Poor Charlie's Almanack
My thoughts on the new edition with a focus on inconsistency avoidance, one of the twenty-five psychological tendencies that can cause human misjudgment.
“Early Charlie Munger is a horrible career model for the young because not enough was delivered to civilization in return for what was wrested from capitalism.”
— Charlie Munger, Poor Charlie’s Almanack
Charlie Munger strongly believed in the virtues of capitalism, but he obviously had reservations about whether he truly deserved what he “wrested” from the system.
Why did he have doubts about whether his wealth was deserved?
I suspect that part of the reason had to do with his recognition that the vast majority of people go through life “like a one-legged man in an ass-kicking contest” because they over-specialize in one field and lack a multidisciplinary mindset. In particular, most people are ignorant when it comes to psychological pitfalls and this creates blind spots. Those who master a multidisciplinary mindset and understand how they are susceptible to human misjudgment have an almost unfair advantage in life.
Why was “early Charlie Munger” a horrible career model for young people?
He served in World War II as a meteorologist and went on to become a successful attorney. After meeting Warren Buffett in 1959, he went into investment management and real estate development because he was not satisfied with the income that a senior partner in a law firm could expect to earn. He wanted independence and he achieved it, but felt that he had not given enough back to society in return for what he “wrested” from it. I believe that his efforts later in life to spread the secrets of his success were motivated, at least in part, by the recognition of the vast advantages he obtained early in life by mastering skills that most people completely overlook.
I disagree with the idea that “early Charlie Munger” was a bad role model, but I am grateful that he chose to share his wisdom later in life. The new edition of Poor Charlie’s Almanack is a very accessible distillation of his philosophy. After a long wait, I received the physical book earlier this month. I own two earlier editions of the Almanack so this was not my first exposure to the Munger way of thinking. But all great books should be read multiple times over a lifetime since we change over time, accumulating new life experiences. Unsurprisingly, I gained new insights from revisiting the contents again. Although the physical book is still in short supply, it is free to read on the Stripe Press website, including in a bare-bones Berkshire Mode.
It would be impossible to do justice to this book in a review of reasonable length, so I will make no such attempt. Instead, this article is primarily about inconsistency avoidance tendency which represents an entry in my series on Charlie Munger’s psychology of human misjudgment, a project that I started many years ago.
Inconsistency Avoidance Tendency
Why are human beings reluctant to change their minds? There are many reasons for unjustified intransigence, but we should keep in mind that most psychological tendencies evolved in humans for sound reasons. In a less complex society, and one more fraught with constant danger, having a default “algorithm” governing our behavior was mostly desirable. Asking “why” too often could lead to fatal results on the savanna when a predator is quickly approaching. Deep rooted algorithms built in response to how the world works can keep us out of trouble in many situations.
“It is not entirely clear why evolution would program into man’s brain an anti-change mode alongside his tendency to quickly remove doubt. My guess is the anti-change mode was significantly caused by a combination of the following factors:
It facilitated faster decisions when speed of decision was an important contribution to the survival of nonhuman ancestors that were prey.
It facilitated the survival advantage that our ancestors gained by cooperating in groups, which would have been more difficult to do if everyone was always changing responses.
It was the best form of solution that evolution could get to in the limited number of generations between the start of literacy and today’s complex modern life.”
The problem is that modernity serves up challenges to humans that massively differ from life on the savanna. If we quickly reach conclusions and resist changes to our conclusions, regardless of contrary evidence, we are likely to make massive cognitive errors in a much more complex world. Homo sapiens first emerged about 200,000 years ago and remained in hunter-gatherer mode until roughly 10,000 years ago.
In evolutionary terms, we are built for a world that has not existed for millennia.
Bad Habits
Inconsistency avoidance tendency makes it very important to avoid the formation of bad habits early in life before they become entrenched in our behavior and minds to the point where they are nearly impossible to change.
“The rare life that is wisely lived has in it many good habits maintained and many bad habits avoided or cured. The great rule that helps here is again from Franklin’s Poor Richard’s Almanack: ‘An ounce of prevention is worth a pound of cure.’ What Franklin is here indicating, in part, is that inconsistency-avoidance tendency makes it much easier to prevent a habit than to change it.”
It is not impossible to reduce or eliminate bad habits once they are formed, as James Clear explained in his book, Atomic Habits, which I reviewed three years ago. But doing so requires implementing techniques that do not always work, at least not for all people. The abuse of alcohol and other mind-altering drugs is an excellent example. Alcoholics Anonymous is one of the oldest and most successful methods to achieve sobriety but it only has a fifty percent cure rate which obviously implies a fifty percent failure rate. Many bad habits are intractable for a significant percentage of the population. Alcoholism is just one example, albeit a particularly pernicious one.
