Read articles you disagree with. Seek those who are okay to disagree and are very logical. Argue the positive bullish view and the negative bearish view. Do a devil’s advocate review on paper of a decision. Argue against decisions you’ve already made because Endowment Bias predisposes you to keep to decisions you’ve already made. Premortem, assume the decision proved to be a disaster and why. 

6. Shubin Stein. Imagine your decision failed and write an article explaining why. You can’t immunise yourself against cognitive biases.  Rewrite Mungers list of cognitive errors in your own words and examples. Inventory mistakes you’ve made in the past. Diagnose which mistakes you are most vulnerable to. Ask “Why might I be wrong?”. Richard Heuer CIA “a single piece of evidence can support more than one hypothesis.” Heuer developed a rigorous 8 step procedure for evaluating multiple hypotheses. Use a systematic analytical process to think methodically. Checklist, inventory, premortems, discussions with skeptical friends. Bull/bear analysis: write two columns. 

7. Prevent toxic emotions arising or insure against them. HALT-PS - hungry angry lonely tired pain stress. The four preventative medicines we KNOW improve brain health and function in advance of stress are meditation, exercise, sleep and nutrition, and they compound with use. During stress, do less, sleep on decisions, clear calendar, withdraw, self-care. Munger controls toxic emotions by KNOWING that anger, resentment, self-pity, anxiety, victimhood, envy are stupid. “I don’t let it run. I don’t let it start. I’m trying not to be stupid every day all day. If the odds are against me, I just don’t play. Stupid games are beneath my dignity.”

Munger on career: a game where you have an advantage and deep interest and unusual talents.