Table Of Content

(,opvnght O 2005. l(XXr lrr PCA Publicrrrion. L.1,.(1. .\bridgcd edition 2005. sccond printing Z(X)(r flxpandccl scconrl crlitiort 2006. secortd printing 2007 Erpandccl tlrirtl cLlirion l0()8 Expandccl thirrl ctlition. second prirtrirrg 3()0E Expanclcd thirrl c,tlition. third printing 2(X)() Iirpanclccl thirrl cdition, tburth printing 2010 E,rpanclcd tlrirtl cdition, filth printing 201 I Erpantictl rhird crlition. sirth printirrg 201 1 '\ll righr: rcserrctl. including thc risht to reproduce this uotli in trnr tirnl rr hetsriever u itltotrt pcrtnissiott in u riting frotll tltc pLrblisher. c\ccl)t ibr bricf plsrrt{cs itt ctttlltection u itll rl rcr icu -,\ttcnrpts hevc been rrltde to iclcntifr the otr ne t s of lrlt copr rightccl rnateri:rls appcrtrirrg in this book. 'l'ltc ctlitol rlttl pLrblishcr crtcncl thr:ir rltologics tirt anv etrors <tr otllissiotls rntl encottragc anv crtpvriglrt ttrr ttcrs inadl'ertctrtll tllissc:rl rll contitct thcnr. lior intirrnrttion u rire: 'l'hc [)onning (linrprnr I)Lrblishcrs ffim 1lJ-l []Lrsincss Perk [)rivc. Strite 206 Virgrnie Beach, \'r\ Z.j-162 # I )l ight'fonrpkins. I)rojcct I)irector Stcr c \lull. Oe rte rrl \lrtrrlgcr l)rnrcla Koch. l'lditor Scr-rtt Rulc. I )csigncr Original illrtstrrriotts rnd caricatLtrcr bi ltd \\'crlcr ,,,.ifl, L,ibralv of ( lrnsrcss ( iataloging-ilt-l)trblicrtion Data { Poor (lhlrlic's rtlnrrnach : thc \\,it rtnd s iscilrt.t.t of Chellcs '1. li:ii \lrrngcr / criitcd lrv Pcter [). Krrrfrttrtrt. p. cnr. lnclLrdcs inclcx. ISUN l-.5736-+-.10.1-1 (orisinrl Itrtrtlcovcr : alk. papcr) ISRN-I 0 l-5786-+-.166-X (crpenrlctl sccon.l edition) I SllN- I 3 978- 1 -.5786+-.i6(r-0 ( crprntlccl scconcl eti irion ) I Sll N - I 3 978-1 -.57u6'+-.50 1 -.5 I crprtrtcled third eclition ) l. Irrr csturcr-rts--Dccision rttrtliing. Z. lnr-estmcnts--l i. lJcrli,lrire I lurlrrrrrr lrr(.--l li\1,'r\. -{. \[rrrtgcr. l9-Z-l- I. Krrtrl}ran. Pctcr I). Il.'l itlc II(;+51.5.\186 200.i 1.12.(r'02'0 7--dc2l I)rinted in thc I lrr \\rl:u'rtth \ l.r rt e I ine, T For Charles Munger who, in his own words, would tell you: 'Acquire utorldly uisd.om and adjust your behauior If accordingljr. your new behauior giues loa a linle temporar! anpopularity utith your peer grotlp... tben to bell utith tbern." at.,':a rttal by Ciartes T foIunger Aging......... Age: Mu*ger's Reflections on ......27 Charlie...... The Children on .....39 il;;"'#'; Making Learning, and Decision .......s2 ",*, w Berfrsfiirv Hatharoay and Wesco Financial annual meetings) Speech...... Harvla Comnencement .'..............150 ,f :*_' j fchool \;*'i:' ::'-'-:=--;' - 1\-" -. Revisited on Elementary WorldlyWisdom, """""""""2?0 l1**.,,,,,",,.,,,,$,,Rf*on t;ffim*_ .4SdFdi ',, 4. Practical Thought About Practical Thoughtl.. ....278 11. The Psychology of Human Misjudgment........40 5. Harvard Law School Fiftieth Reunion Address..... ................302 Appendixes 6. Investment Practices of Leading Charitable Foundations...32Z I. Recommended Reading Material.... ............ 499 7. Philanthropy Roundtable ....................340 II. Articles, Editorials, and Opinion Pieces .....502 8. The Great Financial Scandal of 2003 ...................356 Index ................522 Economics............... 9. Academic ............374 10. USC Gould School of Law Commencemenr Address...... ......420 ==Acknowledgments his book is a survey of Charles T, Munger: his approach to learning, decision maki^9, investing, his speeches, his "zingers," and more. -['he i''rpctus firr the book came from rhe many people who, over the yezrrs, har''e said thcv u'ished one existccl- and have done so with ever-increasing vigor at Berkshire and \\esco sharcholder mccrings. rrt dinner parties, on message boards, and rnanv other placcs. Hearing this clitn'ror, vour cclitor. Peter Kaufman, suggested to \\hrren Btrffett that a book be done and ll'ns ct'tcotrragecl to takc it upon himself to make it happen. What you are about to re:rcl is the restrlt. Illustrator and caricaturc artist Ed Wexler has made caricatr,rrc clrarvings of each contributor to the projecr and has also produced several dozcn other illustrations throughotrt thc book. We hopeyouenjoyallofhislr,orkasmuchaswedo. Sprccial