Source: Red and Green

Most people are more concerned about how to succeed in investing in the stock market, while Charlie (Munger) is more interested in why most people fail in investing in the stock market.

This was mentioned by Li Lu, the main manager of the Munger family's wealth and the founder of Himalaya Capital, in the preface of "Poor Charlie's Almanack."

According to Li Lu's observations, throughout Munger's long life, he continuously collected and studied various famous failure cases, organizing the reasons for those failures into a checklist to make correct decisions, which allowed him to rarely make significant mistakes in life and career decisions.

Undoubtedly, "Poor Charlie's Almanack" is one of the most worthwhile investment books to read repeatedly. Reading it at different stages of life yields different insights.

Among them, the Chinese preface written by Li Lu for this book is the best interpretation, gathering the wisdom of both Munger and Li Lu, filled with investment wisdom and life insights.

Li Lu emphasizes the importance of honesty in knowledge, opposing the straightforward definitions imposed by dogmatism and rigid frameworks. Previously, when the author consulted Mr. Li Lu face-to-face, he reminded not to be dogmatic.

In a recent interview with domestic media, Li Lu also mentioned, "I personally strongly oppose defining many things with ‘isms’... Investment is a matter of seeking truth from facts."

In the preface of the book 'Poor Charlie's Almanack', Li Lu repeatedly mentioned that Munger is 'never bound by any constraints or dogmas.' Reading it again brings a deeper understanding.

In the preface, Li Lu generously shares his life experiences, which can provide insights for us on how to make choices as we grow; he also generously shares his close observations of Munger, where one can see wisdom in the details of life.

The following is an excerpt from the preface content, let’s learn together and strive to be a little smarter every day.

List the reasons for failure as a checklist before making the correct decision.

Buffett said that in his life he has met countless people, but he has never encountered anyone like Charlie.

During the years of interacting with Charlie, I had the fortune to closely understand Charlie, and I firmly believe in this. Not even in the biographies I've read throughout history have I found anyone similar.

Charlie is such a unique person, and his uniqueness is evident both in his thoughts and in his character.

For example, Charlie always starts his problem-solving from the reverse.

To understand how to find happiness in life, Charlie would first study how life can become painful.

To study how enterprises can become strong and grow, Charlie would first investigate how enterprises decline.

Most people are more concerned about how to succeed in stock market investments, whereas Charlie is most concerned about why most people fail in stock market investments.

This way of thinking comes from the philosophy contained in the following farmer's proverb: I only want to know where I will die in the future, so I will never go there.

Throughout his long life, Charlie continuously collected and studied famous failure cases from various individuals, businesses in all fields, as well as government governance and academic research, and arranged the reasons for those failures into a checklist to make correct decisions, which means he almost never makes major mistakes in life and career decisions. This point cannot be overstated regarding its importance to Buffett and Berkshire's 50-year performance.

No dogma, not bound by any constraints.

Charlie's mind is original and never bound by any constraints or dogma. He possesses a childlike curiosity along with the research qualities and scientific methods found in top-tier scientists, with a strong desire for knowledge throughout his life and interest in almost all issues.

Any question can be fully mastered through self-study using the correct methods, and can innovate based on the foundations laid by predecessors. In this aspect, he is very similar to Franklin, akin to an encyclopedic figure of the 18th and 19th centuries.

In modern times, many top experts and scholars can achieve relative objectivity within their narrow fields of research, but once they stray a little beyond their domains, they start becoming subjective, dogmatic, rigid, or completely lose the ability for self-directed learning, thus inevitably falling into the limitations of blind men touching an elephant.

Charlie's mind has never been constrained by the frameworks of any discipline. His thoughts radiate into every corner of career, life, and knowledge.

In his view, the universe and everything in it are an interacting whole; all human knowledge is merely partial attempts to study this whole. Only by integrating this knowledge and weaving it into a coherent framework of thought can it be beneficial for correct cognition and decision-making.

Therefore, he advocates studying the truly important theories in all disciplines and, on this basis, forming what is called 'universal wisdom,' which serves as the tool to address important issues in the field of business investment. Charlie elaborates in this book on how to acquire such 'universal wisdom.'

Be honest about knowledge and define your circle of competence.

Charlie's thinking is based on honesty about knowledge.

He believes that the world is complex and changeable, and human cognition always has its limitations, so one must use all available tools while also focusing on gathering various new testable evidence and making adjustments at any time, hence the saying 'to know is to know, not to know is not to know.'

In fact, everyone has blind spots in their thinking. We may be able to maintain objectivity about our expertise, others, or specific matters, but it is very difficult to uphold an objective attitude towards everything in the world, and it could even be said to contradict human nature. However, Charlie can remain objective in all matters.

In this book, Charlie also talks about how objective spirit can be cultivated through later training. The development of such a way of thinking will allow you to see what others cannot, to predict futures that others cannot foresee, leading to a happier, freer, and more successful life.

However, even so, the true visionary insight a person can gain in a lifetime is still very limited, so correct decisions must be confined within one's own "circle of competence." A capability that cannot be defined in its boundaries certainly cannot be called a true capability.

