Remembering Charlie Munger | BlueRun Ventures

蓝驰创投·November 29, 2023·0·0

"Taking the broad road is the mark of true wisdom."

At next year's Berkshire Hathaway shareholder meeting, no one will be sitting beside Warren Buffett. On November 28, 2023, Charlie Munger's family announced his passing.

Next to the loquacious Buffett, Charlie Munger would often say, "I have nothing to add." But in Buffett's own words, Munger was the friend and golden partner who helped him "evolve from an ape to a human." He was the investor who, alongside Buffett, built a 19.8% annual compound growth rate over 57 years, and even more so, a master who illuminated others through his simplicity and integrity.

The article we're sharing today compiles Munger's thoughts on business thinking, observations, and reflections on business operations and investing from The Tao of Munger — Charlie Munger's Shareholder Meeting Speeches: 1987–2022. The book was only released in mid-2023. The man has passed, but his wisdom and character endure.

I succeeded because I mastered a few thinking methods when I was young and used them repeatedly

1. Human society is intricate and complex. Behind every great success or failure, there is always a confluence of factors. Warren's success is no exception.

First factor: brains. Warren is very intelligent. He's not so smart that he could play blindfolded chess simultaneous exhibitions, but he is naturally gifted. Warren is a smart man, yet his achievements have surpassed his native intelligence.

Second factor: Warren has an intense interest in investing. Sir William Osler said: "The first step toward success in any field is to fall in love with that field." Without intense interest, there is no path to success.

Third factor: Warren started early. From about age ten, Warren developed a strong interest in investing. Success is built over time. Starting early is, of course, an advantage.

Fourth factor, and a very important one: Warren is a highly efficient learning machine. He keeps learning until old age.

Fifth factor: trust. Being trusted by others naturally gives rise to a sense of pride.

Berkshire has an open secret: we most prefer companies whose year-end profits come in the form of large piles of cash.
When valuing a company, if you don't distinguish between the nature of profits — whether they're cash profits or machines sitting idle on vacant lots — and simply take the profit number and calculate from there, your valuation will certainly be inaccurate.

A company whose profits are machines piled on empty lots, or uncollectible accounts receivable, where cash is never seen — no matter how high the profits, it's not worth much. A company with a steady stream of cash profits — that's worth something.

Psychology has a concept called the reinforcement effect. Whatever you do, with continuous reinforcement, everyone can do better. If people are rewarded each time they do well, they'll keep improving. Warren Buffett is no exception.
I find it very useful to make a list when facing difficult problems. Once you lay it all out on paper, everything becomes clear at a glance. You can think through problems more thoroughly and won't miss anything.
When I answer questions, I don't simply answer whatever you ask. I always pick what I want to answer. This is a way of thinking for me. I ponder what I don't want, and how to avoid such outcomes. This way of thinking has benefited me greatly.
If I were running a business school, I would emulate what Harvard Business School used to do. In the past, Harvard Business School always started by teaching students American business history. I would present the histories of major companies like General Motors in Value Line chart form, letting students first become familiar with corporate history and build a foundation before moving on to other subjects.

Why did General Motors rise? Why did it decline? Why were railroad companies initially successful? Why did they later fail? Why did railroad companies lose investors so much money in the past, yet are more worth investing in now? If you think through these questions clearly, you can learn a great deal. These aren't questions that ordinary people can explain clearly — they're much harder than calculating beta coefficients with formulas.

I've done many foolish things. I'm constantly fighting against my own prejudices. Eliminating wrong ideas is a good thing. I make the elimination of wrong ideas one of my pursuits.

In life, many people cling to the old and reject the new. Their minds are full of old ideas; new ideas simply can't get in. A German proverb puts it well: "We always grow old too soon and wise too late." Everyone has this problem.

How can we avoid being one of the crazy majority and instead stand with the clear-headed minority? We must always remember Kipling's admonition — to keep your head when all about you are losing theirs. This is a rare and valuable quality for both investors and corporate executives.
Fully recognizing the limits of objective conditions, fully recognizing the limits of one's own abilities, and cautiously operating within those limits — this is the secret to making money. This secret is less about "humility" and more about "restrained greed."
Warren and I are well aware of our limitations. We know clearly that there are many things we cannot do, so we cautiously stay within our "circle of competence." We both consider our "circle of competence" to be a very small circle.

