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The Charlie Munger Checklists

“Understanding both the power of compound interest and the difficulty of getting it is the heart
and soul of understanding a lot of things.”
“It is not given to human beings to have such talent that they can just know everything about
everything all the time but it is given to human beings who work hard at it, who look and sift the
world for a mispriced bet, that they can occasionally find one. The wise ones bet heavily when
the world offers them that opportunity. They bet big when they have the odds. And the rest of the
time, they don’t. It’s just that simple.”
The Charlie Munger Checklist…for Psychology…
“Grand General Principle of Social Psychology: Cognition is ordinarily situation-dependent so
that different situations often cause different conclusions, even when the same person is thinking
in the same general subject area.”
- reward/punishment
- liking/loving
- disliking/hating
- doubt avoidance
- inconsistency avoidance
- curiosity
- Kantian fairness
- envy/jealousy
- reciprocation
- influence from mere association
- simple pain avoiding psychological denial
- excessive self regard
- overoptimism
- deprival
- social proof
- contrast misreaction
- stress influence
- availability misweighing
- authority misinfluence
- reason respecting
- drug misinfluence
- use it or lose it
- senescence misinfluence
- twaddle
- LOLLAPALOOZA of the above forces
“The 25 standard causes of human misjudgment…Reward/Punishement, Liking/Loving,
Disliking/Hating, Doubt-Avoidance, Inconsistency-Avoidance, Curiosity, Kantian Fairness,
Envy/Jealousy, Reciprocation, Influence From Mere Association/Association, Simple Pain
Avoiding Psychological Denial, Excessive Self Regard, Overoptimism, Deprival Reaction (loss
experience of possessed or almost possessed reward), Social Proof, Contrast Misreaction, Stress
Influence, Availability Misweighting, Use It Or Lose It, Drug Misinfluence, Senescence
Misinfluence, Authority Misinfluence, Reason Respecting, Twaddle, Lollapalooza (in getting

why?” Intellectual humility – Acknowledging what you don’t know is the dawning of wisdom * Stay within a well-defined circle of competence * Identify and reconcile disconfirming evidence * Resist the craving for false precision. Apply numerical fluency. work. not a market. work. Invert – think problems through in reverse 4. the question you have to keep asking is “why. Discipline. etc. and hope to have a few insights” * Develop into a lifelong self-learner through voracious reading. progress apart from activity. Apply elementary multidisciplinary wisdom never relying entirely upon others 5.extreme consequences from streams flowing together/confluences of psychological tendencies acting in favor of a particular outcome)” The Charlie Munger Checklist…of Ultra Simple General Problem Solving Notions… Decide the big ‘no brainer’ questions first. cultivate curiosity and strive to become a little wiser every day * More important than the will to win is the will to prepare * Develop fluency in mental models from the major academic disciplines * If you want to get smart. * Above all. Apply elementary multidisciplinary wisdom never relying entirely upon others. Watch for combinations of factors the Lollapalooza effect 1. Patience. macroeconomic. why. always invert Allocation – Proper allocation of capital is an investor’s number one job * Remember that highest and best use is always measured by the next best use (opportunity cost) .Use of the scientific method and effective checklists minimizes errors and omissions * Determine value apart from price. Decisiveness… Risk – All investment evaluations should begin by measuring risk. look always at potential second order and higher level impacts * Think forwards and backwards – Invert. Invert (think the problem through in reverse). wealth apart from size * It is better to remember the obvious than to grasp the esoteric * Be a business analyst. never fool yourself. especially reputational * Incorporate an appropriate margin of safety * Avoid dealing with people of questionable character * Insist upon proper compensation for risk assumed * Always beware of inflation and interest rate exposures * Avoid big mistakes. shun permanent capital loss Independence – “Only in fairy tales are emperors told they are naked” * Objectivity and rationality require independence of thought * Remember that just because other people agree or disagree with you doesn’t make you right or wrong – the only thing that matters is the correctness of your analysis and judgment * Mimicking the herd invites regression to the mean (merely average performance) Preparation – “The only way to win is to work. Watch for combination of factors – Lollapalooza effect The Charlie Munger Checklist…for Investing and Decision Making… …Preparation. or security analyst * Consider totality of risk and effect. Apply numerical fluency 3. false certainties. and remember that you are the easiest person to fool Analytic rigor . Decide big no brainer questions first 2. work.