How can one define their circle of competence? Charlie says that if I want to hold a certain opinion, and if I cannot disprove myself better than the smartest, most capable, and most qualified person in the world who can refute this opinion, then I do not deserve to hold that opinion.

So when Charlie truly holds a certain opinion, his thoughts are both original and unique, and he almost never makes mistakes.

Using rationality to see through the essence of things.

Once, a beautiful woman sitting next to Charlie insisted on having him sum up his success in one word, to which Charlie replied "rationality." However, the "rationality" Charlie speaks of is not what we generally understand as rationality. Charlie has a more demanding definition of rationality.

It is precisely this kind of "rationality" that gives Charlie a sharp and unique perspective and insight; even in completely unfamiliar fields, he can see through the essence of things at a glance.

Buffett calls this characteristic of Charlie the "two-minute effect"—he says Charlie can explain the essence of a complex business more clearly than anyone else in the world in the shortest amount of time. Berkshire’s investment in BYD is an example.

I remember the first time I talked to Charlie about BYD in 2003. Although he had never met Wang Chuanfu in person, nor visited BYD's factory, and was relatively unfamiliar with the market and culture of China, the questions and comments he raised about BYD at that time still seem to be the most substantial issues for investing in BYD today.

Everyone has blind spots, and even the most exceptional individuals are no exception.

Buffett said: "Benjamin Graham once taught me to only buy cheap stocks, but Charlie changed that way of thinking for me. This is the real influence Charlie had on me. It takes a strong force to help me step out of Graham's limited theory. Charlie's thinking is that force; it has broadened my horizons."

I have also had a deep personal experience regarding this. At least on two significant issues, Charlie helped me identify blind spots in my thinking. Without his help, I would still be slowly crawling through the process of evolution from ape to human. For fifty years, Buffett has repeatedly emphasized in different situations that no one can replace Charlie's influence on him and Berkshire.

Charlie devoted his life to studying human catastrophic errors, particularly those caused by psychological tendencies. His most significant contribution was predicting that the proliferation of financial derivatives and the loopholes in accounting and auditing systems would soon bring disaster to humanity.

As early as the late 1990s, he and Mr. Buffett had already pointed out the potentially catastrophic impacts of financial derivatives. As the proliferation of financial derivatives intensified, their warnings also escalated, even stating that financial derivatives are weapons of mass financial destruction that, if not effectively and timely curbed, would bring catastrophic effects to modern civilized society.

The financial tsunami of 2008 and 2009 and the global economic depression unfortunately validated Charlie's foresight. On the other hand, his research on these issues also provides valuable experience and knowledge for preventing similar disasters, which is particularly worthy of attention from governments, the financial sector, businesses, and academia.

Solve practical problems and pay attention to details.

Compared to Buffett, Charlie's interests are much broader. For example, he has a strong interest and extensive research in almost all fields of science and soft science, forming an original and unique Munger thought system through integration.

In contrast to any thought system from the ivory tower, Mungerism is entirely born to solve practical problems.

For example, as far as I know, Charlie was one of the first to propose and systematically study the significant impact of human psychological tendencies in investment and business decisions. Today, decades later, behavioral finance has become the most popular research area in economics, and behavioral economics has also received recognition from the Nobel Prize in Economics. The theoretical framework presented by Charlie in the last lecture of this book, 'The Psychology of Human Misjudgment', is likely to gain broader understanding and application in the future.

Charlie's interests are not limited to thinking; he also enjoys experiencing things personally and pays attention to details.

He has one of the world's largest private catamarans, which he designed himself. He is also an excellent architect. He builds houses according to his preferences, participating in every detail from the initial blueprint design to all subsequent stages.

For instance, all the buildings he has donated are personally designed by him, including the Stanford University Graduate School dormitory, the Harvard-Westlake School Science Center, and the Rare Book Research Library at the Huntington Library and Gardens.

Charlie is naturally energetic. I met Charlie in 1996 when he was 72 years old. Now, at the age of 86, many years have passed since then.

In these years, Charlie's energy has remained unchanged. He is always energetic and wakes up early. Breakfast meetings always start at 7:30. Although his sleep time may be shorter than average due to some social dinners, this does not hinder his abundant energy.

Moreover, his memory is impressive. Many years ago, I mentioned BYD's operating numbers to him, and I have almost forgotten them, yet he still remembers them. At 86 years old, his memory is better than mine, a younger person. These are all his natural advantages, but the traits that make him exceptionally successful are all acquired through his hard work.

The timing for success is important, but a person's inner qualities are even more important.

For me, Charlie is not only a partner but also an elder, a teacher, a friend, a model of career success, and a role model for life. From him, I have learned not only the principles of value investing but also many lessons about being a good person.

He made me realize that a person's success is not accidental; while timing is important, a person's inner qualities are even more important.

Charlie enjoys breakfast meetings, usually at seven-thirty. I remember the first time I had breakfast with Charlie; I arrived on time, only to find that Charlie had already sat there and finished reading that day's newspaper. Although it was still a few minutes before seven-thirty, I felt very uncomfortable making a respected elder wait for me.