Avoiding the formation of bad habits is so important that Charlie Munger decided to completely invert the standard words of wisdom typically delivered to students at graduation ceremonies. In a commencement address in 1986, Mr. Munger explained how the graduates should go about guaranteeing a life of failure and misery through time-tested strategies such as ingesting drugs and indulging in envy and resentment.
“The brain of man conserves programming space by being reluctant to change, which is a form of inconsistency avoidance. We see this in all human habits, constructive and destructive. Few people can list a lot of bad habits that they have eliminated, and some people cannot identify even one of these. Instead, practically everyone has a great many bad habits he has long maintained despite their being known as bad. Given this situation, it is not too much in many cases to appraise early-formed habits as destiny.”
In 2024, addiction to electronic devices is a clear bad habit that must be avoided from childhood. Unfortunately, most children are exposed to electronics at a very early age and it is now normal for teenagers to carry smartphones. At a recent concert, I was seated directly behind a group of middle school students who were clearly addicted to their phones. No amount of scolding from teachers or ushers could get these children to stop. Society has badly failed children by not only tolerating but promoting terrible habits that encourage nonstop context switching and obstruct the natural state of flow required to become educated and productive members of society.
Proper Education
A sound education is nearly the opposite of what schools deliver in the early 21st century, a reality that has led small rebellions devoted to returning to classical education in the primary and secondary school systems. Charlie Munger’s views on the elevated bar required to develop wise citizens could not be more clear:
“Proper education is one long exercise in the augmentation of high cognition so that our wisdom becomes strong enough to destroy wrong thinking maintained by resistance to change. As Lord Keynes pointed out about his exalted intellectual group at one of the greatest universities in the world, it was not the intrinsic difficulty of new ideas that prevented their acceptance. Instead, the new ideas were not accepted because they were inconsistent with old ideas in place.”
Since it is so difficult to dislodge beliefs once they are embedded in one’s mind, great efforts must be made to equip young people with the ability to think from first principles. Charlie Munger compared our minds to human eggs. Once a sperm makes its way into an egg, there is a shutoff device barring other sperm from getting in. This effect is most pernicious in the soft sciences and humanities but has also been seen in hard sciences. Toward the end of his life, Albert Einstein found it difficult to accept the full implications of quantum mechanics, despite evidence presented to him.
One way to force the mind to overcome inconsistency avoidance is to make an honest effort to understand opposing viewpoints and evidence:
“I have what I call an iron prescription that helps me keep sane when I drift toward preferring one intense ideology over another. I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I’ve reached that state.”
The skill of playing devil’s advocate can identify weak points in our beliefs. In high school speech and debate, students are expected to be able to make arguments for or against a position regardless of whether their personal beliefs align with their arguments. This can be extremely uncomfortable, but essential for the formation of a sound mind. In today’s world, I suspect that many would object to such techniques on the grounds of violating a student’s “safe space” and overall mental health. In the short run, a life of perceived certainty may feel more comfortable. In the long run, it leads to predictably poor results, yet today this is the default mode of education.
Charlie Munger had the following to say about education as things stood over fifteen years ago when he made his final revisions to the book:
“… Modern education often does much damage when young students are taught dubious political notions and then enthusiastically push these notions on the rest of us. The pushing seldom convinces others. But as students pound into their mental habits what they are pushing out, the students are often permanently damaged. Educational institutions that create a climate where much of this goes on are, I think, irresponsible. It is important not to thus put one’s brain in chains before one has come anywhere near his full potentiality as a rational person.” [Emphasis Added]
The situation is far worse in 2024.
Recent events have clearly demonstrated that many prestigious universities are intellectual monocultures where only one set of beliefs are permissible. This is not education. It is indoctrination and an affront to young minds.
Implications for Investors
Charlie Munger’s talk on human misjudgment is not targeted to investors, but the implications seem obvious, especially for those who take public stands on their investments or make recommendations to others.
As someone who has been writing about investing for over fifteen years, I have come to appreciate and greatly fear inconsistency avoidance because I know for certain that I am not immune to the negative effects of this psychological tendency. Several years ago, I wrote an article about the risk of sharing ideas after I identified a case when taking a public stand clearly resulted in financial losses.