e.e. because the process is where you live Decisiveness – When proper circumstances present themselves. cravings. macro and micro level economic factors) and what are the subconscious influences where the brain at a subconscious level is automatically forming conclusions (i.* Good ideas are rare – when the odds are greatly in your favor. We’ve really made the money out of high quality businesses. Find them small b. never take action for its own sake * Be alert for the arrival of luck * Enjoy the process along with the proceeds. and so on)” The Charlie Munger Investment Criteria Logic – The High Quality Business “Over the long term.” “I’d say that Berkshire Hathaway’s system is adapting to the nature of the investment problem as it really is. But when you analyze what happened. And ideally – and we’ve done a lot of this – you get into a . If the business earns 6% on capital over 40 years and you hold it for that 40 years. act with decisiveness and conviction * Be fearful when others are greedy. if a business earns 18% on capital over 20 or 30 years. Decisiveness… The Charlie Munger Checklist…for 2-track analysis… “what are the factors that really govern the interests involved rationally considered (i. And most of the other people who’ve made a lot of money have done so in high quality businesses.Resist the natural human bias to act * “Compound interest is the eighth wonder of the world” (Einstein).” a. And in some cases. In some cases. that’s the game Change – Live with change and accept unremovable complexity * Recognize and adapt to the true nature of the world around you. it’s hard for a stock to earn a much better return than the business which underlies it earns. and greedy when others are fearful * Opportunity doesn’t come often. don’t sweep them under the rug …Preparation. the big money’s been made in the high quality businesses. you’re not going to make much different than a 6% return – even if you originally buy it at a huge discount. we bought the whole business. bet (allocate) heavily * Don’t “fall in love” with an investment – be situation-dependent and opportunity-driven Patience . macro and micro level economic factors) and what are the subconscious influences where the brain at a subconscious level is automatically” “2 track analysis: what are the factors that really govern the interests involved here rationally considered (i. so seize it when it comes * Opportunity meeting the prepared mind. Conversely. influences from instincts. Find them big c. So the trick is getting into better businesses. never interrupt it unnecessarily * Avoid unnecessary transactional taxes and frictional costs. don’t expect it to adapt to you * Continually challenge and willingly amend your “best-loved ideas” * Recognize reality even when you don’t like it – especially when you don’t like it Focus – Keep things simple and remember what you set out to do * Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat * Guard against the effects of hubris (arrogance) and boredom * Don’t overlook the obvious by drowning in minutiae (the small details) * Be careful to exclude unneeded information or slop: “A small leak can sink a great ship” * Face your big troubles.e. we just bought a big block of stock. emotions. Patience. Discipline. even if you pay an expensive looking price. you’ll end up with a fine result.

