Annotations (27)
“I was well aware that every ship has exactly the same problem. Every ship has a window shortage automatically. Every cruise ship has people paying $20,000 a week to be on the ship. If they don't want a little light, they walk out of the ship and go into one of the common rooms. I was following correct precedents from marine architecture. But show me an architect that's learned anything from marine architect.”— Charlie Munger
What We Can Learn From Architectural Mistakes · p. 21
Philosophy & Reasoning · Creativity & Innovation
DUR_ENDURING
Architects ignore marine precedents
“I realized that there was no way to do that building without creating a window shortage in some bedrooms. I also knew it didn't matter because I went around Ann Arbor and saw the private builders already created apartment rooms with no windows. I walked side-by-side exactly identical bedroom, one with a real window and one with just a blank wall. The one with just a blank wall renting for 10% less. So it wasn't much of a problem. I looked for the evidence.”— Charlie Munger
What We Can Learn From Architectural Mistakes · p. 21
Creativity & Innovation · Strategy & Decision Making
DUR_ENDURING
Test assumptions with real data
“I'd rather have a brief telephone with somebody I trust than I would a 40-page contract prepared by the finest law firm in the world with somebody I don't trust. We like to deal with trustworthy people and to be able to count on their oral promises. A Mayo operating room is what I call a seamless web of deserved trust. The surgeons trusting the anesthesiologist, the anesthesiologists trusting the surgeon. There's no bureaucracy at all.”— Charlie Munger
The Secret of Berkshire's Culture · p. 40
Leadership & Management · Business & Entrepreneurship
DUR_ENDURING
Seamless web of deserved trust
“If you don't look, you won't find. The fire codes required that every sleeping space have a window so the fireman could crawl up on a ladder. There were two things wrong with that. One, it never happened. Nobody could find a case where a fireman crawled up by ladder and found somebody lying in bed passed out of smoke. Two, in a modern building with automatic sprinklers, that's why there was going to be zero.”— Charlie Munger
What We Can Learn From Architectural Mistakes · p. 21
Philosophy & Reasoning · Strategy & Decision Making
DUR_ENDURING
Challenge rules with evidence
“Sol Price used to say a business should be careful in the business it deliberately does without. You figure out what you want to avoid. They want to avoid theft losses, embezzlements, bad checks and cluttering up the parking lot without buying much. And their system caused all those effects at once.”— Charlie Munger
Finding Monopolies & Profitable Industries · p. 10
Strategy & Decision Making · Operations & Execution
DUR_ENDURING
Business defined by what it avoids
“It's easier to find four things that are above average than it is to find 40. You find something that's almost sure to work. When it works, is that easy? How many gold mines are you going to find in your backyard? You shouldn't expect to have all that many opportunities that are clearly identifiable. You have to be a combination of very patient and very aggressive. You have to sit patiently waiting, watching, surveying, hunting and pounce very occasionally.”— Charlie Munger
The Principal-Agent Problem · p. 39
Strategy & Decision Making · Psychology & Behavior
DUR_ENDURING
Four great bets beat forty good ones
“Lee Kuan Yew is the politician who looks the most like Poor Charlie's Almanack. He just did: figure out what works and do it, figure out what doesn't work and avoid it. Just keep doing that over and over again. As far as I'm concerned, he's probably the greatest nation builder that ever existed in terms of quality of leadership, including Pericles and everybody in all history.”— Charlie Munger
Evaluating Stripe, NetJets, China, and GE · p. 42
Philosophy & Reasoning · Leadership & Management
DUR_ENDURING
Figure out what works, do it
“I never paid any attention to the boundaries between disciplines. I early got the idea I would learn the big ideas in pretty much all the disciplines to fluency by constantly using them. That would give me an advantage in what might we call common sense. Somebody says that old Joe has common sense. They don't mean that. They mean he's got uncommon sense.”— Charlie Munger
