Lessons From The Immortal Charlie Munger


Neuroscientist David Eagleman once wrote: “There are three deaths: the first is when the body ceases to function. The second is when the body is consigned to the grave. The third is that moment, sometime in the future, when your name is spoken for the last time.”

Along Eagleman’s line of reasoning, Charlie Munger, who passed away peacefully last night, would be immortal since he would never experience the third death – his accomplishments, and the wisdom he has shared throughout his life, would see to it. 

Munger is one of my investing heroes. In remembrance of his life, I would like to share my favourite lessons from him.

“Another idea that I discovered was encapsulated by that story Dean McCaffery recounted earlier about the rustic who wanted to know where he was going to die, so he wouldn’t go there. The rustic who had that ridiculous sounding idea had a profound truth in his possession. The way complex adaptive systems work, and the way mental constructs work, problems frequently become easier to solve through inversion. If you turn problems around into reverse, you often think better. For instance, if you want to help India, the question you should consider asking is not: How can I help India? Instead, you should ask: How can I hurt India? You find what will do the worst damage, and then try to avoid it. Perhaps the two approaches seem logically the same thing. But those who have mastered algebra know that inversion will often and easily solve problems that otherwise resist solution. And in life, just as in algebra, inversion will help you solve problems that you can’t otherwise handle.”

“If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to people who do have the temperament, who can be more philosophical about these market fluctuations.”

“From all business, my favourite case on incentives is Federal Express. The heart and soul of their system – which creates the integrity of the product – is having all their airplanes come to one place in the middle of the night and shift all the packages from plane to plane. If there are delays, the whole operation can’t deliver a product full of integrity to Federal Express customers. And it was always screwed up. They could never get it done on time. They tried everything – moral suasion, threats, you name it. And nothing worked. Finally, somebody got the idea to pay all these people not so much an hour, but so much a shift – and when it’s all done, they can go home. Well, their problems cleared up overnight.”

“Three rules for a career: (1) Don’t sell anything you wouldn’t buy yourself; (2) Don’t work for anyone you don’t respect and admire; and (3) Work only with people you enjoy.”

“There’s no way that you can live an adequate life without many mistakes. In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke.”

“Ben Graham had a lot to learn as an investor. His ideas of how to value companies were all shaped by how the Great Crash and the Depression almost destroyed him… It left him with an aftermath of fear for the rest of his life, and all his methods were designed to keep that at bay.”

“Most people are trained in one model – economics, for example – and try to solve all problems in one way. You know the saying: “To the man with a hammer, the world looks like a nail.” This is a dumb way of handling problems.”

“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up, and boy, does that help, particularly when you have a long run ahead of you.”

Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result. So the trick is getting into better businesses. And that involves all of these advantages of scale that you could consider momentum effects.”

“Well, you’ll end up agreeing with me because you’re smart and I’m right.”

“I always say the same thing: realistic expectations, which is low expectations. If you have unreasonable demands on life, you’re like a bird that’s trying to destroy himself by bashing his wings on the edge of the cage. And you really can’t get out of the cage. It’s stupid. You want to have reasonable expectations and take life’s results good and bad as they happen with a certain amount of stoicism.”

I saved the most poignant lesson I’ve learned from Munger for the last. Not many may know this, but the first decade-plus of Munger’s adulthood was tragic. 

Munger got married when he was 21, but the marriage ended when he was 29. He “lost everything in the divorce”, according to his daughter Molly Munger. Shortly after the divorce, Munger’s son, Teddy Munger, was diagnosed with leukaemia. “In those days, there was no medical insurance – I just paid all the expenses” Munger once said. But more importantly, there was absolutely nothing doctors back then could do for leukaemia. When Munger was 31, Teddy passed on. Munger recounted the heart-wrenching episode: “I can’t imagine any experience in life worse than losing a child inch by inch. By the time he died, my weight was down 10 to 15 pounds from normal.” One of Munger’s friends, Rick Guerin, said that “when his [Munger’s] son was in the bed and slowly dying, he’d go in and hold him for awhile, then go out walking the streets of Pasadena crying.”

So by the time Munger was 31, he had already gone through a divorce, experienced the painful death of his son from an incurable disease, and was broke. 

But when Munger left the world last night, he was a billionaire, and was widely revered around the world for his wit, wisdom, and character. He taught me that with courage and perseverance, we can eventually build a better life for ourselves. “You should never, when faced with one unbelievable tragedy, let one tragedy increase into two or three because of a failure of will,” he admonished. 

See you on the other side, Mr Munger.

Note: An earlier version of this article was published at The Good Investors, a personal blog run by our friends.

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