The Wit and Wisdom of Charlie Munger

Topic: Investments

Geoffrey J. Gouinlock, CFA

February 24, 2016

Image used with permission: iStock/dolgachov


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The Wit and Wisdom of Charlie Munger

“In the corporate world, if you have analysts, due diligence, and no horse sense, you’ve just described hell.”

One of my favourite books on investing is a large, heavy, tome known as Poor Charlie’s Almanack – The Wit and Wisdom of Charlie Munger1. Assembled from quotes, letters, speeches and sundry other sources, it strings together the thinking of the man best known as Warren Buffet’s long-time business partner.  As a result of even a light skimming of the text, it is clear that Munger is no lightweight side-kick like Ed McMahon was to Johnny Carson. Instead, his prescient insights, drawn from fifty years of partnership with Buffet, stand on their own. There is a consistency of thought that runs through his wisdom and wit and which act as a refreshing counter-balance to the popular pre-occupation with everything new. It’s the sort of coffee table book you can pick up when you have 15 minutes to spare, and then suddenly realize you’ve spent a full hour turning the pages and are now behind in your schedule. This past week-end, I had a chance to spend some time flipping through the pages of the Almanack and settled upon a couple of quotations that directly pertain to what we experience at Nexus.

“The big general objection to economics was the one early described by Alfred North Whitehead2 when he spoke of the fatal unconnectedness of academic disciplines, wherein each professor didn’t even know the models of the other disciplines, much less try to synthesize them with his own. I think there’s a modern name for this approach that Whitehead didn’t like, and that name is “bonkers”.”

One of Munger’s favourite themes is the shortage in many business professions of multi-disciplinary talent and the current world’s heightened fascination with specialization. He sees a necessity to develop academically trained professionals in all walks of life (not just the investment world) with a more diverse knowledge of the way the world works. In particular, he emphasizes that at least some understanding of psychology and probability are essential requirements for success in any field of endeavour.  Broader knowledge of the interconnectedness of ideas, business models, and the sciences would avoid what Munger calls ‘man with a hammer syndrome’ – an allusion to the expression that, to a man with a hammer everything looks like a nail.

At Nexus the investment team is staffed with people who can best be described as generalists. Through our own continuing efforts, each of us has acquired some specialized knowledge about specific industry sectors. But what knowledge we have pales in comparison to the analyst community with whom we regularly consult. We talk and meet with highly educated and experienced analysts frequently. What sets the great analysts apart from the ordinary ones, is not the depth of their subject knowledge, but rather their ability to put in context what they know in a multi-disciplinary sense. Put another way, some carry very fine hammers and others have a full tool-box.

“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.”

A graduate of Caltech and Harvard Law, Munger is clearly a powerful thinker. But he has never taken even an introductory economics course. Rather, he has always read voraciously and kept an open, curious mind.  That both he and Buffet can stay relevant and on top of their profession, in a world as complicated and fast changing as ours, is a testament to an unwavering commitment to reading and learning as life-long pursuits. Importantly, it is an antidote to the tendency as we get older to look for short cuts, simple historical precedents, or to shut down and decide, “that we’ll leave this issue for the young people.”

These days, it is a constant challenge to stay abreast of corporate, economic and other developments that influence our investments.  So reading periodicals, analyst reports and newspapers should take up the majority of our workday.  While not for a moment would I begin to compare our business with that of Berkshire Hathaway, nonetheless, it is worth recognizing that much of their success was built on making adequate time for reading and thinking. At Nexus, there is a natural, underlying tension to keep the right balance between the demands of reading and research, with client contact, marketing, and the operation of the business itself. In the past few years we have reorganized internally so that many of these other functions are the responsibility of other members of the team. In a busy world, we are doing what we can to set aside time for doing what we enjoy and what will best serve the client.

1.Now in its third edition, “Poor Charlie’s Almanack” is available only in hardcover and it is expensive. Consider it for a special gift for the investor who has everything.  2.Whitehead  (1861- 1947) was a  British philosopher and mathematician best known for his collaboration with Bertrand Russell, Principia Mathematica.

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