When I was young, a friend said: "Munger only studies the things related to his own business. Anything unrelated to his business, he simply doesn't know." Between what we know and what we don't, we draw a clear boundary. We only operate within the circle of what we know.

12. Excellent people are rare. Having the opportunity to follow them, to walk alongside them, may be worth paying a premium for — it may yield rich rewards in the future.

I've said in several speeches that to think correctly, you must establish a multi-model way of thinking. You must master all the major models. Not a single important model can be missing. The main models are not numerous in number. Master them all, and you can thoroughly analyze 98% of what happens in the world.
Faced with difficulties, many people choose to run away. We choose to engage. At least this attitude is positive — willing to endure present pain in exchange for long-term peace. Many people constantly run away, unwilling to bear short-term pain. Seeking out hardship, voluntarily eating the bitterness before you — this is the correct attitude toward life. The same is true for investing: exchanging short-term pain for long-term returns.
People should constantly improve themselves. We should learn the main knowledge of various disciplines rather than getting entangled in trivial details. I particularly emphasize absorbing the main knowledge of various disciplines, so as not to miss the forest for the trees. Integrating the main knowledge of various disciplines can unleash tremendous power.
I've spent my whole life in dialogue with the ancients. The wisdom of the sages and philosophers is beyond what many contemporary people can achieve. It's very simple to meet them — no need for arduous travel. Just open a book, and they will come to your side. I suggest you befriend the sages and philosophers.

In my interactions with them, I have benefited greatly. From many of you sitting here, I can't learn much. But Adam Smith is different — he has taught me a great deal.

I have another perspective on facing difficulties. Life's difficulties come one after another. Each difficulty is a test of us, an opportunity for us to prove ourselves. I suggest you face difficulties with this attitude. Especially when you grow older, this attitude is very useful.
There are no shortcuts to learning model thinking. On one hand, we must store a large number of models in our minds. On the other hand, we must be able to skillfully use each model. There are no shortcuts to learning this way of thinking. Perhaps there are, but I don't know of them. My approach can be summed up in two words: "perseverance."
Thomas Carlyle has a famous saying: "Rather than worrying about the dim future, it is better to be down-to-earth and do well what is in front of you." This is very well said. Most of the time, we should do well what is before us, do our part, and leave the rest to fate.
I'm not Jewish, but I greatly admire Jewish humor. Jews make up only 2% of the world's population, yet they create 60% of the world's humor. The Jews have endured so much suffering, yet they can still laugh at life — truly admirable. I greatly appreciate the Jewish people. I suggest you, like me, learn from the Jewish attitude of laughing in the face of suffering.
How to become a person of intelligence and live a happy life? Persist in doing meaningful things. Persist in being a person of value. Persist in pursuing rationality, integrity, and honesty. One day, success will surely come. Example is better than precept. If you achieve success, others will be more willing to learn from you. If you persist in walking the right path, you are more likely to succeed. You are already on the right path. All you need to do is keep going.

22. Think a problem through thoroughly, and the problem is half solved.

I have a classification method for thinking about problems that I'll teach you. For many especially difficult problems, I create a special category. The name of this category is "too hard." There are many things that are too hard for me. I don't even think about them — I simply toss them into the "too hard" category. Simple things are few, but I only do simple things. This is my classification method for thinking about problems.
Looking back, there are always things that could have been done better. Yet everyone inevitably misses opportunities from time to time. I've always believed that you shouldn't dwell too much on things you can't change. Complaining and grumbling about everything is a great taboo in life.
If you learn my methods, you too can succeed. I succeeded because when I was young, I mastered a few thinking methods and later used them repeatedly throughout my life.

First, I take the main road, because the main road has fewer people. Taking the main road — that is true wisdom.

I also pursue rationality. Partly due to genetic influence, partly due to family environment, I developed the habit of pursuing rationality from childhood. This good habit has benefited me my whole life. This is a tremendous advantage. In politics and business, foolish behavior is innumerable.