A Multidisciplinary Approach · p. 2
Philosophy & Reasoning · Psychology & Behavior · Strategy & Decision Making
DUR_ENDURING
Common sense is uncommon sense
“Airlines had big capital equipment. If they didn't use it, they were obviously losing money. So everybody was almost forced into a very destructive competition by the logic of the individual situations. Just like there are too many deer on an island and no predators, pretty soon there are too many deer. So all the deer suffer because there are too many of them.”— Charlie Munger
Finding Monopolies & Profitable Industries · p. 11
Economics & Markets · Strategy & Decision Making
DUR_ENDURING
High fixed costs force irrational competition
“Costco requires no working capital because the turnover is so high that they don't have to pay the supplier until they've been paid by the customer. Somebody else is financing their inventories. You could run Costco with primarily zero capital if you wanted to.”— Charlie Munger
Finding Monopolies & Profitable Industries · p. 8
Business & Entrepreneurship · Operations & Execution
DUR_ENDURING
Suppliers finance your inventory
“The membership system keeps the peach pickers, the little buyers out. They want to avoid theft losses, bad checks and cluttering up the parking lot without spending much. Costco has always had the lowest shrink rate in the world. The net theft rate at Costco was always below 2/10 of 1%. That's unheard of.”— Charlie Munger
Finding Monopolies & Profitable Industries · p. 9
Operations & Execution · Strategy & Decision Making
DUR_ENDURING
Membership solves 4 problems at once
“Over the last 100 years, the people who control the big brands reliably made more money more easily with less risk and downside than frankly anybody else. But I think there are forces now that are going to make it harder for the people that control the big brands because these house brands like Costco has and success of places like Aldi. I think there's more trouble coming to big brands than they've had in the last 100 years.”— Charlie Munger
The Map Is Not The Territory · p. 5
Strategy & Decision Making · Business & Entrepreneurship
DUR_CONTEXTUAL
Brand moat eroding from both sides
“The trouble with investment is most business is going to perish. Over a scale of 300 years, practically everything perishes. All great retailers, 90% of them have perished in the last 100 years. Lots of other fields, Kodak perished, all kinds of big things that looked permanent.”— Charlie Munger
The Map Is Not The Territory · p. 5
Strategy & Decision Making · History & Geopolitics
DUR_ENDURING
Permanence is illusion in business
“The conventional financial world is pretty reliable if you want to use electrical engineering or automobile transportation, but in a messy world of running businesses and institutions, the conventional religion is asinine. My theory from very beginning was I want to eliminate all the most conventional asininity. I collected asininities as things I should avoid.”— Charlie Munger
A Multidisciplinary Approach · p. 2
Strategy & Decision Making · Psychology & Behavior
DUR_ENDURING
Success via elimination not addition
“In my lifetime, a guy just bought the best common stocks and sat on his ass would have made about 10% per annum before inflation. Maybe 8% after inflation. That is not the standard return that a man can expect from investment. That was a very unusual period in a very unusual place. I do not anticipate that the average result is going to be nearly that good over the next 100 years.”— Charlie Munger
Charlie on Crypto · p. 13
Economics & Markets · History & Geopolitics
DUR_ENDURING
Past returns not predictive of future
“You got to understand the customer's business and the customer's real needs in a way that is automatic with people like me. I want to identify what the real needs of my customer is and really satisfy it intelligently. I don't have some crazy, artistic preference of my own that I want to just see in three dimensions. The architects aren't multidisciplinary enough. Practically, no profession is multidisciplinary enough.”— Charlie Munger
What We Can Learn From Architectural Mistakes · p. 21
Creativity & Innovation · Philosophy & Reasoning · Business & Entrepreneurship
DUR_ENDURING
Serve customer not artistic ego