recognitionisalsodue Whitney'l'ilson, rvho compilecl the N'Iungerisms section; Nlichacl Broggie, the attthor of oLrr biographical portrait of Charlic; and Carol Loomis, r,i'ho edited ccrtirin sections of thc book (and on multiple occasions savcd the editor fron-r himself.) The production team included, fiom left to right (back row), Tiavis (iallup, Carl liootc, Scott Rule, Dlr'ight Tbn-rpkins, N,lichael Broggie, Stcvc Nlull, (miclcllc rou') Pirmela Koch, Eric Harrman-Birge, Paul Hartman, (lharles Belser, licl Wexler, (fror-rt rou') \\rl-ritnev'l'ilson, Nlarcus Kaufman, Pt:ter Kaufman, (larol Loomis, I)cbbie Ilosanek, ancl f)oerthe Obcrt. &: Finally, if you enjov readingPoorCltarlit'.s Alnrana* half as rnuch as vve enjovccl putting it together, we will considcr our efforts a distinct success. In cverv respect, bLtt particularlv in orrr interactions with Charlie, his family, and the N{ungers'u'icle circle of fricrrds and associares, we have been favored with cahr-r skies and smooth sailing in the proclttction of this book. We hope our efforts have proven u,orthv of our subjcct, a good and adr-r'rireblc rnan. g rr.: '{r* iiffi&ffw ffi '.1.a " ""ffi Charles Helman Lea once said, "It will generally be admitted that the true test of all books is the influence they have upon the lives and conduct of their readers." W'e hope our book passes this test, exerting a lasting influence on you. i Buffett on Mun$er y Warren E. Buffett 33 to 1758, Ben Franklin dispensed and timeless advice throu gh Poor Richardl Among the virtues extolled were thrift, duty, hard work, pnfuries went by during which Ben's thoughts on these as the last word. Then Charlie Munger stepped forth. l.+ t., ,. [f*ciple of Ben's, Charlie was soon breaking new ground. What id; eharlie demanded. If Ben suggested saving pennies, I $rahse. If Ben said be prompt, Charlie said be early. Life under to iook positively cushy compared with the rigor demanded by r :.' ' . ar -' tharlie consistently practiced what he preached (and, oh, how ip lis will, created tw9. small philanthronilfun.f s tfat yele t5e magic of compound interest. Early on, Charlie decided that this was a subject far too important to be taught through some posthumous project. Instead, he opted to become a living lesson in compounding, eschewing frivolous (defined as "any") expenditures that might sap the power of his example. Consequently, the members of Charlie's family learned the joys of extended bus trips while their wealthy friends, imprisoned in private jets, missed these enriching experiences. In certain areas, however, Charlie has not sought to improve on Ben's thinking. For example, Ben's "Advice on the Choice of a Mistress" essay has left Charlie in the "I have nothing to add" mode that is his trademark at Berkshire annual meetings. There w*s onb one As for myself, I'd like to offer some "Advice on the Choice of a Partner." Pay attention. partner who fit my Look first for someone both smarter and wiser than you are. bill of particulars After locating him (or her), ask him not to flaunt his superiority so that you may enjoy acclaim for the many accomplishments that in euery wa!-Charlia sprang from his thoughts and advice. Seek a partner who will never second-guess you nor sulk when you make expensive mistakes. Look also for a generous soul who will put up his own money and work for peanuts. Finally, join with someone who will constantly add to the fun as you travel a long road together. All of the above is splendid advice. (['ve never scored less than an A in self-graded exams.) In fact, it's so splendid that I set out in 1959 to follow it slavishly. And there was only one partner who fit my bill of particulars in every way-Charlie. In Ben's famous essay, he says that only an older mistress makes sense, and he goes on to give eight very good reasons as to why this is so. His clincher: "...and, lastly, they are so grateful." Charlie and I have now been partners for forty-five years. I'm not sure whether he had seven other reasons for selecting me. But I definitely meet Ben's eighth criterion. I couldn't be more grateful. "A partner who is not subservient, who is himself extremely logical, is one of the best mechanisms you can have." -Buffett