Among the people I've met, those who ultimately succeed are the patient and rational ones. They live within their means and live honestly. They are cautious and do things right. When opportunity comes, they pounce and seize it. You young people, if you live as I've described, can also succeed.
Whatever happens, we should maintain a positive attitude. No matter how great the difficulty, we should find ways to get through it.
In the long run, those who can delay gratification live better. Some people can't control themselves from childhood, and when they grow up they spend money recklessly, buying flashy but useless things like Rolexes and Patek Philippes. An adult should be thrifty and delay gratification, not spend freely.

The quality of delayed gratification is basically innate — this conclusion has been confirmed by psychological research. If you have some natural talent for delayed gratification, and you can cultivate this talent, you are already on the road to success and happiness.

29. People who want something and want it immediately will not only accomplish nothing, but may fall into the abyss.

Lee Kuan Yew had a catchphrase he often used: "Find the right method, and do things according to the right method." This principle is simple; everyone understands it, but few can put it into practice.
My standard is this: I have a view, someone else holds the opposite view — unless I can refute my own view more forcefully than they can, I have no right to speak on this matter. Constantly practicing this way of thinking, always falsifying, always cross-examining yourself, can reduce your own ignorance.
If you want to be happy, the first thing is to lower your expectations. This is something you can control. Always harboring unrealistic expectations dooms you to a life of pain. I'm very good at lowering my expectations, so I live quite well.

33. When you're in adversity, you need the determination to grit your teeth and keep your head down and work hard. Complaining and grumbling will only make life increasingly bitter and difficult.

People all look forward to the day when they can consume extravagantly and show off their wealth to others. Human desire is the driving force of modern capitalist society's development. I suggest young people avoid high consumption — that's not where you should be. Stay away from high consumption, stay away from showing off. The satisfaction of desire cannot bring happiness. However, people's pursuit of desire does indeed drive the development and progress of civilization.
When people ask me how to be happy, I always answer: lower your expectations, that is, make your expectations more realistic.

How to become a qualified manager?

I once led a trading stamp company, watching its sales fall from $120 million to $2 million. Sales dropped by 99%. Watching sales decline month after month, I was powerless. I tried all sorts of methods hoping to stop the decline, but unfortunately none worked.
There used to be a seasoned veteran of the investment world. Whenever young people suggested he take risks, he always said: "It's the best swimmers who drown in the river." When you hit a whirlpool and the current is too strong, no matter how good your swimming skills, you can't escape. Thus: fight when you can win, run when you can't.
Warren has great appreciation for excellent management, but in his investment process, he has never paid above asset value simply because the management is excellent. The price he pays for assets is always slightly below their value. Excellent management is part of the asset, but Warren doesn't pay above value because management is excellent.
In Warren's eyes, an excellent manager is someone who, if you threw him off a train into a remote small town with no money, could start from scratch and build wealth again in short order through honest, upright operation.
In Berkshire's shareholder letters, Buffett quotes David Ogilvy: "Always hire people who are bigger than you are, and we shall all become giants." Buffett strongly agrees with this philosophy, and so do I.
In working with others, both Warren and I first hold ourselves to high standards. Because excellent people work alongside us, we have achieved what we have today.
There's only one way to find an excellent partner: you have to be worthy of one. By the same token, to find excellent people to work with, you yourself must first be an excellent person.
High delegation is our style. I'm the type who either delegates completely and lets go entirely, or gets personally involved and does everything myself. I don't know how to find a middle ground on this. To both delegate and supervise — Warren may be slightly better at this than me, but not by much.

9. Looking at business history, many companies have had glorious moments and made big money, but when they're eliminated by new waves of technology, their capital is quickly exhausted, and they eventually perish.

Berkshire's success is a miracle, but the vast majority of eliminated companies can only perish like Kodak. Bill Gates specifically studied this problem. His conclusion: when the core business declines, the vast majority of companies head toward bankruptcy. As powerful as General Motors was, it couldn't escape this rule.

Recently, I met the CEO of Johnson & Johnson. He made a very good impression on me. He told me they regularly reflect on and summarize their acquisition strategy.

This is an excellent system. If everyone could develop the habit of self-reflection, it could drive the progress of civilization as a whole. Many people always run away, afraid to face their own mistakes. Johnson & Johnson does well — not afraid of criticism, not afraid of losing face. Learning lessons from failures and mistakes is a virtue.