“When I was introduced to the math of Pascal and elementary probability, I saw immediately how important this math was. My math teacher had no idea that he'd come to a part of the math that was very important in the regular world to everybody, but I saw it immediately and I just utterly mastered it. I'm still using it. I used it routinely all my life quite intensely.”— Charlie Munger
A Multidisciplinary Approach · p. 2
Philosophy & Reasoning · Psychology & Behavior
DUR_ENDURING
Teacher missed what student grasped
“MIT has a school of architecture. Imagine having a school of architecture in a place that is so stupid they build a dormitory where all the walls are slanted so much everybody gets seasick. That really happened at MIT. Schools of architecture have a lot of folly to regret. It's not necessary for architecture to be stupid.”— Charlie Munger
What We Can Learn From Architectural Mistakes · p. 20
Creativity & Innovation · Philosophy & Reasoning
DUR_ENDURING
Architects prioritize art over function
“It's a very important thing to learn to just search out the reliable people that you can trust and be the kind of person in dealing with everybody else that they can trust. It's just a huge advantage if you start doing that young and keep doing it consistently through life. It isn't very hard: stay awake in high school math and deal with the good people instead of the bad people and sell what you would buy if you were the buyer.”— Charlie Munger
A Multidisciplinary Approach · p. 3
Leadership & Management · Business & Entrepreneurship
DUR_ENDURING
Compound trust early and often
“My idea is so simple: if you make your living selling things to other people that are good for them, that is safer and more profitable averaged out than selling them stuff that's bad for them like gambling, drugs, crazy religions. You want to sell things that are good for them. It's amazing the people who don't pay any attention to that rule.”— Charlie Munger
A Multidisciplinary Approach · p. 3
Business & Entrepreneurship · Philosophy & Reasoning
DUR_ENDURING
Sell what you'd buy yourself
Frameworks (4)
Collecting Asininities
Success Through Systematic Elimination
Rather than trying to add new advantages, systematically identify and eliminate conventional stupidity in your field. Create a mental catalog of common mistakes, then avoid them relentlessly. This inversion approach provides an edge over those who follow conventional wisdom.
Components
- Identify Field-Specific Asininity
- Build Your Avoidance Catalog
- Enforce Avoidance Discipline
Prerequisites
- Industry experience sufficient to recognize patterns
- Willingness to question orthodoxy
Success Indicators
- Growing catalog of avoided mistakes
- Measurable outperformance vs. conventional approaches
- Reputation for contrarian correctness
Failure Modes
- Becoming purely negative without positive strategy
- Cataloging trivial instead of consequential mistakes
- Failing to update catalog as circumstances change
The Turnover-Cost Calculus
When High Wages Are Cheap
Calculate the hidden costs of employee turnover (training, errors, lost productivity) and compare against the incremental cost of paying above-market wages. Often the wage premium is cheaper than the turnover it eliminates. Ford's $5 day cut 370% annual turnover to near-zero at a fraction of the turnover's true cost.
Components
- Measure True Turnover Cost
- Calculate Wage Premium Required
- Run the Cost Comparison
- Implement and Monitor
Prerequisites
- Ability to measure turnover
- Budget authority to adjust compensation
- Baseline turnover data
Success Indicators
- Turnover reduction of 70%+
- Cost savings exceed wage premium
- Quality improvements measurable
Failure Modes
- Raising wages without changing other conditions that drive turnover
- Premium insufficient to change employee calculus
- Failing to market the premium to attract better talent pool
Challenge-Evidence-Test
Defeating Ossified Constraints
When facing apparent constraints (regulations, industry norms, resource limits), challenge the underlying assumption, gather real-world evidence for alternatives, and test with small experiments before scaling. Munger's dorm windows: challenge (windows required), evidence (windowless rooms work fine), test (rooms rent for 10% less), implement (double capacity).
