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26 of 27 people found the following review helpful:
5.0 out of 5 stars
Required reading for all who would lead in the 21st Century, November 29, 2008
Poor Charlie's Almanack is one of the most powerful, insightful works I have ever read. With 532 pages packed with wisdom and contrarian thought it is very difficult to do this book justice even in a moderately lengthy review.
I bought it because of Munger's reputation as a creative and original problem solver. As readers of my reviews know my primary interest in recent years has been to understand why civilizations fail. Given the perilous state of the world's economy my concerns about our own civilization appear to be increasingly justified. (Interestingly, Jared Diamond's "Collapse: How Societies Choose to Fail or Succeed" is mentioned on page 317 of the Almanack as an example of rare but much needed multidisciplinary analysis).
Charlie Munger is a magna cum laude graduate of the Harvard Law School and currently vice chairman of Berkshire Hathaway, Warren Buffet's $100+ billion empire. What can a highly successful businessman teach us about how we got into this mess and what lessons should we learn from it?
To my surprise Munger as early as 2000 correctly predicted the current financial crisis and identified its causes. Speaking to the Philanthropy Roundtable in November of that year he said, "I suggest that when the financial scene starts reminding you of Sodom and Gomorrah you should fear practical consequences even if you like to participate in what is going on." (p. 352)
One of the key causes is the functional equivalent of embezzlement or `febezzlement' as Munger calls it. Febezzling can take several forms but one of the most destructive happens when accounting rules are written so that fund managers and consultants can take huge fees based on `soaring' stock prices made possible by very low interest rates and loose lending practices.
In a postscript to the above observation Munger adds this ominous note:
"...some economists would regard the result as good because it came about in a market. But to me it would resemble a weird and disturbing combination of (1) a gambling casino imposing an unreasonably greedy take for the house, plus (2) a form of Ponzi-like scheme...plus (3) a bubble of speculation that would eventually burst...(which) would, I think, reduce the reputation of our
country, and deservedly so." (p. 355)
Today, eight years later, trillions of dollars are being magically created by the Fed and Treasury and poured into our financial system to fend off economic collapse. As this review is being written in late November 2008 respected analysts speaking on national television are saying that such folly will soon result in the collapse of the dollar as the world's reserve currency and the fading of the USA as a global economic power.
Our current crisis is a classic example of the lollapalooza effect, a term Munger uses to describe when powerful forces all interact in the same direction to produce an unexpected and often disastrous outcome. He compares it to certain effects in physics where forces don't just add together but instead produce a nuclear explosion when critical mass is reached.
Projected Medicare costs for example were vastly underestimated by economists when the system was initially envisioned because they failed to take into account second and third order effects such as gaming the system by both health care providers and users. Doctors, lawyers, insurance companies, hospitals billing five dollars for one aspirin tablet, and ordinary citizens pushing bogus `disability' claims all chimed in to make our health care system the fiasco it is today.
The same applies to economists simplistically following Ricardo's comparative advantage law with regard to trade with China. Yes, you will get cheap goods from China but at the expense of ultimately destroying American economic power in the world. Munger once pointed this out to George Shultz, an economics PhD and treasury secretary in the Nixon administration and secretary of state under Reagan. "Charlie, I do not want to think about this," was Shultz's reply. (p.407)
This is a perfect example of failing to heed Munger's axiom that "one should recognize reality even when one doesn't like it, indeed, especially when one doesn't like it." (p. 348)
The point Munger repeatedly makes is that much if not most of what happens in life is quite predictable if you take into account psychology as well as economics. He argues in fact that usually the former is more important than the latter. A political system that allows rules to be created that lead to bogus accounting standards and complex, opaque shams like derivatives deserves what it gets.
And here Munger is perfectly willing to make a lot of people angry. He shares the ancient Roman statesman Cicero's views on limited-franchise democracy and a distaste for pure mob rule and demagogues.(p. 28) Indeed, Poor Charlie's Almanack editor Peter Kaufman writes "Arguably the most important theme of this book is the need for *trust*: deserved reliance upon the character, values, and integrity of those you live and work with." (p. 417)
(Whether or not a form of limited democracy coupled with true meritocracy is possible is open to debate but sadly the national media, with which this reviewer has had considerable `insider' experience, has displayed virtually no interest in furthering a serious discussion on subjects so fundamental to successful governance).
To be successful in life, Munger argues that in addition to integrity and hard work you must use an array of models drawn from many disciplines. Physics is an excellent place to start because its concepts and formulas so wonderfully demonstrate the power of a sound theory.