Any highly leveraged financial institution, no matter how diligent and responsible its management, can suffer unexpected losses.

The key is whether they can solve the problem immediately after the unexpected occurs. When problems surface, many companies' first thought is how to cover them up, how to use accounting tricks to get through. We believe in facing problems directly and solving them immediately.

The method of physics requires us to always pursue the essence of things. In the real world, learning to see through to the essence allows us to live more calmly. Exploring the essence is not achieved overnight — you must have the spirit of "sitting on a cold bench for ten years." I like this spirit. It's a spirit of perseverance, of not stopping until the goal is reached.
From Berkshire's actual situation, the business strategy we now adopt should be quite reasonable. We tailor our approach for each subsidiary, choosing the development strategy most suitable for it. Our management style is full delegation. We respect each subsidiary's actual situation, letting subsidiaries operate autonomously rather than sitting at headquarters issuing orders to each one. Over the years, this organizational form has brought Berkshire tremendous competitive advantage.
Whether investing in stocks or managing enterprises, the ability to judge people is very important. How can you judge people accurately? How can you avoid misjudging? This problem isn't so simple. You can only learn through more experience and more insight. Just like walking into a Ford 4S dealership and pondering whether the company's business is good and why — judging people is the same principle. Observe more and think more.
I'm willing to work with excellent people, not with mediocre ones. When I was a lawyer, there was a saying I always kept in mind: "In the legal profession, if you do well on your own cases, you won't lack for business." Daily Journal's software business follows the same philosophy. As long as we work steadily and diligently, we won't lack for prospects. We will encounter adversity and failure, but we won't stop moving forward.
We don't understand the specifics of the software business, so how do we lead Daily Journal? We mainly rely on knowing people and using them well.
I've always dealt with people who are good at delayed gratification. Such people, again and again, delay gratification, putting off satisfaction until the very end of life, never enjoying themselves throughout their entire lives. We are such people. If you delay gratification like us, you will certainly become wealthy, and very wealthy when you die.

Running a company, if you understand delayed gratification, you can run the company better and better. Understanding delayed gratification in life, you can die with great honor.

Whatever you do, always be filled with love for it, learn with insatiable hunger, and tirelessly hone your craft. Given time, you will naturally reach levels that ordinary people cannot reach. Some people can find a career they love and devote all their energy to it. Warren's achievements are breathtaking. If Warren weren't good at learning, Berkshire might forever have remained a small company.
In today's China, high-speed rail extends in all directions. China's achievements have attracted worldwide attention. The United States developed by borrowing from Europe. China's rise relied on self-reliance — they saved half their income. They are particularly good at delayed gratification. China's achievements are admirable; China's methods are very effective. I have very favorable feelings toward China.

China also has a problem. The Chinese problem is that they gamble too much and are particularly superstitious about luck. People who believe in luck are very ignorant. Don't believe in luck; believe in probability.

20. I've discovered a principle in my life: the friendships formed through shared hardship and struggle, through building something together, are the closest. This kind of bond cannot be established in stable, prosperous good times.

In adversity, we are exhausted from coping and struggling painfully, yet adversity best tempers the will, forges friendships, and nurtures success. Only through shared struggle in adversity can people establish the bond of sharing both hardship and prosperity. This bond is precious beyond measure.

Why did General Electric's performance plummet? On one hand, there are external objective reasons — in fierce business competition, companies' ups and downs are normal. On the other hand, I believe General Electric's executive rotation system was unreasonable.

General Electric constantly rotated executives, moving them between different departments. Was this meant to let them accumulate merit like military officers, eventually rising to general? Better to let executives manage one business long-term and let them deeply cultivate their own business, like Berkshire's approach. General Electric's decline may be somewhat related to its unreasonable management approach.

In the process of management work, the easiest mistake to make is: you've already realized someone needs to be replaced, but you can't make the decision, dragging it out for a long time before finally replacing the unsuitable person. Even people with many years of management experience easily make this mistake.
The larger the company, the harder it is to establish the right culture. Just look at behemoths like General Motors and AT&T — their cultures are basically nothing to write home about. Large companies are particularly susceptible to the common malady of bureaucracy. This is a chronic disease; once contracted, it's hard to cure.

