Poor Charlie’s Almanack is a collection of anecdotes and musings written by Peter D. Kaufman, an American journalist who wrote the book during his time as New York Bureau Chief for The Economist in 1987
Poor Charlie’s Almanack is a book by Peter D. Kaufman. It was published in 1843, and it is a collection of anecdotes about the poor and their struggles to survive. The author uses humor to portray the truth of life for those who struggle to get by.
Are you seeking for a summary of Peter D. Kaufman’s Poor Charlie’s Almanack? You’ve arrived to the correct location.
After reading Peter D. Kaufman’s book, I wrote down a few significant takeaways.
If you don’t have time, you don’t have to read the whole book. This book synopsis gives you a quick rundown of all you can take away from it.
Let’s get this party started right now.
I’ll go through the following points in my Poor Charlie’s Almanack book summary:
What is the purpose of Poor Charlie’s Almanack?
Poor Charlie’s Almanack investigates the financial ideas of Charles Munger, one of the world’s most reclusive millionaires.
Munger has been a prominent figure in Berkshire Hathaway’s investing choices, which have resulted in billions of dollars in profits. The millionaire, on the other hand, isn’t only motivated by wealth.
You’ll discover about his motivational ethical investing philosophy, the necessity of paying taxes, and how he supports educational institutions and causes like Planned Parenthood.
Who wrote Poor Charlie’s Almanack, and who is the author?
Charles Munger founded his own successful legal practice after graduating from Harvard Law School.
A serendipitous encounter with Warren Buffet led the millionaire vice chair of Berkshire Hathaway to investing.
Poor Charlie’s Almanack is a collection of Munger’s investing advice culled from Berkshire Hathaway board meeting minutes and Munger’s own lectures.
Who is the target audience for Poor Charlie’s Almanack?
The Almanack of Poor Charlie is not for everyone. If you are one of the following folks, you may like the book:
- Investors looking for advice on how to choose the most lucrative stocks
- Historians interested in the life and times of one of today’s most successful businessmen
- Those who want to learn more about the psychology of financial choices.
Summary of Poor Charlie’s Almanack
Introduction
Charles T. Munger is a name you’ve probably never heard of. In the era of Instagram and flamboyant shows of riches, this is truly astounding.
Munger would rather remain at home, in the house he’s lived in for decades, with his nose in a book than cruise the Caribbean on his way to a private island.
Mr. Munger is well-known for his down-to-earth demeanor and philosophical approach to investment. It’s wonderful to hear from someone who sticks by his beliefs, from insisting on honest reporting of data to refusing to park his money in tax havens, at a time when many Wall Street investors are cynical.
This, according to Munger, is not only the ethical thing to do, but also smart business.
Lesson 1: Charlie Munger had a strong work ethic and altruistic attitude as a child.
Charlie Munger worked at Warren Buffet’s grandpa Ernest’s grocery shop when he was a teenager. It wasn’t just a casual summer job. Munger was paid two dollars every day for working 12-hour stints without a break. Despite the ordeal, he developed a work ethic that would serve him well throughout his career, from supermarket stacker to millionaire.
Munger’s children remember their father working long hours, leaving before sunrise and arriving home before dinner. He went back to work after eating. Munger’s mind was undoubtedly on work even while he was physically there.
He’s recognized for his razor-sharp concentration and remarkable ability to filter out all distractions, which comes in handy when there are eight youngsters vying for your attention.
Munger made a point of emphasizing the importance of hard work in his children in addition to educating them about work ethic. One of his kids, William Borthwick, recalls Munger teaching him how to do things well the first time or face the consequences.
Borthwick’s responsibilities included purchasing a newspaper and picking up their maid in town. It included boating over a river and then driving a short distance. On one especially severe day, Borthwick completed the journey amid roaring gales.
He neglected to pick up the newspaper because of the strong storm. When Munger learned of this, he promptly ordered Borthwick to return – storm or no storm!
It may have been harsh, but it was a valuable lesson. Bornwick attributes his increased productivity to the event.
