The Munger Operating System: How to Live a Life That Really Works

The best way to get what you want in life is just to deserve what you want. How could it be otherwise? It’s not crazy enough so that the world is looking for a lot of undeserving people to reward.

You don’t want to be like the motion picture executive in California and they said the funeral was so large because everybody wanted to make sure he was dead.

I think you would understand any presentation using the word EBITDA. if every time you saw that word, you just substituted the phrase bullshit earnings.

Well there are a whole lot of things I don’t think about, and one of them is companies that are losing two or three billion dollars a year and going public.

Warren: People don’t seem to get that point you. Have any idea why Charlie?

Charlie: Warren, if people weren’t so often wrong, we wouldn’t be so rich.

Warren: Yeah.

The game of life is the game of ever-lasting learning. At least, it is, if you want to win. - Charlie Munger

Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group … then to hell with them.

It is hard to switch from something that works so well.

Warren: That does not mean we approve of every buyback, at all.

Charlie: no no no i think some people just buy it to keep the stock up and that of course is insane and immoral. But apart from that it’s fine.

Everybody wants fiscal virtue, but not quite yet. They’re like that guy who felt that way about sex. He is willing to give it up, but not quite yet.

The general system for money management requires people to pretend that they can do something that they can’t do and to pretend to like it when they really don’t. I think that’s a terrible way to spend your life but it’s very well paid.

Charlie: In accounting, you can do things like they do in Italy, when they have trouble with the mail you know it piles up and irritates the postal employees, they just throw away a few carloads, and then everything’s floating smoothly.

Warren: That happened in some unnamed international country.

Charlie: Yeah, Italy.

I’m optimistic about life. I can be optimistic when I’m nearly dead. Surely the rest of you can handle a little inflation.

It was investment banker aided fraud. Not exactly novel.

Warren: I’ve listened to so many nonsensical, “cost to capital” discussions.

Charlie: I’ve never heard an intelligent one.

Sure there are a lot of things in life that are way more important than wealth. All that said, some people do get confused. I play golf with a man he says what good is health, you can’t buy money with it.

Those of you who are about to enter business school or there, I recommend you learn to do it our way, but at least until you’re out of school, you have to pretend to do it their way.

Warren: Charlie’s big on lowering expectations.

Charlie: Absolutely. That’s the way I got married. My wife lowered her expectations.

Yeah, it’s perfectly obvious, at least to me. That to say that derivative accounting in America is a sewer, is an insult to sewage.

I don’t like multitasking. I see these people doing three things at once and I think, God, what a terrible way that is to think.

I like crypto currencies a lot less than you do. And I think the people who are professional traders that go into trading cryptocurrencies, it’s just disgusting. It’s like somebody else is trading turds and you decide I can’t be left out.

Well, I can’t give you a formulaic approach because I don’t use one. If you want a formula, you should go back to graduate school. They’ll give you lots of formulas that won’t work.

As Samuel Johnson said, famously, I can give you an argument but I can’t give you an understanding.

It’s extraordinary how resistant some people are at learning anything.

It’s not that great a business as a business, casualty insurance. It’s a tough game. There are temptations to be stupid in it. It’s like banking.

Competency is a relative concept and what a lot of us need, including the one speaking, what I needed to get ahead was to compete against idiots and luckily there’s a large supply.

And well I would rather throw a viper down my shirt front than hire a compensation consultant.

Warren reminds me, once I ask a man that just left a large investment bank. And I said how does your firm make its money? He said, off the top, off the bottom, off both sides and in the middle.

The Munger Operating System: How to Live a Life That Really Works

https://fs.blog/munger-operating-system/

In 2007, Charlie Munger gave the commencement address at USC Law School, opening his speech by saying, “Well, no doubt many of you are wondering why the speaker is so old. Well, the answer is obvious: He hasn’t died yet.”

Fortunately for us, Munger has kept on ticking. The commencement speech is an excellent response to the Big Question: How do we live a life that really works? It has so many of Munger’s core ideas that we think the speech represents the Munger Operating System for life.

To get what you want, deserve what you want. Trust, success, and admiration are earned.

It’s such a simple idea. It’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 have this ethos win in life and they don’t win just money, not just honors. 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.