Munger's principles really do work. I know because I have been using many of them over the years without reading Charlie's book. By a curious coincidence, like Charlie I also studied some physics at the University of Michigan and I agree completely that learning physics makes you to think deeply and systematically. And I read Cicero in undergraduate school - in Latin. In the modern world studying both physics and Latin is a rather unusual combination. Beyond that, and our shared interest in problem solving, our paths went in very different directions.
In this reviewer's opinion it is not at all clear that our current civilization can survive this economic crisis. There is simply no way to undo the Gordian knot of hundreds of trillions of dollars in credit default swaps without a total systemic collapse. How ironic that it will be caused by a deadly and incurable plague-like virus, not biologic in nature but economic.
There will be survivors though. Poor Charlie's Almanack and the wisdom it contains should serve as a guide for those who will build a more enlightened world. Lollapalooza effects can be positive as well as negative. The challenge is to devise a lollapalooza strategy to put humanity on a new and wiser track. Any takers?
November 2009 Postscript
Given the dramatic rise in the stock market in recent months it might appear that my concern about the future of the economy and specifically the impact of credit default swaps is unfounded. Unfortunately rising stock prices have masked the CDS problem and it will likely reappear dramatically when the market suffers a sharp reversal in the coming months. My appraisal of Poor Charlie's Almanack stands as written. For the wellbeing of our country however this is one case where I hope very much that my analysis will be proven wrong.
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19 of 25 people found the following review helpful:
5.0 out of 5 stars
The Greatest of All Time, August 22, 2008
First, let me admit my bias: Charlie Munger is my hero and role model (along with Mr. Buffett and Mr. Franklin -- I'll let you decide which ones!). However, he came to be my hero because of everything that is written in this book. Charlie often uses the quote "To the man with only a hammer, every problem tends to look pretty much like a nail." You'll gain plenty of tools reading this book; about life, business and investing -- and you'll have a heck of a fun time doing it in my opinion. I truly believe that this is one of the great all-time books on any topic (but especially useful for one wanting to simplify the world of business and investing), and he gives plenty of other reading recommendations throughout to help one develop his or her Latticework of Mental Models. In Charlie's own words (from one of his speeches -- which comprise the last part of the book):
"What is elementary, worldly wisdom? Well, the first rule is that 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.
You've got to have models in your head. And you've got to array your experience - both vicarious and direct - on this latticework of models. You may have noticed students who just try to remember and pound back what is remembered. Well, they fail in school and in life. You've got to hang experience on a latticework of models in your head.
What are the models? Well, the first rule is that you've got to have multiple models - because if you just have one or two that you're using, the nature of human psychology is such that you'll torture reality so that it fits your models, or at least you'll think it does. You become the equivalent of a chiropractor who, of course, is the great boob in medicine.
It's like the old saying, "To the man with only a hammer, every problem looks like a nail." And of course, that's the way the chiropractor goes about practicing medicine. But that's a perfectly disastrous way to think and a perfectly disastrous way to operate in the world. So you've got to have multiple models.
And the models have to come from multiple disciplines - because all the wisdom of the world is not to be found in one little academic department. That's why poetry professors, by and large, are so unwise in a worldly sense. They don't have enough models in their heads. So you've got to have models across a fair array of disciplines.
You may say, "My God, this is already getting way too tough." But, fortunately, it isn't that tough - because 80 or 90 important models will carry about 90% of the freight in making you a worldly - wise person. And, of those, only a mere handful really carry very heavy freight.
.....
Checklist routines avoid a lot of errors. You should have all this elementary [worldly] wisdom and then you should go through a mental checklist in order to use it. There is no other procedure in the world that will work as well."
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5 of 6 people found the following review helpful:
5.0 out of 5 stars
A must read for everyone, March 25, 2009
This book is a must read for everyone, just like my title says. Charles (Charlie) T. Munger does not speak out as much as Warren Buffett does and this book grasps several of his talks and puts them into print for everyone. This book not only teaches you about business, but it also teaches you about life. His teachings go into areas outside of business as well. He says that in order to be good in business you have to know many different formulas from many different subject areas and then goes on to list 20 that he uses.
Not only does he talk about business but the book starts off by going a little bit into his life. Not so much a biography of sorts but the beginning is a bit about him and it also has some friend's comments in regards to him. This book is a little long, but other than that it is a great read. I have picked up several books to read outside of this book just from reading here and this is now one of my most prized books in my collection.
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by Peter Bevelin