bunch of foolishness that could easily be cut out and cut out all the folly and go back to the perfectly wonderful business that was lying there and people come in temperamentally and intellectually designed so they are going to cut it out) COLLECT INANITIES … become a collector of inanities. 2 or 3 percentage points per annum compounded” Risks: paying 50 or 70 times earnings like in the Nifty Fifties. If they’ve got a reasonable hand – with the fanaticism and intelligence and so on that these people generally bring to the party – then management can matter much…However. And what 3. betting on the quality of a business is better than betting on the quality of management. It’s very basic.great business which also has a great manager because management matters. bet on the business momentum. But if you can find some fairly priced great company and buy it and sit. the governmental tax system gives you an extra 1. that tend to work out very. and take the result after a periods of years. Some of Charlie’s Models * Growth Sub-position Untapped Pricing Power * Graham Style+Great Management+Winner Take All * Low Priced+Marketing Advantage(+Surfing New Technology) * Cancer Surgery Formula (Perfectly magnificent business submerged in a mess but still working where you find something sound and cut away everything and if doesn’t work liquidate. price.” “There are huge advantages for an individual to get into a position where you make a few great investments and just sit back and wait: You’re paying less to brokers. And if it works.” “We’re trying to buy businesses with sustainable competitive advantages at a low.3% per annum. “So you do get an occasional opportunity to get into a wonderful business that’s being run by a wonderful manager. These people do come along – and in many cases.5%. You have to understand the odds and have the discipline to bet only when the odds are in your favor. But. If you don’t load up when you get those opportunities.5% does to the numbers over long holding periods like 30 years is truly eye-opening. of course. then your return would be 15% minus 35% of 15% – or only 9. it’s a big mistake…Occasionally. You’ll never run out or get bored. Move only when you have an advantage. you find a manager who’s so good that you’re wise to follow him into what looks like a mediocre business…” “If you’re going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end. the way that works out is that after taxes. but had to pay taxes every year of 35% out of the 15% that you earned. In other words. very rarely. Warren has learned alot which allowed him to . sickbusiness-fix-up.” …betting on sure things… “Keep learning and get better over time gradually. you keep 13. So the difference there is over 3. “The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash-flow than you’re paying for. In contrast. very well indeed. We just keep our heads down and handle the headwinds and tailwinds as best we can. if you have to choose one. or even fair. You’re listening to less nonsense. not the brilliance of the manager. they’re not all that hard to identify. if you bought the same investment. averaged out. And Sam Walton was such a man.75% per year compounded. I would argue that Simon Marks – who was second generation in Marks & Spencer of England – was such a man. that’s hog heaven day. Patterson was such a man at National Cash Register. you’ll find a human being who’s so talented that he can do things that ordinary skilled mortals can’t. And.

avoid extremely intense ideology . Get a little better over time so you’re virtually certain to make investments that are virtually certain to be good over time. Oracle)” “Too little attention to second and higher order effects. and those algorithms run something like this: Extreme success is likely to be caused by some combination of the following factors: A) Extreme maximization or minimization of one or two variables. not just a hammer. false certainty . C) An extreme of good performance over many factors. Often results are not linear.” “don’t sell anything you wouldn’t buy yourself don’t work for anyone you don’t respect and admire work only with people you enjoy” “There’s no limit to what a man can do or where he can go if he doesn’t mind who gets the credit. so I’m very interested in models that explain their occurence.invert everything…just in case . often in non-linear fashion.” “Well. They chose not to consider effects of .” – Socrates” “Taiwan 7. how did I solve those problems? Obviously. Toyota or Les Schwab) D) Catching and riding some sort of big wave. And use the tools checklist style because you’ll miss a lot if you hope the right tool just pops up unaided whenever you need it.” “light on financial yardsticks w/ lots of subjective criteria.” “Economics should emulate physics’ basic ethos. you will find a lot of the answers you won’t find any other way. but its search for precision in physics-like formulas is almost always wrong in economics. (Example. you will find it an arduous task to rekindle it again. cyclicality is fine with us as long as the price is appropriate. I’ve been searching for lollapalooza results all my life. Discipline.false precision. I was using a simple search engine in my mind to go through checklist-style. The way to gain a good reputation is to endeavor to be what you desire to appear. can we trust management? can it harm our reputation? what can go wrong? do we understand the business? does it require capital infusions to keep it going? what is the expected cash flow? We don’t expect linear growth. and I was using some rough algorithms that work pretty well in a great many complex systems. of course.“pounding it in” vs flexibility/destroying best loved ideas/adaptive “The best investing opportunities as mispriced bets on horses “What we’re really looking for are 50-50 odds which pay three to one”" “”Regard your good name as the richest jewel you can possibly be possessed of – for credit is like fire. (Example. And. and you get a lollapalooza result. as one is reminded of the concept of breakpoint and the concept of critical mass in physics. Other people pass you by when you don’t learn.seamless web of deserved trust .” . but if you once extinguish it. costco or our funiture appliance store) B) Adding success factors so that a bigger combination drives success. You get a little bit more mass. But if you’ve got a full list of tools and you go through them in your mind checklist-style. when once you have kindled it you may easily preserve it. (Examples.6 magnitude earthquake damage -> “Much of the damage resulted from inadequate steel reinforcement in concrete structures”" “The antidote to man with a hammer is a tool kit full of tools. You have to work on it.expand his circle of competence so he could invest in something like PetroChina. hard work and patience are the keys.

