Charlie Munger was the legendary vice-chairman of Berkshire Hathaway and the primary architect of the "latticework of mental models" approach to worldly wisdom. Beyond his success as an investor, he was a philosopher of rationality who dedicated his life to the pursuit of objective truth and the avoidance of standard human stupidity.

Part 1: The Latticework of Mental Models

  1. On Multidisciplinary Thinking: "You must know the big ideas in the big disciplines and use them routinely—all of them, not just a few. Most people are trained in one model and try to solve all problems with it." — Source: Poor Charlie's Almanack
  2. On Organizing Facts: "You can’t really know anything if you just remember isolated facts and try and bang 'em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form." — Source: USC Marshall School of Business
  3. On Physics Envy: "The drive to want to have a formula that will solve everything is a mistake. In the world of human affairs, things are much more complex than in physics." — Source: Wesco Financial Annual Meeting 2001
  4. On Synthesis of Ideas: "The models have to come from multiple disciplines because all the wisdom of the world isn't to be found in one little academic department." — Source: Stanford Law School Speech 1996
  5. On The 80/20 Rule of Knowledge: "You don't need to know everything. You just need to know the big ideas that carry about 95% of the weight in each discipline." — Source: Harvard University Speech 1995
  6. On Psychology as a Foundation: "If you don't have the psychological models down, you're like a one-legged man in an ass-kicking contest." — Source: Poor Charlie's Almanack
  7. On Hard Sciences: "You have to realize that the hard sciences like physics and chemistry are the foundation. You must respect the hierarchy of the disciplines." — Source: Caltech Distinguished Alumni Award Speech
  8. On Checklist Routines: "You need a checklist of the big ideas so you don't miss the obvious. Pilots use them, and investors should too." — Source: Wesco Financial Annual Meeting 2007
  9. On Math and Probability: "If you don't have elementary probability into your repertoire, you go through a long life like a one-legged man in an ass-kicking contest." — Source: USC Commencement Speech 2007
  10. On Building a Toolkit: "You must have a toolkit of mental models so that when a problem arises, you have the right tool for the job rather than trying to use a hammer for everything." — Source: Seeking Wisdom by Peter Bevelin

Part 2: The Psychology of Human Misjudgment

  1. On Incentive-Superresponse: "I think I've been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I've underestimated it." — Source: Harvard University Speech 1995
  2. On Social Proof: "The tendency to do what others are doing is very powerful, and it leads to massive bubbles and crashes." — Source: Poor Charlie's Almanack
  3. On Lollapalooza Effects: "When three or four psychological tendencies act in the same direction, you get extreme results that can't be explained by any one factor alone." — Source: Wesco Financial Annual Meeting 1996
  4. On Denial: "If the truth is unpleasant enough, people's minds play tricks on them and they think it isn't really happening. This is simple, pain-avoiding psychological denial." — Source: Daily Journal Annual Meeting 2023
  5. On Inconsistency-Avoidance: "The human mind is a lot like the human egg, and the human egg has a shut-off device. When one sperm gets in, it shuts down so the next one can’t get in." — Source: Harvard University Speech 1995
  6. On Doubt-Avoidance: "The brain is programmed to remove doubt by making some decision, any decision. In a stressful environment, this lead to massive errors." — Source: Poor Charlie's Almanack
  7. On Excessive Self-Regard: "Most people overestimate their own abilities and the quality of their own decisions. This 'Lake Wobegon' effect is pervasive." — Source: Wesco Financial Annual Meeting 2005
  8. On Liking/Loving Tendency: "We tend to ignore the faults of people we love and the virtues of people we hate, which clouds our judgment of reality." — Source: Harvard University Speech 1995
  9. On Authority Bias: "The human mind is inclined to follow leaders even when they are leading them off a cliff." — Source: Poor Charlie's Almanack
  10. On Availability Bias: "An idea or a fact is not worth more merely because it is easily available to your mind." — Source: Wesco Financial Annual Meeting 1998