Despite Munger’s severe parenting, his children have good memories of their childhoods. He made it a point as a parent to encourage his children’s jobs and education.
Munger, a well-known philanthropist, is helpful to more than simply his immediate family. Munger grew up during the Great Depression and saw the effects of poverty firsthand. As a result, he makes every effort to contribute to society.
He has made significant donations to colleges and hospitals alongside his wife, Nancy.
He has also been a staunch advocate of issues important to his heart, such as Planned Parenthood. Munger believes that giving back is just as essential as working hard.
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Lesson 2: Munger’s unorthodox academic experience allowed him to be independent and think creatively.
It’s difficult to believe that someone with just a bachelor’s degree could be so successful. Despite being interrupted by World War II, Munger continued his studies at the University of Michigan. Rather, he became the investor he is today as a result of his unusual schooling.
Munger started passionately studying at an early age. His parents pushed him to read throughout his youth and often gave him books as presents. Munger was continuously on the lookout for new information.
He spent a lot of time at the library of a family friend who was a doctor when he was a teenager. As he immersed himself in medical periodicals, he developed a lifelong interest with science and medicine.
Munger opted to pursue a different love in college: mathematics. Later, he decided to major in physics, which he says was crucial to his success since it taught him how to use logic to solve complicated issues.
Munger, on the other hand, was unable to finish his studies. Young men were aggressively urged to join the military prior to World War II.
After completing his second year of college, Munger enlisted in the Army Air Corps and was sent to the University of New Mexico to study science and engineering in preparation for a future as a pilot.
After that, he studied meteorology at the famed California Institute of Technology.
Munger was dismissed from the military in 1946 after serving in the Army Air Corps. Munger’s schooling was patchy after that. He had never received a degree despite visiting a number of elite colleges.
Munger went through a number of professional changes throughout this time. After a family friend who was a dean intervened on his behalf, he got accepted to Harvard Law School. Munger’s lack of a bachelor’s degree had no impact on his academic pursuits.
His academic curiosity and high IQ allowed him to finish magna cum laude, a degree for which he was a top performer in his class.
World War II’s interruptions would turn out to be a gift in disguise. Munger’s unorthodox route was shaped by these variables, and it equipped him to think freely and imaginatively, skills that he has used throughout his career.
Lesson 3: Munger started his professional investment career following a fortuitous dinner encounter.
Munger joined a legal company in California after graduating from Harvard and became exceedingly rich. He founded the profitable company Munger, Tolles, and Olson in 1962.
Munger, on the other hand, was agitated. As a profession, he didn’t want to be a lawyer. In his view, he want more: more money, more power, and more chances to put his abilities and knowledge to good use.
Munger was destined to meet a stranger over dinner, laying the scene for a new job that would prove to be the fulfillment of all his desires. He returned to Omaha shortly after his father’s death in 1959 to settle his father’s inheritance.
Warren Buffet was invited to a dinner hosted by many family friends. Buffet was just 29 years old at the time, but he was already a business and investment aficionado.
It was going to be a pivotal encounter. For hours, Munger and Buffet conversed. Business, money, and history were among the themes explored. Munger had finally discovered someone who shared his intellectual zeal!
This discussion resulted in a collaboration that has lasted for almost half a century. Munger was persuaded by Buffet that his abilities were better suited to the realm of finance and investing. Munger gradually quit his legal company in 1965. After that, in order to invest, he created a partnership with a legal colleague.
Munger determined that rather than managing money directly for investors, he would develop wealth by owning shares in a holding company, which was a huge success.
Finally, Munger joined Buffett in leading Berkshire Hathaway, resulting in the firm’s exceptional successes that have earned it a reputation as one of the world’s most recognized investment businesses.
Munger uses components of all of his past schooling into his financial choices with Buffet in their partnership.
His education in physics and mathematics helps him solve problems, and his experience as a lawyer has given him the respect for the law and the attention to detail required to manage a reputable company.
Buffet, on the other hand, keeps Munger on his toes by constantly presenting him with intellectual challenges as well as access to a wide range of commercial options.