You must master the tested fluency and routinely use the essential parts of all four constitutents of the fundamental four-discipline combination. By self critisism. has been a huge driver of a reliability ethos.” Einstein attributing his mental success to “curiosity. that is a great gift. one is one the way to understanding how magicians. This can occur.” “Super strong ideology left or right should be avoided. through deliberate human manipulation or otherwise. was through religion. Best-form multidisciplinarity requires an objectivity such passionate people have lost.effects on effects. sometimes dramatically. and realizes cognition mimics perception in being misled by mere contrast. which has been very helpful to economic outcomes for man. and so on…hence why predictions and projections can be so far off.e. perserverence. Niederhoffer gaming the economics department system at Harvard to get straight A’s).” “Inadequacy of contrast-based perception (i. either by cleverly thought out manipulation of man. concentration. One such outcome is caused by a quantum effect in human perception. fools one. stick one hand in hot. It’s getting rid of the old ones. cash register. double entry bookkeeping).” “Economic systems work better when there’s an extreme reliability ethos (i. or by very effective manipulation practices that man has stumbled into during ‘practice evolution’ and kept in place because they work so well. at least in past generations in America.” “The craving for perfect fairness causes a lot of terrible problems in system function. there can be virtue in apparent non-fariness.e.e. No matter how smart you are. it does not get through. it is often misweighed. because what is registered in perception is in shockingness of apparent contrast. Thus. So. and life.” “Theme of TRUST: deserved reliance upon the character. be sure you can trust the smart people you work with. and now both in luke warm and they are both hot and cold respectively) One thus sees perception so easily fooled by mere contrast. If stimulus is kept below a certain level. where a simple temperature gauge would make no error. there are smart people out there who can fool you if they really want to. the overall composition)” “Avoid creating easily gameable systems and take into account second-order effects and the third-order effects in lying and cheating (i. And even when perception does get through to man’s brain. if one doesn’t take certain precautions against often-wrong effects from generally useful tendencies in his perception and cognition. If you can get really good at destroying your own wrong ideas. not the standard scientific units that make possible science and good engineering.” “I have succeeded mostly by restricting action to jobs and methods in which I was unlikely to fail” “The Perception system of man – as man is easily fooled. by circumstances occuring by accident. Ideology-based folly. one hand in cold.” “Paradox: “private vices are public benefits”" “”It’s not bringing in new ideas that’s so hard. The religion instilled guilt. you must both rank and use disciplines in order of fundamentalness 2. derived from religion. One must think through consequences of consequences. And this guilt. Thus. values and integrity of those you live and work with. and self criticism”. (The movement of any individual piece affects. with particularly intense attention . Some systems should be made deliberately unfair to individuals because they’ll be fairer on average for all of us.” “The fundamental organizing ethos I am talking about: 1. and a difficult synthesis is not likely to be achieved by minds in ideological fetters. And the traditional way to get a reliability ethos. he meant becoming good at destroying your own best loved and hardest won ideas.