Berkshire maintains high vigilance against bureaucratic disease. We sing the empty city stratagem at headquarters, not giving bureaucratic disease any opportunity. The absence of bureaucratic atmosphere, combined with clear-headed senior management, gives us tremendous advantage.

The more successful the company, the more successful the government department, the more easily it becomes dizzy with success, the more easily it becomes corroded by bureaucratic atmosphere. As bureaucratic atmosphere breeds, a group of vested interests will gradually emerge, enjoying various privileges, eating well, drinking well, living well.

Outsiders hate bureaucracy; internal vested interests vigorously defend it. The success of modern civilization breeds bureaucracy; within bureaucracy, stupidity and failure are nurtured. This is the tragedy of modern civilization. Isn't it so? Bureaucracy is the chronic disease of modern civilization.

Some things cannot be learned by just anyone. Some people are naturally better than you. No matter how hard you try, you can't compare with them. Faced with this fact, my attitude is "it doesn't matter."

26. We succeed not because we're good at solving difficult problems, but because we're good at staying away from difficult problems. We simply look for easy things to do.

Our Daily Journal company also has its principles. We don't sign contracts that would let us be lazy, lest we slide into degeneracy.
If someone is a drunk who frequently gets plastered, we definitely stay away. People can often judge whether someone is worth associating with based on one or two characteristics. We're relatively good at catching people's characteristics. Over the decades, being good at reading people has helped us greatly.

Only two or three good opportunities

From an investment perspective, what we should pay attention to is technological progress of epoch-making significance. First you must discover the technological transformation, then see whether this industry has strong moats.
We should remain calm. Opportunities that everyone favors — opportunities that everyone knows are real, reasonable, and exciting, that seem absolutely unmissable — people will inevitably swarm toward them, causing serious stampedes. Opportunities that everyone favors are most prone to stampedes and cause the most devastating losses.
Warren often talks about the difference between good businesses and bad businesses. He says: in a good business, every decision is simple, requiring no thought; in a bad business, every decision is difficult, always caught between a rock and a hard place, struggling to move forward. Personally, I believe that even when analyzing the rationality of a company's fixed asset investment, it's best to make investments that require no thought.

We like good businesses. Good businesses throw us softballs that we can hit every time.

In long-term investment practice, we've summarized some criteria. The most ideal company is one that generates cash exceeding net profit each year, providing owners with large amounts of freely disposable cash. Such companies are rare as phoenix feathers. Simple to describe, but rarely seen in reality.
As long as I can withstand the volatility, holding three stocks is sufficient. I reached this conclusion through rough calculation and logical reasoning. As a poker player, I know that when the probability of winning is very high, you should bet heavily.

I'm also well aware that concentrated holdings have greater volatility. I know I'm someone with very strong psychological resilience. I learned from my parents not to bow down before difficulties. My temperament is very suited to this concentrated holdings approach.

We're all value investors, but our scale is larger than yours, and the investment environment has deteriorated. It's hard for you; it's even harder for us. Fortunately, we've long since upgraded our thinking: for some companies, even if we buy at a high price, it's still far below their intrinsic value.

Investing our way requires accurately judging a company's prospects. You must not only be able to see that a company's business is good now, but also see that it will remain a good business for a long time to come. If you can truly select the five most beautiful from the "Nifty Fifty," you can still achieve good investment results. The key to this investment approach is getting the degree right.

Three things we "don't do" when investing:

We're accustomed to buying and holding for the long term. This model may not be suitable for investing in companies that produce ordinary commodities.
The telecommunications and utilities industries are not areas we excel in.
I never buy stocks above intrinsic value.

Our methods are very basic. Investing as we do, you only need to find mispriced opportunities in the stock market. You should play to your strengths, screening in areas you excel at to find mispriced opportunities. What we discuss is very basic. Do these most basic things well, and that's enough.
Wise people are good at comparing opportunity costs. From the opportunity cost perspective, many problems are easily solved. I said at the Berkshire shareholder meeting that when choosing a life partner, you should select the best one from among those you can reach and who are willing to join hands with you. Some people are willing to join hands with you, but you can't reach them — they're outside consideration.
When you've clearly identified a good opportunity, what's there to discuss? Just do it. Strike when the time is right — no need to waste words. Investing is about finding such unambiguously good opportunities. How I wish we could have more such good opportunities.
Fundamentally, you still need to understand a company's business, clearly see what threats it faces, what opportunities it has, and its competitive position. Looking only at past earnings growth, past return on capital, past sales — it's hard to accurately predict a company's future. Only on the basis of deep understanding of the business can you more accurately predict a company's prospects. To invest, you really need to understand the business.
Warren often tells business school students that he has a method to help them improve their investment returns. Take a card. On this card, you can only punch 20 holes. Each hole represents one investment. Make one investment, punch one hole. Once all 20 holes are punched, your lifetime investment opportunities are used up. Warren says if you do as he says, you can achieve higher returns in your lifetime.