Learn to love and admire the right people, alive or dead.

A second idea that I got very early was that there is no love that’s so right as admiration-based love, and that love should include the instructive dead. Somehow, I got that idea and I lived with it all my life; and it’s been very, very useful to me.

Acquiring wisdom is a moral duty as well as a practical one.

And there’s a corollary to that proposition which is very important. It means that you’re hooked for lifetime learning, and without lifetime learning you people are not going to do very well. You are not going to get very far in life based on what you already know. You’re going to advance in life by what you’re going to learn after you leave here…if civilization can progress only when it invents the method of invention, you can progress only when you learn the method of learning.

Attain fluency on the big multidisciplinary ideas of the world and use them regularly.

What I noted since the really big ideas carry 95% of the freight, it wasn’t at all hard for me to pick up all the big ideas from all the big disciplines and make them a standard part of my mental routines. Once you have the ideas, of course, they are no good if you don’t practice — if you don’t practice you lose it.

So I went through life constantly practicing this model of the multidisciplinary approach. Well, I can’t tell you what that’s done for me. It’s made life more fun, it’s made me more constructive, it’s made me more helpful to others, it’s made me enormously rich, you name it, that attitude really helps.

Now there are dangers there, because it works so well, that if you do it, you will frequently find you are sitting in the presence of some other expert, maybe even an expert that’s superior to you, supervising you. And you will know more than he does about his own specialty, a lot more. You will see the correct answer when he’s missed it.

[…]

It doesn’t help you just to know them enough just so you can give them back on an exam and get an A. You have to learn these things in such a way that they’re in a mental latticework in your head and you automatically use them for the rest of your life.

Learn to think through problems backwards as well as forward.

The way complex adaptive systems work and the way mental constructs work, problems frequently get easier and I would even say usually are easier to solve if you turn around in reverse.

In other words if you want to help India, the question you should ask is not “how can I help India?”, you think “what’s doing the worst damage in India? What would automatically do the worst damage and how do I avoid it?” You’d think they are logically the same thing, but they’re not. Those of you who have mastered algebra know that inversion frequently will solve problems which nothing else will solve. And in life, unless you’re more gifted than Einstein, inversion will help you solve problems that you can’t solve in other ways.

Be reliable. Unreliability can cancel out the other virtues.

If you’re unreliable it doesn’t matter what your virtues are, you’re going to crater immediately. So doing what you have faithfully engaged to do should be an automatic part of your conduct. You want to avoid sloth and unreliability.

Avoid intense ideologies. Always consider the other side as carefully as your own.

See Avoid Intense Ideologies. Have an Open Mind. Use the Rule of Rethinking.

Get rid of self-serving bias, envy, resentment, and self-pity.

Generally speaking, envy, resentment, revenge and self pity are disastrous modes of thought. Self-pity gets pretty close to paranoia, and paranoia is one of the very hardest things to reverse. You do not want to drift into self-pity.

I have a friend who carried a big stack of index cards about this thick, and when somebody would make a comment that reflected self pity, he would take out one of the cards, take the top one off the stack and hand it to the person, and the card said, “Your story has touched my heart, never have I heard of anyone with as many misfortunes as you”. Well, you can say that’s waggery, but I suggest that every time you find you’re drifting into self pity, I don’t care what the cause — your child could be dying of cancer — self-pity is not going to improve the situation. Just give yourself one of those cards.

It’s a ridiculous way to behave, and when you avoid it you get a great advantage over everybody else, almost everybody else, because self-pity is a standard condition and yet you can train yourself out of it.

And of course self-serving bias, you want to get that out of yourself; thinking that what’s good for you is good for the wider civilization and rationalizing all these ridiculous conclusions based on the subconscious tendency to serve one’s self.

At the same time, allow for the self-serving bias in others who haven’t removed it.

You also have to allow for the self serving bias of everybody else, because most people are not going to remove it all that successfully, the human condition being what it is. If you don’t allow for self serving bias in your conduct, again you’re a fool.

I watched the brilliant Harvard Law School trained general counsel of Salomon lose his career, and what he did was when the CEO became aware that some underling had done something wrong, the general counsel said, “Gee, we don’t have any legal duty to report this but I think it’s what we should do it’s our moral duty.”