probably to the competitor who would enjoy the greatest marginal-utility advantage”" “”We regard the present state of the universe as the effect of its past and the cause of its future. Fortune magazines periodicals to perform the function of the aircraft simulator if used to prompt practice in relating events to multidisciplinary causes.” – Pierre-Simon Laplace” “Truly big ideas in each discipline. the old ladies should promptly sell the shoe factory. ‘use it or lose it’) And sometimes the periodicals even introduce new models for causes instead of merely refreshing old knowledge. you should hypothesize and test to establishment new principles. Given the difficulties and unavoidable agency costs.’” “TAKE A SIMPLE. present crucial problems that are so difficult that unworldly old ladies can not wisely try and solve them through hired help.” “If.given to disciplines more fundamental than your own 3. I read the instructions on the backs of seats. if this intellect were also vast enough to submit these data to analysis. ordinarily by using methods similar to those that created succcessful old principles. nor are their interactions so complex. carry most of the freight. five newspapers a day. for such an intellect nothing would be uncertain and the future just like the past would be present before its eyes. And. Why should academia be different?” “”This business field and this particular business. in many high places. On airplanes. whose wisdom-maintenance system does not include use of such periodicals. curiosity. if institutional incentives cause the problem. biographies. I know no person in business. concentration. But you may not use any new principles inconsistent with an old one unless you can now prove that the old principle is not true. histories.” “Like pilot training.” “Wrong incentives are a major cause because truth is hard to assimilate in any mind when opposed by interest.e.” “”I read everything: annual reports. like it or not. You may never practice cross-disciplinary absorption without attribution or departure from a ‘principle of economy’ that forbids explaining in any other way anything readily explainable from more fundamental material in your own or any other discipline 4. learned only in essence. And intellect which at a certain moment would know all forces that set nature in motion. Reading is key.” “Thinking by inversion and through use of ‘checklists’ is easily learned – in broadscale life as in piloting.” “In my life there are not many questions I can’t properly deal with using my $40 adding machine and dog-eared compound interest table” “Four causes of Einstein’s achievements being self criticism. advantage is also available. respected for verified good judgement. in its particular location.” “And if duty will not move improvement. 10q’s. that a large and multidisciplinary understanding is impossible for many. BASIC IDEA – AND TAKE IT VERY SERIOUSLY. Reading has made me rich over time” – Buffett” “Using Forbes. a universal product as successful as Coca-Cola is not properly . WSJ. the ethos of hard science does not say ‘take what you wish’ but ‘learn it all to fluency. But when step 3 doesn’t produce much new and useful insight. it would embrace in a single formula the movement of the greatest bodies of the universe and those of the tiniest atom. 10k’s. and perseverance. then a remedy is feasible – because incentives can be changed. And they are not so numerous. often intertwined (i. and all positions of all items of which nature is composed. given large amounts of talent and time.

but the success which attends the seeking after it. psychology is laid out and misunderstood as electromagnetism would now be misunderstood if physics had produced many brilliant experiments like Michael Faraday and no grand synthesizer like James Clerk Maxwell.understood and explained. lacks intradisciplinary synthesis. The human mind is not constructed so that it works well without those reasons. I’m passionate about wisdom.” “Giving rules like “Judges shouldn’t talk about legal issues that aren’t before them” without giving reasons is crazy.” “The correct strategies are clear after being related to the elementary academic ideas brought into play by the helpful notions. Perhaps I have some streak of generosity in my nature and a desire to serve values that transcend my brief life.” .” “Yeah. too. And that is because. there is truly horrible lack of synthesis blending psychology and other academic subjects.” “Think in reverse as you try and disprove your own hardest-won and best-loved ideas. yet. That’s the way it hangs together in a usable form so that you’re an effective thinker. it can’t bode well for our competency in dealing with much else that is important. So I urge you to learn it.” “”We build too many walls and not enough bridges” – Isaac Newton” “Academic psychology. that enriches the seeker and brings happiness to him. I don’t believe in just sitting down and trying to dream it all up yourself. it makes you better able to serve yourself. and it makes life more fun. whatever you decide. but not simpler. And your lives will work way better. I think you’d be crazy not to. while it is admirable and useful as a list of ingenious and important experiments. not enough attention is given to lollapalooza effects coming from combinations of psychological tendancies. They’re joined at the hip. I’m passionate about accuracy and some kinds of curiosity. It violates the injunction that everything should be made as simple as possible. they teach you those legal doctrines without pointing out how they’re tied to other important doctrines?! That’s insanity – absolute insanity. Who knows?” “I believe in the discipline of mastering the best that other people have figured out. So if you have an aptitude for doing it. but in a host of other ways – if you do. These bad effects are a lollapalooza. This is like rounding pi to an even three.” – Max Planck” “But. in the last analysis. But only an interdisciplinary approach will correctly deal with reality – in academia as with the Coca-Cola company. But maybe I’m just here to show off. we ourselves are a part of the mystery that we are trying to solve” – Max Planck” “”It is not the possession of truth. Your life will be enriched – not only financially. You’ve got to hang reality on a theoretical structure with reasons.” “Not understanding elementary psychology well enough to avoid “new coke” – very bright people – is not satisfactory. if you do.” “People are often massively irrational in ways predicted by psychology that must be taken into account in microeconomics.” “And to teach doctrines – either with no reasons or with poorly explained reasons?! That’s wrong!” “Many of the legal doctrines are tied to other doctrines. learning it is a lot of fun. In particular. Nobody’s that smart…” “There’s a lot of simple stuff that many of you are quite capable of learning. Plus. “ “”Science cannot solve the ultimate mystery of nature. And. I think it’s a huge mistake not to absorb the elementary worldly wisdom if you’re capable of doing it because it makes you better able to serve others. Second. In general.