For many years, I posted stock write-ups on my website. I disclosed when I held positions in the stocks that I wrote about and made it clear that articles were not recommendations. Until 2022, write-ups were free. Despite no legal, financial, or even ethical obligation to post follow-up articles or to disclose my subsequent activity, I nevertheless felt a need to 1) post follow-ups if my thinking on a company changed and 2) disclose any purchases or sales along with an explanation to readers.
What is the upside of voluntarily taking actions that undoubtedly increase the risk of inconsistency avoidance tendency affecting subsequent investment decisions? The answer is that there is no upside whatsoever. This is why investors like Warren Buffett and Charlie Munger are rarely willing to discuss their positions in publicly traded investments and they do not disclose positions until they are required to.
In 2022, I wrote a series of profiles of public companies that I did not own, thinking that I would avoid inconsistency avoidance by having no financial interest in the companies and, again, clearly making it known that the profiles did not constitute advice. The problem is that in some cases I might have wanted to purchase shares had I not publicly written about the company. Although in no way legally or ethically barred from doing so, I avoided buying to avoid potential psychological pitfalls.
In recent months, I have restricted deep analytical articles to Berkshire Hathaway, but it is far from clear whether writing such articles is intelligent on my part. Berkshire is my most important investment and I am writing about it in public. I try hard to be unbiased, and as many of my recent articles demonstrate, I am capable of calling out negative developments. Yet, I do question whether writing about Berkshire in public might one day psychologically prevent me from taking actions in my portfolio.
I write this personal account because it is a good illustration for readers, especially those who write about their investments in public. As someone who benefits from the writing of other investors, I selfishly do not want them to stop, but I often wonder why they do it given the potential for inconsistency avoidance to cause problems.
Even for those who do not write in public, providing recommendations to family and friends can have similar effects. This is an excellent reason to never give advice to others except in highly unusual situations where one feels an obligation to help very close family members. There is limited upside and huge downside.
As the old joke goes, when you see your brother-in-law at Thanksgiving dinner, if your stock recommendation from last year worked out, it will suddenly morph into his idea. But if you were wrong, it will always and forever be your idea!
Book Format and Abridgment
The new edition of Poor Charlie’s Almanack is a standard size hardcover book that is well constructed and obviously meant to last. For the most part, the Almanack is presented as a conventional book with few illustrations. There are ninety-eight excellent end notes and a well-constructed index.
Aside from a new foreword by John Collison, the content appears to be unchanged from the prior edition. For example, the introduction refers to the oldest talk in the book being “almost twenty years old” even though the first talk took place in 1986. Warren Buffett refers to Charlie Munger as his partner of 45 years and Charlie Munger refers to Warren Buffett as being in his 70s.
Only talk three has any explicit references to abridgment, and in those cases, reference is made to other talks where similar information is presented. I have mixed feelings about this and would have preferred to have the original talk in full even at the risk of repetition. Some amount of repetition is not a bad thing and the book, at 351 pages, would not be excessively long even if it had 25% more pages.
Since I have the first and third editions, both large-format “coffee table” style books, I can compare the reading experience. I found the revised edition easier to read in general, although at times I missed the often amusing and informative illustrations in the large-format book. Of course, I have those editions so I can always return to them. My recommendation for true Munger “cult members” is to locate a copy of the original Almanack. The new edition is fine for those mostly interested in the ideas.
I know that my net worth has benefited greatly from reading Roger Lowenstein’s biography of Warren Buffett shortly after it was released in 1995 and the same is true for Lawrence Cunningham’s compilation of Warren Buffett’s shareholder letters which first appeared in the late 1990s. Without those books, I can safely say that my investment results over the past quarter century would have been far worse.
I am less certain how much incremental wealth I have today due to reading Poor Charlie’s Almanack when it was first released in 2005. The book did not result in any specific investment decision but it greatly improved my ability to think clearly.
I know that Poor Charlie’s Almanack helped me to navigate many serious setbacks. For example, without reading Charlie Munger’s views on the futility of hatred, I would have surely fallen into that trap along with self-pity and resentment after a searing incident in which my character was viciously assaulted through lies and deception.
Not everyone enjoys relationships characterized by a seamless web of deserved trust and sometimes such trust can be misplaced with severe negative consequences. It is unrealistic to think that one can live a meaningful life without serious setbacks. It is human nature to react poorly under adverse conditions without the appropriate intellectual and emotional armor, but fortunately I had such armor at my disposal.
Life is about more than accumulating money. Understanding the psychology of misjudgment is a prerequisite for a life well lived. “Early Charlie Munger” was not the ideal role model according to the man himself, but I’d like to think that by the end of his life, Charlie Munger knew that his status as a positive role model was secure.
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