Learnings from a learning machine: Chetan Parikh shares Charlie Munger's wisdom

Charlie Munger, one of the world’s most revered investors, passed away on Nov. 28, 2023. (Image Source: Bloomberg via Getty Images)

In Poor Richard’s Almanack, Benjamin Franklin wrote in 1735 : ‘The family of fools is ancient.’ Charlie Munger inverted Benjamin Franklin’s statement and focussed on how to ‘not be dumb.’ As Munger said, "It is remarkable how much long-term advantage people like us have been getting by trying to be consistently not stupid, instead of trying to be very intelligent."

Charlie Munger symbolised time-tested and ancient values of fair play, honesty, curiosity, and constant self-improvement through life-long learning. Munger emphasised reading widely and broadly to build a latticework of cross-disciplinary mental models so as to have a diverse toolkit when looking at solutions to various real-world ‘messy’ problems. As he wrote: "Models have to come from various disciplines because all the wisdom in the world is not to be found in one little academic department."

Also Read: Top 10 quotes from investing genius Charlie Munger

‘I constantly see people rise in life who are not the smartest - sometimes not even the most diligent - but who are learning machines. They go to bed every night a little wiser than when they got up.’….a famous Munger observation!

Charlie Munger’s mental models are often discussed, but not his real-life models - the eminent dead and the living exemplars whose lives he studied so as to seek out what to emulate and what to avoid. As he said: "There is no better teacher than history in determine the future. There are answers worth billions of dollars in a $30 history book." And he was a self-confessed ‘biography nut.’

Also Read: What Charlie Munger once said about competing with the ‘Patels from India’. Watch

Benjamin Franklin wrote: "The foundation of all virtue and happiness is thinking rightly." Avoiding envy and self-pity, for example. As Benjamin Franklin biographer Carl Van Doreen wrote: "There was more than reasoning in Franklin’s dialogues; a zest for reason, a hunger for goodness, a passion for wisdom." The same can be said about Munger, who based so much of his thinking and behaviour on Benjamin Franklin.

Charlie Munger changed the world-views of many people, including Warren Buffett. ‘Moats’, ‘quality’, and ‘patience’ were scarcely in the lexicon of investing before Buffett and Munger.

Also Read: Charlie Munger: Learning from a modern-day Seneca

‘Margin of Safety’ applied to ‘moaty’ companies as opposed to ‘cigar butts’ was Munger’s important evolutionary construct in value investing. Qualitative characteristics became in themselves important components of the ‘margin of safety’.

In Munger’s words: "The number one idea is to view a stock as an ownership of the business and to judge the staying power of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash flows than you are paying for. Move only when you have an advantage."

This was the sketch that Munger made on which Warren Buffett painted the Berkshire canvas - Apple, Coca-Cola, American Express, Moody’s, Kraft Heinz, Bank of America and Chevron amongst many others. As Buffett admitted : "Its far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Charlie Munger’s world view: "The big money is not in the buying or the selling, but in the waiting."

Also Read: Invert, always invert: Charlie Munger's mental models that helped build his ‘30-second mind’

Benjamin Franklin once asked a question: "Does it not require as much pains, study and application to become truly wise and strictly virtuous as to become rich?" The manner in which Charlie Munger lived his life answered that question.