As a consequence of their mutually beneficial cooperation, they have been able to remain on top of their investment game even as they approach their nineties.
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Lesson 4: Charlie Munger is a disciplined investor who is dedicated to functioning under strict ethical guidelines.
Wall Street is portrayed in films like The Wolf of Wall Street as a place full of thieves seeking to take advantage of people.
There are undoubtedly many unscrupulous investors, and corruption flourishes due to a lack of regulation. There are, however, many principled investors, and possibly the finest example is Charlie Munger, and by extension Berkshire Hathaway.
The corporation is massive, with 175,000 workers. All workers are not required to obey the legislation to the letter. However, for a company of this size, there have been relatively few controversies or lawsuits. Because of this, clients and partners have faith in the company.
Munger is against methods like doctoring the books to make your investments seem better or trading insider information.
It’s tempting for investment managers to do so; they’re under a lot of pressure from their customers to show that they’re valued intermediaries who bring value to their assets. As a result, many people find up cutting shortcuts and breaching the law.
The financial world has gotten so used to this approach that it has become the standard, with executives excusing their actions by claiming that everyone else does it.
The same may be said of tax evasion. As international commerce has grown, corporations such as Amazon have sought to avoid paying taxes by establishing operations in tax havens such as Dublin or the British Virgin Islands.
These socially acceptable means to breach the law are not tolerated by Munger. Berkshire Hathaway’s employees and stockholders are rigorously urged not to enter gray areas of the law and to avoid any moral ambiguity in their interactions. Berkshire Hathaway pays all of its taxes.
Berkshire Hathaway has mostly maintained a positive image as a result of this policy, although other corporations, such as Enron, have been embroiled in controversies.
However, there have been close calls. One of the banks in which Berkshire Hathaway invested was Salomon Brothers. Despite Buffett and Munger’s caution, Salomon opted to collaborate with several unsavory partners, including famed crook Robert Maxwell.
These connections almost drove Berkshire Hathaway to its knees, confirming Munger’s notion that dealing with individuals who share your ethical values is essential.
Lesson 5: Berkshire Hathaway’s Charlie Munger forecasted the 2008 Global Financial Crisis, which helped the business escape harm.
Munger’s ethical business approach has become especially notable in the aftermath of the 2008 Global Financial Crisis. He constantly chastised accountants who used “creative accounting” to assist their customers in manipulating their financial records well before the catastrophe.
Munger decries the moral deterioration of corporate accounting organizations. While he recalls them being ethical businesses in his childhood, he has seen them modify their ethical standards throughout the course of his life.
Accountants have sold up their moral values in favor of being “filthy wealthy,” as Munger puts it, by assisting their customers in doctoring the books and exploiting legal loopholes.
Accounting for derivatives, in Munger’s view, is one of the most unethical acts. Financial contracts are produced by speculating on the value of an underlying asset.
For example, student loans may be packaged and sold to investors depending on the value they will have after the borrowers have paid. Derivatives are dangerous since the value is just predicted rather than explicitly established.
The derivatives become worthless if the borrowers are unable to repay them. Student loans are among the riskiest derivatives.
Munger was well aware of the dangers of increasing the worth of your books purely for the sake of speculating. He even went so far as to term derivative accounting “disgusting” and warn businesses to expect a “major blow-up.”
Munger’s remarks proved to be hauntingly prophetic in the end. In 2008, the financial crisis hit. People were unable to repay their debts as house values plummeted. The market crashed like a house of cards once derivatives were shown to be worthless.
Berkshire Hathaway was, of course, one of the few companies to come out undamaged. Finally, resisting the allure of creative accounting was not just ethical; it was also a wise business decision.
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Lesson 6: Astute investors learn from their errors and aren’t afraid to change their ideas.
According to the investor, a finance officer at one of Charlie Munger’s firms made a bad investment decision that lost the company hundreds of thousands of dollars. The officer addressed the company’s president and confessed after understanding what he had done.
It was a huge blunder, and the president warned the chief financial officer to be more cautious in the future. Despite this, the officer kept his job because he confessed right away rather than trying to hide it.