During our second meeting, I arrived about fifteen minutes early and found that Charlie was already sitting there reading the newspaper.

By the third meeting, I arrived half an hour early, but Charlie was still there reading the newspaper, as if he had never left that seat, waiting all year round.

Until the fourth time, I decisively arrived an hour early, sitting there waiting at six-thirty. At six-forty-five, Charlie strolled in leisurely, holding a stack of newspapers, sat down without raising his head, completely unaware of my presence.

Later, I gradually learned that Charlie always arrived early for appointments. Once he arrived, he wouldn't waste any time and would take out a prepared newspaper to browse through.

Since I became aware of this habit of Charlie's, whenever we had plans, I would arrive early as well, bringing a newspaper to read, neither of us disturbing the other, and then we would have breakfast and chat together after 7:30.

Occasionally, Charlie would also be late. Once, I took a young entrepreneur from China to meet Charlie. Charlie was half an hour late because he had come from a luncheon.

Upon arriving, Charlie first sincerely apologized to the two young people and explained in detail the reason for his lateness, even suggesting how the valet parking at the luncheon could be improved so that guests wouldn't have to wait 45 minutes.

The young Chinese man was both surprised and moved because it is probably hard to find an elder of Charlie's stature in the world who would repeatedly apologize to juniors for being late.

Integrating into life, getting close to ordinary people.

In my interactions with Charlie, there is another incident that greatly impacted me. One year, Charlie and I participated in an out-of-town gathering together.

After the event, I had to rush back to New York, but unexpectedly, I encountered Charlie in the airport departure lounge. His large body triggered the security detector for some unknown reason, causing it to continuously sound alarms. Charlie had to return again and again to go through security. After much hassle, he finally got through, only to find that his flight had already taken off.

But Charlie is not in a hurry. He takes out the book he carries with him, sits down to read, and waits quietly for the next flight. That day, my flight was also delayed, so I waited with him.

I asked Charlie, "You have your own private jet, and Berkshire also has a private plane. Why do you go to a commercial passenger airport to endure so many troubles?"

Charlie replied, "Firstly, it's too wasteful to fly alone on a private jet. Secondly, I feel safer on commercial flights." But the real reason Charlie wants to say is the third point: "What I've wanted all my life is to engage in life; I don't want to be isolated."

What Charlie detests the most is losing touch with the world because of wealth, isolating himself in a single room, or being confined in a huge office on one floor, where meetings require layers of notifications and passing through obstacles, making it difficult for anyone to approach easily. This leads to a disconnection from real life.

"As long as I have a book in hand, I won't feel like I'm wasting time." Charlie carries a book with him at all times, even when sitting in the middle seat of economy class. As long as he has a book, he remains undisturbed.

Once, he went to Seattle for a Board of Directors meeting and, as usual, sat in economy class. He was seated next to a Chinese girl who was doing calculus homework throughout the flight.

He was impressed by this Chinese girl because it was hard for him to imagine that an American girl of the same age could have such focus, studying diligently amid the noise of the plane. If he took a private jet, he would never have the chance to get close to the stories of these ordinary people.

Strict with oneself, generous with others.

Although Charlie is strict with himself, he treats those he truly cares for and loves with great generosity, never hesitating to spend money, always hoping that others can benefit more.

On his personal trips, whether for business or leisure, he always flies economy class, but when traveling with his wife and family, Charlie takes his private plane.

He explains that his wife has raised so many children for him all her life, sacrificing greatly and suffering from poor health, so he must take good care of her.

Although Charlie did not graduate from Stanford University, he donated over 60 million USD to Stanford because his wife is an alumnus and a member of the university's Board of Directors.

Once Charlie decides to do something, he can dedicate his whole life to it. For example, he has served on the board of the Harvard-Westlake School and a charitable hospital in Los Angeles for nearly 40 years.

For the charitable institutions he is involved with, Charlie is a very generous sponsor. Moreover, he invests not just money but also a substantial amount of time and energy to ensure the successful running of these institutions.

Charlie has spent his life studying the reasons for human failure and has a profound understanding of human weaknesses. Based on this, he believes that one must hold oneself to strict standards; this way of life is a moral requirement for Charlie.

To outsiders, Charlie may seem like an ascetic, but to Charlie, this process is both rational and enjoyable, enabling a successful and happy life.

Charlie is truly unique. But think about it, if Munger and Buffett weren't so unique, they couldn't have created unprecedented achievements for Berkshire over the 50 years in the history of human investment.

In the past 20 years, interest in studying Buffett and Munger has increased globally, and it may continue to escalate in the future. There are numerous books in both Chinese and English, many of which offer unique insights.

To be honest, it's still too early for me to evaluate Munger's thoughts based on my current abilities, because even today, every time I talk to Charlie, and each time I reread his speeches, I gain new insights.

On the other hand, this also indicates that my understanding of his thoughts is still insufficient. But over the years, Charlie's guidance has allowed me to gain a more intuitive understanding of his thoughts and character. I only wish to share my close observations and personal experiences with the readers.

Editor/rice