Charlie Munger: 100 Years of Wisdom Summed Up in 12 Minutes

Studying Charlie Munger completely changed my life for the better, and I know it will do the same for you. Munger recently passed away just weeks shy of his 100th birthday, so I wanted to make this video as a tribute to him. I have spent countless hours studying every piece of content from him I can get my hands on, so here are my seven favorite lessons from Charlie. I hope you find them to be just as impactful as I did.

And then there are people on the TV, another wonderful place, and they say, "I have this book that will teach you how to make 300% a year, and all you have to do is pay for shipping, and I will mail it to you." How likely is it that a person who had suddenly found a way to make 300% a year would be trying to sell books on the internet to you? It's ridiculous, and yet I've described modern commerce, and the people that do this all day think they're useful citizens—the advertising agents—and invent the lingo.

And so in insurance, they say, "Well, they say the two people who shifted from GEICO to the Glotz Insurance Company saved $400 each," but they don't tell you there are only two such people in the whole United States, and they were both nuts. They mislead you on purpose, and I get tired of it. I don't think it's right that we deliberately mislead people as much as we do. We have to deal in things that we're capable of understanding.

And then, once we're over that hurdle, we have to have a business with some intrinsic characteristics that give it a durable competitive advantage. And then, of course, we would vastly prefer a management in place with a lot of integrity and talent. And finally, no matter how wonderful it is, it's not worth an infinite price. So we have to have a price that makes sense and gives a margin of safety considering the natural vicissitudes of life. It's a very simple set of ideas, and the reason that our ideas have not spread faster is that they're too simple.

The professional classes can't justify their existence if that's all I have to say! I mean, it's all so obvious and so simple—what would they have to do with the rest of the semester? If I look at the people in my generation who were the nerds, who were patient and rational eventually did well, who lived within their income and worked at being sensible, and when they saw an opportunity, grabbed it pretty fiercely and so forth—I think that'll work for the new nerds of the world.

I'm going to try and just give an account of some ideas and attitudes that have worked well for me. I don't claim that they're perfect for everybody, although I think many of them are pretty close to universal values, and many of them are can't-fail ideas.

What are the core ideas that have helped me? Well, luckily I got at a very early age the idea that the safest way to try and get what you want is to try and deserve what you want. It's such a simple idea—that's the Golden Rule, so to speak. You want to deliver to the world what you would buy if you were on the other end. There is no ethos, in my opinion, that is better for any lawyer or any other person to have. By and large, the people who had this ethos win in life, and they don't win just money, just honors and medals—they win the respect, the deserved trust of the people they deal with, and there is huge pleasure in life to be obtained from getting deserved trust.

And so, the way to get it is to deliver what you'd want to buy if the circumstances were reversed. My father had this best friend and client, and he also had this other client who is a big blowhard. He was always working for the big blowhard and he wasn't ever working for his wonderful client, whom I admired. I said, "Why do you do this?" And he said, "Charlie, you idiot. The big blowhard is an endless source of legal troubles; he's always in trouble overreaching and misbehaving and so forth, whereas Grant McFadden treats everybody right—the employees, the customers, everything he gets involved with. If some psychotic comes up, he walks over there and makes a graceful exit immediately. So a man like that doesn't need a lawyer."

My father was trying to teach me something, and it really worked. I spent my whole life trying to be like Grant McFadden, and I want to tell you—it works, it really works. Peter Coffin is always telling me, "If the crooks only knew how much money you could make by being honest, they'd all behave differently." Warren has a wonderful saying I like; he says, "You take the high road—it's never crowded."

I had a grandfather who was very useful to me, my mother's grandfather. He was a pioneer; he came out to Iowa with no money, but youth and health, and took it away from the Indians. He fought in the Black Hawk Wars; he was a captain in those wars. He stayed there, bought cheap land, and he was aggressive and intelligent and so forth. Eventually, he was the richest man in the town and the bank, and highly regarded with a huge family and a very happy life.

He had the attitude, having come out to Iowa when the land was not much more than a dollar an acre and having stayed there until that blacktop sold and created a modern rich civilization in some of the best land in the world. His attitude was that in a favored life like his, when you were located in the right place, you just got a few opportunities. If you live to be about 90, the trick in coming out well was seizing the few opportunities that were your fair share that came along when they did. He told that story over and over again to the grandchildren who hung around him all summer.

My mother, who had no interest in money, remembered the story and told it to me, but I'm not my mother's natural imitator. I knew Grandpa was right, and so I always knew from the very first, I was a little boy, that the opportunities that were important were going to come to me were few, and that the trick was to prepare myself for seizing the few that came.

This is not the attitude they have at a big investment counseling thing. They think if they study a million things, they can know a million things, and of course, the result is almost nobody can outperform an index. Whereas I sit here with my Daily Journal stock, my Berkshire Hathaway stock, my holdings in Leeloo's Asian fund, my Costco stock, and of course I'm outperforming everybody, and I'm 95 years old. I practically never have a transaction, and the answer is I'm right and they're wrong, and that's why it's worked for me and not for them.

In the investment world, people involve an enormous amount of high IQ people trying to be more skillful than normal. You can hardly imagine another activity that gets so much attention, and weird things have happened. Years ago, one of our local investment counseling shops—a very big one—they were looking for a way to get an advantage over other investment counseling shops. They reasoned as follows: "We've got all these brilliant young people from Wharton and Harvard and so forth, and they work so hard trying to understand business and market trends and everything else. If we just ask each one of our most brilliant men for their single best idea, then create a formula with this collection of best ideas, we would outperform averages by a big amount."

That seemed plausible to them because they were ill-educated. That's what happens when you go to Harvard and Wharton. They tried it out, and of course, it failed utterly. So they tried it again, and it failed utterly. They tried the third time, and it also failed. And of course, what they were looking for is the equivalent of the alchemists of centuries ago, who wanted to turn lead into gold. They thought if you could just buy a lot of lead and wave a magic wand over it, you could turn it into gold—that would be a good way to make money.

Well, this counseling shop was looking for the equivalent of turning lead into gold, and of course, it didn't work. I could have told them, but they didn't ask me. Now, the interesting thing about this situation is that this is a very intelligent group of people that came from all over the world. You even got a lot of bright people from China, where people tend to average out a little smarter.

The issue is very simple—it's a simple question: why did that plausible idea fail? Just think about it for a minute. You've all been to fancy educational institutions. I'll bet you there's hardly one in the audience who knows why that thing failed. That's a pretty ridiculous demonstration I make. How can you not know that? But, that's when you should be able to answer, and it shows how hard it is to be rational on something very simple—how hard it is, how many kinds of crazy ideas people have, and they don't work.

You don't even know why they don't work, even though it's perfectly obvious if you've been properly educated—not a place like Berkshire Hathaway or even the Daily Journal. We've done better than average, and now there's a question: why has that happened? Why has that happened? And the answer is pretty simple—we tried to do less. We never had the illusion that we could just hire a bunch of bright young people, and they would know more than anybody about canned soup and aerospace and utilities and so on and so on and so on. We never had that dream.

We never thought we could get really useful information on all subjects like Jen Krer pretends to.