This incident encapsulates Munger’s attitude on honesty.
Despite his zero-tolerance stance for liars, he adopts a realistic approach to errors. He feels that mistakes are unavoidable. You must accept responsibility for your errors and learn from them.
Munger readily acknowledges to making several blunder judgments over his career. Due to “errors of omission,” such as failing to recognize an investing opportunity or not acquiring enough shares, he has made a number of severe blunders as an investor.
There are a few cases that are absolutely revolting. For example, Berkshire Hathaway passed down an investment opportunity in Walmart because the stock was too pricey. However, they ended up losing billions of dollars!
Munger and Buffet were on the verge of investing in See’s Candy, a high-end candy firm. They failed to realize the full worth of the firm because they thought the price was too high.
They changed their views and invested after hearing from a colleague about the importance of valuing quality – a choice that has resulted in more than two billion dollars in earnings for Berkshire Hathaway.
One of Munger’s best traits is his capacity to modify his views in difficult circumstances. He compares thoughts to tools, saying that if you discover a more helpful one, you should toss out the old one. He can continue to learn and improve since he takes it in stride when someone disagrees with him.
Humans have a natural need to conceal their errors. When we hesitate to recognize that we were wrong, it might seem like a show of weakness or insecurity. Munger illustrates that the contrary is true: only persons who are very self-assured can admit to making a mistake without hesitation.
Lesson 7: Patience and attention are two of an investor’s most critical qualities.
Munger advocates “sit-on-your-ass investment,” which emphasizes patience as one of the most crucial characteristics of a successful investor.
Both Buffet and he wait for an opportunity, like as an inexpensive stock in a firm that they believe will become lucrative, to present itself. They seize opportunities as soon as they see them and acquire significant chunks of the firm. They frequently keep onto a company’s stock for a long period after purchasing it.
Although the wait-and-see strategy is not as thrilling or nerve-wracking as many of their rivals’ investing plans, it has proved to be quite profitable.
Following the 1987 stock market fall, Munger and Buffet recognized an opportunity to buy Coca-Cola shares.
Even though the value had decreased, they believed Coca-Cola was a powerful firm with unrivaled brand awareness, and that the value would eventually rebound. After spending $1.3 billion, Berkshire Hathaway became the company’s biggest stakeholder.
For their trust in the business and willingness to play the long game, they were handsomely rewarded – the identical shares are now worth $8 billion!
Berkshire Hathaway might have hedged its chances by investing a lesser sum in a larger variety of enterprises, a strategy known as diversification.
They could have depended on their other investments if Coca-Cola had failed. Berkshire Hathaway, on the other hand, prioritizes quality above quantity. They are typically able to obtain a majority share in fewer firms by investing in fewer companies, giving them more power over the fate of those companies.
Furthermore, Munger feels that if you chose well, a large portfolio is unnecessary. Ten high-quality enterprises are worth more than an inconsistent mix of under- and over-performers.
He’s had excellent investing success by patterning his investment strategy after the patient tortoise rather than the fast hare. It may not seem glamorous from the outside, but that is irrelevant. What matters is the end result.
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Lesson 8: A good investor must be able to address issues using a range of mental models.
Munger narrates the tale of a laborer who only has one tool: a hammer, in one of his parables. That’s why he sees every situation as a bludgeoning problem.
In the long term, an investor who just takes one approach to an issue will suffer. Whatever the case may be, you’ll strive to bend the reality to match your answer. To be effective, you’ll need a diverse set of tools from several fields. This will enable you to adjust your problem-solving and thinking abilities to the circumstance at hand.
Some of the world’s most prominent educational institutions focus on a single subject. Academic departments are embroiled in bloody turf warfare for knowledge. This has a negative impact on educational quality.
Pilot training may be used as an effective educational model. To be a pilot, you must be able to think outside the box and adapt to difficulties with exceptional mental agility. When it comes to piloting an aircraft, the guy with the hammer approach might have fatal results.
Pilots are required to put their training into practice and show mastery of what they’ve learned, not simply in theory. It’s not enough to pass an exam.