Of course, the general counsel was totally correct but of course it didn’t work; it was a very unpleasant thing for the CEO to do and he put it off and put if off and of course everything eroded into a major scandal and down went the CEO and the general counsel with him.

The correct answer in situations like that was given by Ben Franklin, he said, “If you want to persuade, appeal to interest not to reason.” The self serving bias is so extreme. If the general counsel had said, “Look this is going to erupt, it’s something that will destroy you, take away your money, take away your status…it’s a perfect disaster,” it would have worked!

Avoid being part of a system with perverse incentives.

Incentives are too powerful a controller of human cognition and human behavior, and one of the things you are going to find in some modern law firms is billable hour quotas. I could not have lived under a billable hour quota of 2,400 hours a year. That would have caused serious problems for me — I wouldn’t have done it and I don’t have a solution for you for that. You’ll have to figure it out for yourself but it’s a significant problem.

Work with and under people you admire, and avoid the inverse when at all possible.

And that requires some talent. The way I solved that is, I figured out the people I did admire and I maneuvered cleverly without criticizing anybody, so I was working entirely under people I admired. And a lot of law firms will permit that if you’re shrewd enough to work it out. And your outcome in life will be way more satisfactory and way better if you work under people you really admire. The alternative is not a good idea.

Learn to maintain your objectivity, especially when it’s hardest.

Well we all remember that Darwin paid special attention to disconfirming evidence particularly when it disconfirmed something he believed and loved. Well, objectivity maintenance routines are totally required in life if you’re going to be a correct thinker. And there we’re talking about Darwin’s attitude, his special attention to disconfirming evidence, and also to checklist routines. Checklist routines avoid a lot of errors. You should have all this elementary wisdom and then you should go through and have a checklist in order to use it. There is no other procedure that will work as well.

Concentrate experience and power into the hands of the right people – the wise learning machines.

I think the game of life in many respects is getting a lot of practice into the hands of the people that have the most aptitude to learn and the most tendency to be learning machines. And if you want the very highest reaches of human civilization that’s where you have to go.

You do not want to choose a brain surgeon for your child among fifty applicants all of them just take turns during the procedure. You don’t want your airplanes designed that way. You don’t want your Berkshire Hathaways run that way. You want to get the power into the right people.

You’ll be most successful where you’re most intensely interested.

Another thing that I found is an intense interest of the subject is indispensable if you are really going to excel. I could force myself to be fairly good in a lot of things, but I couldn’t be really good in anything where I didn’t have an intense interest. So to some extent, you’re going to have to follow me. If at all feasible you want to drift into doing something in which you really have a natural interest.

Learn the all-important concept of assiduity: Sit down and do it until it’s done.

Two partners that I chose for one little phase of my life had the following rule: They created a little design/build construction team, and they sat down and said, two-man partnership, divide everything equally, here’s the rule; “Whenever we’re behind in our commitments to other people, we will both work 14 hours a day until we’re caught up.”

Well, needless to say, that firm didn’t fail. The people died rich. It’s such a simple idea.

Use setbacks in life as an opportunity to become a bigger and better person. Don’t wallow.

Another thing of course is life will have terrible blows, horrible blows, unfair blows, doesn’t matter. And some people recover and others don’t. And there I think the attitude of Epictetus is the best. He thought that every mischance in life was an opportunity to behave well, every mischance in life was an opportunity to learn something, and your duty was not to be submerged in self-pity but to utilize the terrible blow in a constructive fashion. That is a very good idea.

The highest reach of civilization is a seamless system of trust among all parties concerned.

The last idea that I want to give you as you go out into a profession that frequently puts a lot of procedure and a lot of precautions and a lot of mumbo jumbo into what it does, this is not the highest form which civilization can reach. The highest form which civilization can reach is a seamless web of deserved trust. Not much procedure, just totally reliable people correctly trusting one another. That’s the way an operating room works at the Mayo Clinic.

If a bunch of lawyers were to introduce a lot of process, the patients would all die. So never forget when you’re a lawyer that you may be rewarded for selling this stuff but you don’t have to buy it. In your own life what you want is a seamless web of deserved trust. And if your proposed marriage contract has 47 pages, my suggestion is do not enter.

About simplicity

Take a simple idea, and take it seriously.