rethink. it’s kind of fun for it to be a little complicated. You’ll be amazed at how good you can get. given that you’re dealing with highly complex systems wherein everything is interacting with everything else. step by step with curious persistence.” “You have to know when to trust experts where you have no wisdom at all and when you override experts who may have incentive caused bias decisions. wherein you have to learn to quit sometimes when holding a much loved hand. But. So you have to adapt your strategy to your own nature and your own talents.” “If you’re like me. but you can learn to make fewer of them than other people and fix your mistakes faster when you do make them. I don’t think there’s a one-size-fits-all investment strategy that I can give you. In effect.” “What I’m against is being very confident and feeling that you know.” “The whole [law] school experience would be much more fun if the really basic ideas were integrated and pounded in with good examples for a month or so before you got into conventional [law] school material. Mine works for me. you’ll just have to learn to handle it – because that’s the way the world is. I can take em’ psychologically. If you want it totally easy and laid out.“Hard science and engineering tend to be pretty reliably done [in schools]. Confidently answering questions about which you don’t have any real knowledge is asinine. And. But nobody has any interest in doing it. Nobody expects you to know everything about everything. Guaranteed. is like a poker game. Don’t screw up the hive and do a bee dance you have no knowledge of. you can add great value. besides. The tendancy is to put in ‘just a little more’ – and people go broke this way by failing to stop. Part of what you must learn is how to handle mistakes and new facts that change the odds. that’s because I’m good at taking losses. don’t be afraid to say so. “ “To the extent you become a person who thinks correctly. and say they can afford to write this one off and live to fight again and not pursue things with obsession in a way that will break you. But the minute you get outside those areas.” “Everything should be made as simple as possible. The other stuff we don’t. a certain amount of inanity seems to creep into academia – even [in] academia involving people with very high IQ’s.” “If you try and succeed at what you’re worst at. But there’s no way to live an adequate life without mistakes. You have to figure out where your talents lie. but no more simple. And we’d rather deal with what we understand. in part.” “Each person has to play the game given his own marginal utility consideration and in a way that takes into account his own psychology. The trick is to get so you can handle mistakes. I have very few. you got to know what you know and what you don’t know. That combination works fine. I think the whole system of education would work better. in part.” “If there are 20 factors and they interact some. maybe you should join some cult that claims to provide all the answers. Why play a competitive game in a field where you have no advantage – maybe a disadvantage – instead of in a field where you have a clear advantage? The advantage of low tech stuff for us is that we think we understand it fairly well. you’re going to have a very lousy career. Life. What could possibly be more useful in life than that? When you don’t know and don’t have any special competence. that your particular intervention will do more good than harm. And you’ll have to use your advantages.” “Have low expectations . for sure. But you won’t find it that hard if you go at it Darwin-like.” “You will make mistakes.