Part 3: The Art of "Sit-On-Your-Ass" Investing

  1. On Waiting: "The big money is not in the buying and the selling, but in the waiting." — Source: Poor Charlie's Almanack
  2. On Patience: "It takes character to sit with all that cash and to do nothing. I didn't get to where I am by going after mediocre opportunities." — Source: Berkshire Hathaway Annual Meeting 2003
  3. On Opportunity Cost: "Life is a series of opportunity costs. You should compare every investment to the best one you already have." — Source: Daily Journal Annual Meeting 2017
  4. On Compound Interest: "The first rule of compounding is to never interrupt it unnecessarily." — Source: Poor Charlie's Almanack
  5. On Active Trading: "If you look at the modern world where someone is trying to teach you to actively trade... I see that as the equivalent of inducing young people to start off on heroin." — Source: Daily Journal Annual Meeting 2019
  6. On Shorting: "Shorting is the hardest way to make a little money. It is very dangerous and I generally avoid it." — Source: Daily Journal Annual Meeting 2023
  7. On Leverage: "There are three ways for a smart person to go broke: liquor, ladies, and leverage." — Source: Damn Right! by Janet Lowe
  8. On Circle of Competence: "You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don't, you're going to lose." — Source: Wesco Financial Annual Meeting 1994
  9. On Concentration: "The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds." — Source: Poor Charlie's Almanack
  10. On Selling: "If you've bought a great business and it's compounding beautifully, why would you ever want to sell it just to pay taxes and look for something else?" — Source: Berkshire Hathaway Annual Meeting 2015

Part 4: Economic Moats and Business Quality

  1. On High-Tolerance Businesses: "Invest in a business any fool can run, because someday a fool will. If it can't survive a little mismanagement, it's not a great business." — Source: Wesco Financial Annual Meeting 2009
  2. On Old Moats: "The old classical moats are disappearing rapidly. It's probably a natural part of the modern economic system that the old moats stop working." — Source: Daily Journal Annual Meeting 2020
  3. On Pricing Power: "The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business." — Source: Berkshire Hathaway Annual Meeting 2011
  4. On Free Cash Flow: "The best business is one that consistently generates more disposable cash than net profit annually." — Source: Wesco Financial Annual Meeting 2003
  5. On Monopoly Effects: "Monopoly and bureaucracy have pernicious effects everywhere, and higher education isn't exempt from it." — Source: Daily Journal Annual Meeting 2016
  6. On Business Ethics: "A business that makes money by selling people things that are bad for them is a business that I don't want to own." — Source: Daily Journal Annual Meeting 2021
  7. On Brand Value: "A great brand is like a moat that keeps competitors at bay by creating a psychological preference in the consumer's mind." — Source: Poor Charlie's Almanack
  8. On Retail Realities: "Retail is a very tough business because you are constantly under fire from competitors who are willing to cut their own throats to take your customers." — Source: Daily Journal Annual Meeting 2023
  9. On Economic Destruction: "All businesses get worse and fail eventually, even the best ones. It is the nature of capitalism." — Source: Daily Journal Annual Meeting 2023
  10. On Bureaucracy: "As a company grows, it tends to develop a bureaucracy that is more interested in its own survival than in the success of the business." — Source: Wesco Financial Annual Meeting 2004

Part 5: Rationality, Inversion, and Avoiding Stupidity

  1. On Inversion: "Invert, always invert. Turn a situation or problem upside down. Look at it backward." — Source: Poor Charlie's Almanack
  2. On Being "Not Stupid": "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent." — Source: Wesco Financial Annual Meeting 1989
  3. On Discarding Beliefs: "Being able to recognize when you are wrong is a godsend. I actually work at trying to discard beliefs." — Source: Daily Journal Annual Meeting 2020
  4. On Objectivity: "You must force yourself to consider the opposite argument. If you can't state the other person's argument better than they can, you don't have the right to an opinion." — Source: Poor Charlie's Almanack
  5. On High IQ Stupidity: "The one thing that has surprised me all my life is how many people with high IQs do massively stupid things." — Source: Daily Journal Annual Meeting 2015
  6. On Self-Correction: "Any year that you don’t destroy at least one of your most loved ideas is probably a wasted year." — Source: Poor Charlie's Almanack
  7. On Simple Solutions: "If something is too hard, we move on to something else. What could be simpler than that?" — Source: Wesco Financial Annual Meeting 2002
  8. On Avoiding Pain: "Try to avoid pain, and when you can't, learn how to deal with it. This is wisdom." — Source: Wesco Financial Annual Meeting 2011
  9. On Clear Thinking: "People calculate too much and think too little. They want a number to tell them what to do." — Source: Poor Charlie's Almanack
  10. On Fatal Flaws: "I want to know where I’m going to die so I’ll never go there." — Source: Wesco Financial Annual Meeting 2006

