Charlie Munger: The Complete Investor


Another book on how Buffett and Munger think and how this differentiates them

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Key Takeaways
  1. Munger's independent thinking and emotional control set him apart
  2. Graham principles
    1. Stock = buying a part of the business
    2. Margin of Safety
    3. Mr. Market
    4. Must be rational, objective and dispassionate to be a successful investor
  3. Worldy wisdom - develop many mental models to make better decisions
  4. Don't be a genius, simply avoid big mistakes
  5. Be a learning machine and learn from the mistakes of others
  6. Heuristics and biases
    1. Power of incentives
    2. Liking/loving
    3. Disliking/hating
    4. Doubt avoidance
    5. Inconsistency avoidance
    6. Curiosity tendency
    7. Kantian fairness
    8. Envy/jealousy
    9. Reciprocation
    10. Influence from association
    11. Pain avoiding denial
    12. Excessive self-regard
    13. Over-optimism
    14. Deprival super reaction
    15. Reward and punishment super response
    16. Social proof
    17. Contrast misreaction tendency
    18. Stress influence
    19. Availability misweighing
    20. Use it or lose it tendency
    21. Drug misinfluence
    22. Senescence-misinfluence
    23. Authority misinfluence
    24. Twaddle (nonsense) tendency
    25. Reason respecting tendency
    26. Lollapalooza tendency
  7. The right stuff
    1. Patient
    2. Disciplined
    3. Calm but courageous and decisive
    4. Reasonably intelligent but not misled by their high IQs
    5. Confident and non-ideological
    6. Honest
    7. Long-term oriented
    8. Passionate
    9. Studious
    10. Collegial
    11. Sound temperament
    12. Frugal
    13. Risk-averse
  8. 7 Variables in the Graham value investing system
    1. Determining the appropriate intrinsic value of a business
      1. Discounted value of the cash that can be taken out of a business during its remaining life
      2. Owner earnings - Net income + depreciation + depletion + Amortization - CapEx - additional working capital
    2. Determining the appropriate margin of safety
    3. Determining the scope of an investor's circle of competence
    4. Determining how much of each security to buy
    5. Determining when to sell a security
    6. Determining how much to bet when you find a mispriced asset
    7. Determining whether the quality of a business should be considered
    8. Determining what business to own (in whole or in part)
  9. Berkshire math
    1. For intrinsiv value, use long-term (30 year) US treasury rate as the discount
    2. Don't buy unless you have at least a 25% (and up to 60%) margin of safety
    3. Process
      1. Calculate past and current owner earnings
      2. Insert into the formula a rasonable and conservative growth rate of the owner earning's
      3. Solve for the PV of the owner's earnings by discounting using the 30 year treasury rate
      4. Focus on ROE, not EPS
  10. Moats
    1. Supply-side economies of scale and scope
    2. Demand side economies of scale (network effects
    3. Brand
    4. Regulation
    5. Patents and Intellectual Property
What I got out of it
  1. Reiterates a lot of what I've already read from Berkshire letters, etc. but a good overview

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