Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger

He especially assesses a company’s management well beyond conventional number crunching—in particular, the degree to which they are “able, trustworthy, and owner-oriented.” For example, how do they deploy cash? Do they allocate it intelligently on behalf of the owners or do they overcompensate themselves or pursue ego-oriented growth for growth’s s

Charlie treats financial reports and their underlying accounting with a Midwestern dose of skepticism. At best, they are merely the beginning of a proper calculation of intrinsic valuation, not the end. The list of additional factors he examines is seemingly endless and includes such things as the current and prospective regulatory climate; the sta

He recasts all financial statement figures to fit his own view of reality, including the actual free or owners’ cash being produced, inventory and other working capital assets, fixed assets, and such frequently overstated intangible assets as goodwill. He also completes an assessment of the true impact, current and future, of the cost of stock opti

To identify potential “yes” candidates, Charlie looks for an easy-to-understand, dominant business franchise that can sustain itself and thrive in all market environments. Understandably, few companies survive this first cut.

Charlie doesn’t make a lot of investments. His approach is perhaps best summarized by Thomas Watson Sr., the founder of IBM: “I’m no genius. I’m smart in spots, and I stay around those spots.” If Charlie knows anything, he knows his spots: his carefully identified circles of competence. To stay within these circles, he first applies a basic, overal

“It’s kind of fun to sit there and outthink people who are way smarter than you are because you’ve trained yourself to be more objective and more multidisciplinary. Furthermore, there is a lot of money in it, as I can testify from my own personal experience.”

“Quickly eliminate the big universe of what not to do; follow up with a fluent, multidisciplinary attack on what remains; then act decisively when, and only when, the right circumstances appear.”

Personally, I’ve gotten so that I now use a kind of two-track analysis. First, what are the factors that really govern the interests involved, rationally considered? And second, what are the subconscious influences where the brain, at a subconscious level, is automatically doing these things—which, by and large, are useful but which often misfuncti

At the 2004 Berkshire Hathaway annual meeting, a young shareholder asked Buffett how to succeed in life. After Buffett shared his thoughts, Charlie chimed in: “Don’t do cocaine. Don’t race trains. And avoid AIDS situations.” Many would dismiss his seemingly flippant answer as merely humorous (which it certainly was), but in fact it faithfully refle