Part 6: The Moral Duty of Continuous Learning

  1. On Being a Learning Machine: "I constantly see people rise in life who are not the smartest... but they are learning machines. They go to bed every night a little wiser than when they got up." — Source: USC Commencement Speech 2007
  2. On Reading: "In my whole life, I have known no wise people who didn't read all the time — none, zero." — Source: Poor Charlie's Almanack
  3. On Wisdom Acquisition: "The acquisition of wisdom is a moral duty. It's not something you do just to advance in life." — Source: USC Commencement Speech 2007
  4. On Mastering Others' Ideas: "I believe in the discipline of mastering the best that other people have ever figured out. I don't believe in just sitting down and trying to dream it all up yourself." — Source: Wesco Financial Annual Meeting 1998
  5. On Lifelong Education: "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 learn after you leave school." — Source: USC Commencement Speech 2007
  6. On Intense Interest: "You have to find something you're interested in because it's just too much to expect of human nature that you'll be good at something you dislike doing." — Source: Daily Journal Annual Meeting 2017
  7. On Curiosity: "You must be curious. If you're not curious, you're not going to learn anything." — Source: Wesco Financial Annual Meeting 1999
  8. On Intellectual Honesty: "Recognizing what you don't know is the beginning of wisdom. You must be honest with yourself about your own ignorance." — Source: Poor Charlie's Almanack
  9. On Attention Span: "I did not succeed in life by intelligence. I succeeded because I have a long attention span." — Source: Daily Journal Annual Meeting 2015
  10. On Broad Subject Matter: "You should learn enough about everything so that you are not at the mercy of the experts." — Source: Wesco Financial Annual Meeting 2000

Part 7: Personal Character and the Value of Integrity

  1. On Reputation: "Remember that reputation and integrity are your most valuable assets—and can be lost in a heartbeat." — Source: Poor Charlie's Almanack
  2. On Deserving What You Want: "To get what you want, you have to deserve what you want. The world is not yet a crazy enough place to reward a whole bunch of undeserving people." — Source: USC Commencement Speech 2007
  3. On Reliability: "If you are unreliable, it doesn't matter what your other virtues are. You're going to fail." — Source: USC Commencement Speech 2007
  4. On Working for Admired People: "Avoid working under people who you don't admire or want to be like." — Source: USC Commencement Speech 2007
  5. On Moral Duty: "I think that you should make money by selling people things that are good for them." — Source: Daily Journal Annual Meeting 2021
  6. On Influence: "You eventually become what you pretend to be. If you act with integrity, eventually it becomes part of your nature." — Source: Daily Journal Annual Meeting 2020
  7. On Responsibility: "Take on greater responsibilities and perfect your work. That is how you succeed." — Source: Wesco Financial Annual Meeting 2011
  8. On Humility: "I look for a place where I'm wise and they're stupid. That requires knowing exactly where your wisdom ends." — Source: Daily Journal Annual Meeting 2020
  9. On Self-Serving Bias: "The self-serving bias is something you want to get out of yourself. It leads to terrible decisions and ruined relationships." — Source: USC Commencement Speech 2007
  10. On Reliability as a Virtue: "Being reliable is the most important trait in a partner. It’s better to have a partner who is slightly less smart but 100% reliable." — Source: Berkshire Hathaway Annual Meeting 2018