Components
- Identify the Constraint
- Challenge the Underlying Logic
- Gather Real-World Evidence
- Test at Small Scale
Prerequisites
- Authority to run small experiments
- Willingness to challenge orthodoxy
- Access to data or observation
Success Indicators
- Constraint proven unnecessary
- Alternative approach validated
- Measurable improvement vs. constrained baseline
Failure Modes
- Challenging constraints that are actually necessary
- Testing without measuring real outcomes
- Scaling before validation
The Lee Kuan Yew Method
Figure Out What Works and Do It
The ultimate pragmatic framework: systematically identify what actually works (through evidence, not theory), do more of it, identify what doesn't work, stop doing it. Repeat relentlessly. No ideology, no sacred cows, just empirical results and willingness to change course.
Components
- Observe Without Ideology
- Implement What Works
- Identify What Doesn't Work
- Stop Doing What Doesn't Work
- Iterate Relentlessly
Prerequisites
- Willingness to challenge own beliefs
- Authority to make changes
- Ability to measure outcomes
Success Indicators
- Accelerating improvement rate
- Reduced attachment to failed initiatives
- Portfolio of proven practices growing
Failure Modes
- Mistaking activity for results
- Changing too slowly or too fast
- Letting ideology creep back in
Mental Models (14)
Inversion
Decision MakingApproaching problems by identifying what to avoid rather than what to pursue. Munger's 'collecting asininities' is pure inversion: catalog stupidity and avoid it systematically. Also applied to Costco's design: figure out what business you deliberately do without.
In Practice: Core theme throughout interview: avoid asininity, define business by what it excludes
Demonstrated by Leg-cm-001
Multidisciplinary Thinking
Systems ThinkingLearning big ideas from multiple disciplines to fluency, ignoring boundaries between fields. Creates
In Practice: Explicit discussion of learning across disciplines and applying marine architecture to dorms
Demonstrated by Leg-cm-001
Expected Value
Probability & StatisticsCalculating probability-weighted outcomes to make decisions.
In Practice: Discussion of probability math and Harvard Business School remedial teaching
Demonstrated by Leg-cm-001
Win-Win Transactions
EconomicsBoth sides of a voluntary transaction are better off, creating value rather than extracting it. Munger's philosophy: sell things good for the buyer, not things bad for them. Creates sustainable, ethical businesses. Capitalism works because win-win is automatic in voluntary exchange.
In Practice: Repeated emphasis on win-win as both moral and practical foundation
Demonstrated by Leg-cm-001
Reputation Compounding
PsychologyBuilding trust and reliability over time creates compounding advantages.
In Practice: Discussion of trust networks and Berkshire's culture
Demonstrated by Leg-cm-001
Lindy Effect
TimeThings that have lasted a long time are likely to last longer. But Munger invert
In Practice: Discussion of business mortality and investment challenges
Demonstrated by Leg-cm-001
Circle of Competence
Decision MakingKnowing what you know and what you don't know. Staying inside your circle. Better to have IQ 160 and think it's 150 than IQ 160 and think it's 200. Munger and Buffett don't invest in pharmaceuticals because they lack the biological and chemical knowledge to have an edge.
In Practice: Discussion of competency boundaries and pharmaceutical investments
Demonstrated by Leg-cm-001
Hidden Cost Analysis
EconomicsTrue costs are often invisible or uncounted. Ford's turnover was costing far more than $10M annually in training, errors, and lost output, but only the wage premium was visible. Identifying hidden costs reveals opportunities. The expensive-looking solution may be cheaper than the invisible problem.
In Practice: Ford's $5 day as calculated decision based on turnover cost
Demonstrated by Leg-hf-001
Negative Working Capital
EconomicsBusiness model where customers pay before you pay suppliers, meaning others finance your operations. Costco achieves this through inventory turnover so fast that customer payments arrive before supplier invoices are due. The ultimate capital efficiency.