If something is too hard, we move on to something else.

That is not to say, run away from complex ideas. When you face a complex problem, tear it down to pieces and turn it into smaller pieces that you can wrap your arms around. It could be helpful to ask these questions:

What is truly most important to me in life? What will lead to more fulfillment? How can I be a better friend or partner? What is it that drives returns on investment? What are the two or three most important things that matter the most in the business I am analyzing?

These questions get to the essence of a problem and understanding in a simple and elegant way that we can approach it.

With so much noise in the world, it is really empowering to be able to recognize the few key things that really matter, and really move the needle, whether that be in your relationships, your work, your investments, or really anything else.

What is it that really moves the needle, and really matters? This is such an important question that helps us simplicy in this complex world.

Part of having uncommon sense, I think, is being able to tune out folly as distinguished from recognizing wisdom. You’ve got whole categories of things you just bat away so that your brain is not cluttered with them. That way, you are better able to pick up a few sensible things to do.

I’d rather work with a bunch of Chinese than I would the Indian civilization mired down, caste system, over-population, assimilated the worst stupidities of the democratic system, which, by the way Lee Kuan Yew avoided. It is hard to get anything done in India. And the bribes are just awful. So, all I can say is, it is not going to be easy for India to follow the example of Lee Kuan Yew. I think India will move ahead. But it is so defective as they get-ahead. The Indians I know are fabulous people. They are just as talented as the Chinese. I am speaking about the Indian populace. But the system and the poverty and the corruption and the crazy democratic thing where you let anybody who screams stop all progress. It mires India with problems that Lee Kuan Yew didn’t have. I don’t think those Indian problems are always easy to fix.

(About India and Indians)…

(Gist: While Indians are as talented as the Chinese, the system has problems that are hard to fix)

Those Patels from India buy all the motels; they know more about motels than you do. They live in a goddamn motel. They pay no income taxes. They don’t pay much in worker’s compensation, and every dime they get, they fix up the thing to buy another motel. Do you want to comptete with the Patels? Not I!

(About the “Patels from India” and their hold on the US motel business)

Bureaucracy is the great tragedy of modern life

Question from one of the members of the audience: In your letter on berkshire’s past and future, you wrote you wrote about the principles that have made Berkshire successful over the years. My question is, why is it that Berkshire’s organizational principles as a holding company have not been copied more by others given its incredible success and track record? Thank you.

Answer: Well, it’s a good question. I think the main reason is it looks impossible. If you were in Proctor in Gamble, with its culture and its bureaucracy, and you sat down, how can I make Proctor and Gamble more like Berkshire Hathaway? It would go immediately to the too hard pile. It’s just too hard, there’s too much momentum. But you raise, by your question, a very interesting thing that deserves more attention than it gets. One of the reasons that Berkshire has been so successful is, there’s practically nobody at headquarters. We have almost no corporate bureaucracy. You have a few internal auditors who go out from there and check this or that, but basically we have no bureaucracy. Having no bureaucracy is a huge advantage if the people who are running it are sensible people. Think of how poorly all of us have behaved in big bureaucracy even though we have a lot of talent because we couldn’t change anything. So bureaucracy has a standard bunch of evils and a standard bunch of stupid wastes and so forth. And avoiding it is hugely important and of course, the tendency of successful places, particularly successful governmental places, is to have more and more bureaucracy. Of course, it’s terribly counterproductive. Of course, the individual bureaucrats, they’re benefiting from more assistance, more meetings, more this, more that. So what looks like poison to us from the outside, because the decisions are so terrible, looks wonderful for them. It’s opportunity. I’ve just described the great tragedy of Modern Life. Modern Life creates successful bureaucracy and successful bureaucracy breeds failure and stupidity. How could it be otherwise? That’s the big tension of Modern Life. And some of these places go into a stupid bureaucracy and fire a third of the people and then the place works better. They’re doing the Lord’s work but you wouldn’t think so if you were working there. There’s a lot of horror and waste in bureaucracy and it’s inevitable. It’s as natural was old age and death.

TODO

1. Warren Buffett’s Right-Hand Man’s Advice on Getting on the Road to Riches https://www.investopedia.com/warren-buffett-s-right-hand-man-11738137