Part 8: Economics, Incentives, and Corporate Governance

  1. On Show Me the Incentive: "Show me the incentive and I will show you the outcome." — Source: Poor Charlie's Almanack
  2. On EBITDA: "I think that, every time you see the word EBITDA, you should substitute the words 'bullshit earnings.'" — Source: Wesco Financial Annual Meeting 2003
  3. On Derivatives: "I don't like derivatives. They are like some venereal disease... I just regard them as beneath contempt." — Source: Daily Journal Annual Meeting 2014
  4. On Executive Compensation: "The way executive compensation is handled in America is a national disgrace. It is often a system of legalized bribery." — Source: Wesco Financial Annual Meeting 2004
  5. On Corporate Culture: "If they made me CEO of a company with a million employees and said 'change the culture Charlie' I would regard that as a sentence to hell." — Source: Daily Journal Annual Meeting 2018
  6. On Accounting Fraud: "Accounting is the language of business, but when people start using it to deceive rather than inform, the whole system breaks down." — Source: Wesco Financial Annual Meeting 2002
  7. On Financial Innovation: "We don't need these kinds of innovation in finance. It's OK to be boring in finance. What we want is innovation in widgets." — Source: Wesco Financial Annual Meeting 2009
  8. On The Finance Industry: "The finance industry is 5% rational people and 95% shamans and faith healers." — Source: Daily Journal Annual Meeting 2015
  9. On Corporate Governance: "Board members are often like a bunch of decorative objects on a shelf. They don't do anything to stop the CEO from making terrible mistakes." — Source: Wesco Financial Annual Meeting 2001
  10. On Rational Economics: "The standard economics taught in universities is often flawed because it ignores the psychology of human behavior." — Source: Poor Charlie's Almanack

Part 9: The Pursuit of Happiness and a Well-Spent Life

  1. On Low Expectations: "The first rule of a happy life is low expectations. If you have expectations that are too high you will have a miserable life." — Source: Daily Journal Annual Meeting 2021
  2. On Envy: "Envy is a really stupid sin because it's the only one you could never possibly have any fun at. Why would you want to get on that trolley?" — Source: Poor Charlie's Almanack
  3. On Resentment: "Resentment is like drinking poison and waiting for your enemies to die. It is a total waste of time." — Source: Wesco Financial Annual Meeting 2010
  4. On Marriage: "The best single way to find a good spouse is to deserve a good spouse." — Source: USC Commencement Speech 2007
  5. On Dealing with Pain: "View every mischance as an opportunity to behave well and learn something." — Source: USC Commencement Speech 2007
  6. On Gratitude: "I have conquered envy in my own life. I don't envy anybody. I don't give a damn what somebody else has." — Source: Daily Journal Annual Meeting 2022
  7. On Old Age: "The best armour of old age is a well spent life perfecting it." — Source: Poor Charlie's Almanack
  8. On Deferred Gratification: "If you are willing to go in for a lot of deferred gratification all your life, you're going to succeed." — Source: Daily Journal Annual Meeting 2017
  9. On Engagement in Life: "My hero is Maimonides... He believed in the engaged life. I recommend that you engage life." — Source: Daily Journal Annual Meeting 2017
  10. On Personal Habits: "Mozart had a lousy unhappy life because he overspent his income and was full of resentment. Learn from Mozart." — Source: Daily Journal Annual Meeting 2019

Part 10: Worldly Wisdom on Contemporary Challenges

  1. On Cryptocurrency: "I think it's crypto crappo... it's like some venereal disease. I just regard it as beneath contempt." — Source: Daily Journal Annual Meeting 2022
  2. On Robinhood: "New brokers are luring the gamblers in and it's a dirty way to make money. Nobody should believe that Robinhood's trades are free." — Source: Daily Journal Annual Meeting 2021
  3. On Elon Musk: "Elon Musk is a genius, but a man with a reputation for genius who takes on a business with tough operating conditions will likely see the business's reputation prevail." — Source: Daily Journal Annual Meeting 2015
  4. On Venture Capital Excess: "I would argue venture capital is throwing too much money too fast, and there's a considerable wretched excess in it." — Source: Daily Journal Annual Meeting 2022
  5. On Alibaba Mistakes: "I regard Alibaba as one of the worst mistakes I ever made. I got charmed with their position and didn't realize they're still a retailer." — Source: Daily Journal Annual Meeting 2023
  6. On Modern Markets: "We have a stock market which some people use like a gambling parlor. It is not good for the country." — Source: Daily Journal Annual Meeting 2022
  7. On Technological Change: "The internet is like past technological advancements—great for mankind but not always great investments, as people tend to overdo them." — Source: Wesco Financial Annual Meeting 2000
  8. On China: "The Chinese internet companies are stronger than our own in many ways, but the political risks are significant." — Source: Daily Journal Annual Meeting 2023
  9. On Assiduity: "I like the word assiduity because it means: sit down on your ass until you do it." — Source: USC Commencement Speech 2007
  10. On Legacy: "My sword I leave to him who can wear it. I want to leave behind a record of rational behavior." — Source: USC Commencement Speech 2007