Warren was serious when he said this, and I'm serious in repeating it. For an intelligent, disciplined investor, making only 20 investments in a lifetime will ultimately yield better returns. Because lifetime investment opportunities are limited, you'll certainly be extremely cautious with each investment, and definitely keep your eyes fixed on big opportunities.

There's a common sense in life: when making decisions, whether as individuals or companies, people consider opportunity costs. The broader your investment scope, the more investment opportunities you have. A broad investment scope is good, but it also makes it easier to stray outside your circle of competence. Our investment scope is very broad, but we rarely leave our circle of competence. Of the investment opportunities we review, 90% to 95% are judged to be outside our circle of competence — we don't understand them, so we simply don't look at them.
Graham (note: investment master, Warren Buffett's mentor, author of The Intelligent Investor) proposed the principle of margin of safety. This concept never goes out of style. Graham taught us that the market is our servant, not our teacher. This concept never goes out of style.

These two concepts Graham proposed are the foundation of investing and will never become outdated. From Graham's thinking, we can also learn to remain calm and objective, unaffected by emotions — this too will never become outdated.

15. Most investors act too slowly. In investing, one must keep eyes wide open waiting for opportunities to appear; the other is that when opportunities appear, you must act decisively. Always be prepared. That's all there is to it.

Only by adopting multi-model thinking can we better understand reality. Especially in investing — investors' scope is very broad, and investing is not easy. Without the ability to integrate, it's impossible to correctly understand reality.
Investing requires some resilience. Investing is a long-term matter. Since you've prepared for long-term investing, when you encounter a 50% decline, you must firmly withstand it — don't be scared shitless. I tell you from personal experience: cultivate yourself well, and when you encounter a 50% decline, be able to remain "unmoved when Mount Tai collapses before you."
The secret of investing is that for a few big opportunities, you can truly see them. When your big opportunity appears, you can understand it while others can't. As I said, just seize these few big opportunities, and that's enough.
The widely circulated Kelly Criterion can tell us how much to bet on each trade when you have an edge. The greater your edge, the higher the probability of success in this trade, the more you should bet. My investment method is correct — it's supported by mathematical principles.
Sometimes, an opportunity is so good that it's like taking candy from a baby. Buying just this one opportunity is completely reasonable. There are only two or three good opportunities.
Why is Li Lu doing so well? On one hand, he can be considered the Chinese version of Warren Buffett. On the other hand, he's fishing in China. The US market has been turned over who knows how many times — crowded, hyper-competitive. The China market is different. There, you can still exploit others' stupidity and laziness to dig out very worthwhile investment opportunities.
The first rule of fishing is: fish where there are fish. The second rule of fishing is: remember the first rule. In an extremely competitive environment, no matter how hard you try, it's useless.

23. There are many successful investment styles. Some people's style is quick in and out, and they do it very successfully. Quick in and out is not my style. My style is long-term holding. I don't study how to exit.

Moats do disappear quickly indeed. Old-era, traditional moats vanish in the blink of an eye. Perhaps this is the inevitable result of economic development — in the modern economic system, old moats inevitably face elimination.
Ultimately, there is only one kind of investing: value investing. Why do I say this? Because every time we make an investment and put money in, it's to obtain more value in the future.

In the process of investing, we can't multitask — just like you can't run marathons in 12 different places at the same time. So you need your own method, to find an area worth your deep study. This place is your hunting ground. No matter which area you choose to dig deep into, what you're pursuing is value.

In my view, value investing never goes out of style. As I understand it, no matter what stock you buy, value investing is always paying a lower price for higher value.