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Book Review: Poor Charlie’s Almanack

Before the internet, before live news, and before the daily newspaper information was much more difficult to come by. Farmer’s and communities needed access to information about the weather, seasons, important dates, and relevant information. As such publications called almanac(k)s came about that would publish information about the upcoming year’s weather, farmers’ planting dates, tidal information, religious dates, and other relevant information. It was a way of gaining pertinent information on a variety of topics. One of the most famous almanacs published in the United States was by Benjamin Franklin titled Poor Richard’s Almanack. He published the works under a pseudonym and published information for colonial America. It was well read and garnered a lot of attention

One of Benjamin Franklin’s biggest followers is Charlie Munger who is Warren Buffett’s Vice Chairman at Berkshire Hathaway. Together they have successfully grown Berkshire Hathaway year over year through their investing principles. If you are not familiar with Warren Buffett, Charlie Munger, or Berkshire Hathaway I encourage you to take a minute to search their successes. One of the reasons they credit their successful investing to is the amount of reading and information both Charlie and Warren consume. It allows them to continually learn and synthesize new ideas that they can implement into their investment strategy or better understand the world. Charlie Munger is known for his voracious reading and learning of ideas from different disciplines. Charlie who is 93 (will be 94 on Jan 1st, 2018) has spoken about the importance of mental models, ethics, and thinking about having a successful life.

 

Buffet & Munger

In Poor Charlie’s Almanack, these speeches are woven together to create a narrative about the most important principles to life, business, and investing from one of the great minds of the 20th/21st century. The beginning of the almanack has shorter stories and quotations from Munger and other influential people he has interacted with over the years. From there the speeches are organized based on topic areas and dive deeper into Munger’s philosophies. A key takeaway for me is how important it is to approach problems from a multi-disciplinary facet. For example, when analyzing a business it is not sufficient to just run various economic models to make decisions. Those models do not take into account common sense or models from other disciplines. His favorite is models are those from psychology and taking those principles and applying them to scenarios in business. Charlie supports psychology’s application across disciplines to help explain why events unfold the way they do or businesses perform the way they do. He uses examples of Coca-Cola, which Berkshire Hathaway owns a good chunk of its stock to explain why the business built up the way it did through a combination of psychological factors.

The second key takeaway relates to what Charlie calls Lollapalooza effects (no not the music festival). It is when a number of psychological biases all move in the same direction and either create a positive or negative outcome. The examples Charlie uses in his speeches are alcoholics anonymous bringing a number of positive psychological tendencies together to create positive outcomes. Together the desire to be a part of a social group, support system, and incentive system rewarding positive behavior create this lollapalooza effect that helps people overcome alcoholism. A negative example was the mortgage crisis in 2008 where incentives were misaligned, a crowd mentality began, and it ultimately led to a massive lollapalooza effect that resulted in one of the worst financial disasters of all-time. I’d even argue that a case could be made for the Crypto Bubble being a Lollapalooza event occurring as I write this in December of 2017.

Overall the book was quite good and if you are a fan of Warren Buffett, Charlie Munger, or Berkshire Hathaway it is worth a read as there are quality ideas that arise about investing. It gives you insight into the type of information and questions a legendary investor asks himself. The most enlightening thing to me is through his speeches on complex topics of which Charlie is clearly well-versed he never claims to be an expert and encourages others to educate themselves. Charlie’s humility is refreshing in a world where pundits vie for expert status and we constantly are forced to sift through underlying bias in the content we consume.

More Book Reviews:

Hedgehog Mentality

Book Review: Capitalism & Freedom

Book Review: Astrophysics for People in a Hurry

Book Review: The E-Myth

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