In Practice: Discussion of Costco's capital efficiency
Demonstrated by Leg-cm-001
Multi-Order Effects
Systems ThinkingSingle design decision creates multiple downstream effects. Costco's membership system simultaneousl
In Practice: Costco membership solving four problems simultaneously
Demonstrated by Leg-cm-001
Fixed Cost Trap
EconomicsHigh fixed costs force irrational competition. Airlines with idle planes, hotels with empty rooms, factories with unused capacity all face pressure to fill capacity at any price. This structural problem creates destructive competition that benefits no one.
In Practice: Airline economics and deer overpopulation analogy
Demonstrated by Leg-cm-001
Mean Reversion
TimeExtreme outcomes tend toward average over time. Early railroads looked like gold
In Practice: Discussion of railroad industry evolution
Demonstrated by Leg-cm-001
Competitive Intensification
EconomicsAs more smart people enter a field, advantages erode and outperformance becomes harder. Investment management attracted massive IQ and capital, making it brutally competitive. Most wealth managers now have almost zero chance of beating an index.
In Practice: Discussion of why investing got harder
Demonstrated by Leg-cm-001
Survivorship Bias
TimePast returns don't predict future returns. The 8-10% stock returns of the last c
In Practice: Warning about extrapolating historical returns
Demonstrated by Leg-cm-001
Connective Tissue (6)
Biological evolution as business mortality model
Munger draws explicit parallel between business mortality and biological evolution. Over 300-year timeframes, practically all businesses perish, just as species go extinct. Even seemingly permanent entities (great retailers, Kodak) disappear when their environment changes. The evolutionary pressure of competition and technological change ensures continuous turnover. Investors must anticipate business death the way evolutionary biologists anticipate species extinction.
Discussion of investment challenges and business permanence
Island deer population dynamics as competitive destruction
Munger uses the ecological concept of carrying capacity and overpopulation to explain destructive competition in high-fixed-cost industries like airlines. When deer overpopulate an island with no predators, all deer suffer from resource scarcity. Similarly, airlines with high capital equipment costs are forced into irrational competition because empty seats represent pure loss. The structure of the industry (like the structure of an island ecosystem) creates inevitable suffering for all participants.
Explaining why airlines are structurally bad businesses
Marine architecture as solution to architectural constraints
Munger solved the dorm window problem by studying marine architecture. Ships have faced window shortages for centuries: interior cabins have no natural light, yet passengers pay premium prices. The solution: high-quality common areas and artificial lighting. Architects never study marine architecture despite facing identical problems. By looking at how ships solve spatial constraints, Munger doubled dorm capacity while maintaining livability. Cross-domain learning from marine to building architecture.
Discussion of architectural mistakes and multidisciplinary thinking
Mayo Clinic operating room as trust model
Munger uses Mayo Clinic operating rooms as the ideal model of organizational trust. Surgeons trusting anesthesiologists, nurses trusting everyone, everyone trusting the system. Zero bureaucracy because there's no time for it. This 'seamless web of deserved trust' enables extremely complex procedures with perfect coordination. Munger explicitly models Berkshire's culture on this medical precedent: trust earned over time, minimal bureaucracy, high-stakes coordination.
Explaining Berkshire's culture and trust-based operations
Pascal's probability mathematics as foundational tool
Munger credits Pascal's probability theory as one of the most important practical tools in his life. He recognized immediately in high school that probability math would be crucial in real-world decision-making, while his teacher saw it as abstract theory. Harvard Business School had to teach remedial probability as 'decision tree theory' to graduate students because earlier education failed. Elementary probability is so powerful and so neglected that mastering it creates lasting advantage.
Discussion of multidisciplinary learning and big ideas
Carny operators and casino advantage as probability teaching tool
Munger argues probability math should be taught using carnival games and casinos as examples of how operators systematically exploit people who don't understand math. The edge isn't abstract; it's concrete and measurable. Showing how carny operators structure games to guarantee profit would make probability visceral and memorable for students. This is how Munger himself understood the power of probability: as a tool to avoid being exploited or to structure situations with built-in advantage.
Discussion of probability education and practical math