BUT IT DOESN’T HAVE TO. influence from mere association. geometry ie more volume per unit area of steel. use it or lose it. They have to be in a place you can recognize them. that happens to be enough. a method you can use to sift reality to obtain an occasional opportunity for rational reaction. You have here. stress influence. advantages of scale (cost reductions along experience curve and more volume via incentives and more efficient output. new capital flow through invested into lousy business that will kill or biz that will help and ‘stick to ribs’ idea ie for technology knowing when it helps and hinders. contrast misreaction. Fortunately. authority misinfluence. So. We would be very rich if we’d never done anything else – in two lifetimes. live with change and adapt to it. there isn’t any system for giving you perfect investment judgment on all subjects at all times. drug misinfluence. excessive self regard. reciprocation. So it takes a mispriced opportunity that you’re smart enough to recognize. we only get a few opportunities. deprival. If you wait for the big opportunity and have the courage and vigor to grasp it firmly when it arrives. back up systems. informational ie glotz gum. social proof. competitive destruction surfing High quality businesses/Getting into better business for over long term (i. inconsistency avoidance. not by solving hard problems. rather. who is going to do what where when and why. psychological social proof subconscious and conscious.” The Multi Disciplinary Munger Discussion Notes Math – compound interest. If you take that method into something as competitive as common stock picking. liking/love-disliking/hating. overoptimism. perceptual apparatus and function and know it’s limitations. allowance for greater specialization vs big fat beaucracy. availability misweighing.” “We look for no brainer decisions. advertising media usage capability.Have a sense of humor Surround yourself with the love of friends and family” “Above all. permutations/combination/decision tree theory. And that combination doesn’t occur often. twaddle) Microeconomics – ecosystem niche. you’re competing with many brilliant people. rational and subconscious influences. even with our method. So. sensescence misinfluence. again. purchasing power thus lower merchandise cost and little labratories ie chainstores. breakpoints Statistics – gaussian/normal distribution/bell shaped curve Physics – critical mass Biology/Psychology – why why why for compliance and giving why. kantian fairness. simple pain avoiding psychological denial.e 6% over 40 year paid cheaply or 18% return over 20 years paid a little more expensively … trick is getting into better businesses. We don’t leap over seven foot fences…we look for one foot fences with big rewards on the other side. cost/benefit analysis Accounting – limitations Engineering – quality control. overwhelming cascade winner take all dominance ie city newspaper. envy/jealousy. reason respecting. doubt avoidance.” “It doesn’t help us merely for favourable odds to exist. how many do you need? Take the top ten business investments Berkshire’s ever made. curiosity. munger misjudgement list (reward/punishment incentives. Succeed by making the world easy for yourself. patents/trademarks (ie trademark system well known big operation)/exclusive franchise (ie 1 of 3 stations with limited play or small monopoly of store inside airport). pavlonian ie Paley. and that involves all these advantages of scale you could consider momentum effects) .

sit back and wait (large disaster can come from large investment too high priced but if you can find some fairly-priced great company and buy it and sit. with brilliant management is perfect …this model is like finding money in the street if you have the courage of your convictions) Washington Post Dream Model: bought at about 20% of value to a private owner [graham style basis at 1/5th obvious value] and in addition faced ‘winner take all’ situation [you had both the top hand in a game that was clearly going to end up with one winner] and great management [lot of integrity and intelligence/high class people the Katharine Graham family which is why it was a damn dream] Gillette/Coke Model: Low priced items and tremendous marketing advantage all over the world. But rarely you find a manager so good you’re wise to follow him into what looks like a mediocre business) Frictional costs Find a few. not the brilliance of the manager. when small b. when big c. bet heavy How find great companies? a. that tends to work out very well) Ultimate no brainer: UNDERPRICING … Untapped Pricing Power (growth stock model sub position [sub position of graham future earning power idea]. and in gillettes case surfing simply technology hard for competitors to do [90% shaving market in whole countries] GEICO model: Surgery formula – Mess to soundness to Liquidation if doesn’t pan out/Perfectly magnificent business submerged in a mess but still working/Easy to cut out foolishness to go back to perfectly wonderful business lying there . great managers (if had to choose bet on the business momentum.Circle of competence Bet seldom.