Book Report: Poor Charlie's Almanack 3rd Edition

This is an absolutely brilliant book and I wholly recommend it. Below, I have selected - what seems to me the most important remarks in each chapter. Chapter 1: A Portrait of Charles T. Munger 1. "And fear of death is silly and unacceptable for this Roman. He reasons that either (a) you are going to a perpetual, better afterlife, or (b) you wont retain any pain if there is no such outcome" (c. Cicero's Discourse of Old-Age) 2. "In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time none, zero. You'd be amazed at how much Warren reads and at how much I read. My children laugh at me. They think I' a book with a couple of legs sticking out." Chapter 2: The Munger Approach to Life, Learning, and Decision Making 1. "Our experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical things, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence in the past." 3. "When my friend Buffett and I left our respective graduate schools, we found huge predictable patterns of obvious

extreme irrationality in the business world. This irrationality was grossly important in what we were trying to do, yet it had never been mentioned by our professors. Our solution, one we learned at a very early age in the nursery: 'Then I'll do it myself,' said the Little Red Hen. So if your professors won't give you an appropriate multidisciplinary approach, if each wants to overuse his own models and underuse the important models in other disciplines, you can correct that folly yourself." 4. "The book that rests on my library coffee table is not Peter Lynch's Beating the Street or even my own, but several books by historian Paul Johnson on the makings of the nineteenth and twentieth centuries. There is no better teacher than history in determining the future . . . there are answers worth billions of dollars in a $30 history book." Bill Gross (PIMCO) 5. "Charlie counts preparation, patience, discipline, and objectivity among his most fundamental guiding principles. He will not deviate from these principles, regardless of group dynamics, emotional itches, or popular wisdom that "this time around it's different." 6. "Charlie calls it "sit on your ass investing" and cites it benefits: "You're paying less to brokers, you're listening to less nonsense, and if it works, the tax system gives you an extra one, two or three percentage points per annum. In his view, a portfolio of three companies is plenty diversification." 7. "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 are paying for.

Move only when you have an advantage. It's very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor. We just keep our heads down and handle the headwinds and tailwinds as best we can, and take the result after a period of years." 8. "A great business at a fair price is superior to a fair business at a great price." Chapter 3: Mungerisms Highlights from Recent Berkshire Hathaway and Wesco Financial Annual Meetings 1. “Beta and modern portfolio theory and the like - none of it makes any sense to me. We're trying to buy businesses with sustainable competitive advantages at a law, or even a fair, price." 2. “How can professors spread this [nonsense that a stock's volatility is a measure of risk]? I've been waiting for this craziness to end for decades. It's been dented, but it's still out there.” 3. “Warren once said to me, "I'm probably misjudging academia generally [in thinking so poorly of it] because the people that interact with me have bonkers theories." 4. “Being short and seeing a promoter take the stock up is very irritating. It's not worth it to have that much irritation in your life.” 5. “I think that, every time you see the word EBITDA, you should substitute the words “bullshit earnings.” 6. “A stock option is both an expense and dilution. To argue

anything else is insane.” The rest of the book consists of “Eleven Talks.” They are (1) Harvard School Commencement Speech, (2) A Lesson on Elementary, Worldly Wisdom, (3) A Lesson on Elementary, Worldly Wisdom Revisited, (4) Practical Thought About Practical Thought, (5) Harvard Law School Fiftieth Reunion Address, (6) Investment Practices of Learning Charitable Foundations, (7) Philanthropy Roundtable, (8) The Great Financial Scandal of 2003, (9) Academic Economics, (10) USC Gould School of Law Commencement Address, and (11) The Psychology of Human Misjudgment. Some of these works can be found in their entirety on our homepage, under “Wit & Wisdom of Charlie Munger.”