Pilots may also utilize flight simulators to display their problem-solving abilities and maintain their knowledge up to date. This keeps their thoughts engaged and aware at all times.
Pilots, too, go through checklist routines, generating a mental inventory of the issue and its possible causes or remedies – even if they don’t believe they’re plausible at first. As a consequence of this exercise alone, pilots are compelled to examine paradoxical options.
Developing investors would be better ready to think through complicated issues and make sound judgements if they approached their schooling in this manner, using interdisciplinary information, rigorously updating their abilities, and engaging in mental checklists.
Lesson 9: Successful investors realize and capitalize on their own limits.
Investors must be psychologically aware. The most essential thing you can do is recognize your own limits.
We all have blind spots and knowledge gaps that make it difficult to view situations properly. Regrettably, we are equally subject to subliminal manipulation. This is why advertising works so well — or did you believe you bought a can of Coke on your own initiative?
When making an investing choice, Munger recommends using a “two-track analysis.” Take a step back and consider all of the information about the investment – what are the true risks and advantages of investing in this company?
Then you must analyze the psychological forces at work in the circumstance that may be subconsciously affecting your choice and causing you to form wrong conclusions.
Are the executives of the firm you’re contemplating investing in attractive to you because they flatter you? Will your dislike towards them impair your judgment and cause you to pass up a financially solid investment?
You can take use of your abilities as an investor if you know what you don’t know. Munger and Buffett have clearly defined “circles of competence” to decide if they are competent to make an investment.
They don’t invest in high-tech companies like computers and internet services because they lack sufficient knowledge. As a consequence, they’ve squandered some potentially profitable investment chances.
They’ve also avoided making a mistake in an area they’re unfamiliar with, which might have resulted in a catastrophic defeat.
Within reason, you may, of course, enlarge your scope of expertise. You may become an expert in a certain legal field by specializing in it. If you are not currently a champion tennis player, it is doubtful that you will become one very soon. Knowing the difference is knowledge.
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Lesson 10: For investors, the ability to predict the crest of a wave is critical.
Finding a profitable investment is becoming more challenging as the market grows more competitive.
Many individuals consult Benjamin Graham, a pioneer of value investing, while deciding whether or not to buy anything.
Graham divided the worth of a corporation by its number of shares when calculating its value if it were sold privately. The investment would be beneficial if the shares were on the market for less than a quarter of the company’s true value.
This technique has been successfully applied by several organizations, including Berkshire Hathaway. However, firms that have such low-priced shares often fail.
Munger argues that investing in excellent firms that are expected to improve rather than seeking for companies that have previously failed is really more lucrative.
The issue is, how can investors tell whether a firm is excellent or not?
A lot of elements must be taken into account. The value of effectively managing a firm cannot be overstated; a good manager can turn a company around.
For General Electric, Jack Welch crafted a tough but ambitious plan (GE). He ordered that all GE divisions be closed if they did not rank first or second in their respective markets.
Welch’s ideas sparked debate, but they were beneficial to GE as a firm and, as a result, to investors.
The present market position of a company’s product is also crucial. Coca-Cola and Gillette razors are two examples of items with extensive worldwide distribution and unparalleled brand awareness.
Furthermore, Gillette is able to invest in cutting-edge technologies, allowing it to stay competitive.
A smart investment is virtually always the result of a good product and strong management. Finding a firm that is positioned to prosper, on the other hand, is the surest way to earn a fortune.
Microsoft is an example of this, according to Munger. The corporation was in a strong position during the start of the personal computer boom.
In addition, the corporation had the capacity to profit from its position. For investors, Microsoft was like a surfer’s dream wave — a once-in-a-lifetime chance. When you see a wave like this, jump on it!
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Final Thoughts
A competent investor understands the importance of being cool and patiently waiting for the proper investment opportunity to show itself. Rather of holding hundreds of stocks, the ideal plan is to concentrate on a few high-quality assets and keep them for the long term.
Being a principled investor means living by your moral and ethical convictions. This is not only ethically correct, but it is also excellent business.
Additional Reading
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