In this issue, we will talk about Poor Charlie’s Almanack, a compilation of investment philosophies by the financial mogul Charlie Munger. The book contains 11 of his speeches from the past 20 years, along with various articles he has written. As the subtitle of the book suggests, it truly serves as a collection of The Wit and Wisdom of Charles T. Munger
When you hear the term "The Wit and Wisdom", many people’s first reaction might be something akin to "self-help" or "success literature." But I must say, this is a book that has been unfairly misrepresented by its title. On the Get App, several teachers have recommended or analyzed this book. In our interpretation, we aim to bring together the core viewpoints of these teachers, to present the fascinating content of this book.
Before diving into Munger's core ideas, let's first talk about the man himself.
You might not be particularly familiar with him, but you definitely know his business partner, the stock market legend Warren Buffett. Some believe that Munger is, in a way, Buffett’s mentor. Buffett himself has stated that if there’s anyone who has had the greatest impact on his investment journey, the first would be Benjamin Graham, the "Father of Wall Street," and the second is Charlie Munger. Munger and Buffett are partners at Berkshire Hathaway, which is the company with the highest stock price in the world. In April 2017, its stock price reached $250,000, and Charlie Munger is the miracle maker behind this incredibly profitable company.
Charlie Munger was born on January 1, 1924, in Omaha, a city in the American Midwest. However, his life as today’s financial giant has not been without challenges. Before the age of 30, he faced financial crises, dropped out of school due to war, went through a divorce, and lost a child, among other adversities. For many people, experiencing such hardships could lead to a complete collapse. But Munger was not defeated by the successive difficulties and misfortunes. Instead, he used these experiences to hone his character and gradually developed his own investment wisdom.
In his investment career, Munger adhered to the traditional Western values of hard work, focus on doing things well, and being sincere, upright, and kind. In addition, he was frugal, spending money wisely on investments for the future. These values earned him the trust of many, who were willing to work with him, thus giving him the chance to engage in other investment ventures. Ultimately, he made his first "million" in the real estate business. Following that, with his sharp analysis and thinking, he partnered with Buffett to acquire businesses like Blue Chip Stamps and invested in many quality enterprises, gradually building his own financial empire.
Those who have worked with Munger all believe that his thoughts and methodology, or his thinking models, are incredibly valuable. So, what are the unique life insights that Charlie Munger holds? Next, we’ll focus on this part. I will first explain Munger’s widely praised multidisciplinary approach to thinking, then, through his inverse thinking, we’ll explore how to use these methods to construct our own knowledge system. Finally, we’ll dive into Munger’s investment strategy.
Part 1: The Power of Multidisciplinary Thinking
Many people, when recommending Poor Charlie’s Almanack, inevitably mention Charlie Munger’s “multidisciplinary thinking model.” Munger advocates for continually learning from a variety of disciplines to form a complex, multi-layered mental framework. When you only have one tool at your disposal, you can only use that tool to get the job done. As Munger says, the most important thing is to remember a wide range of principles—such as the principle of compound interest, the theory of permutations and combinations, decision trees, cognitive biases, and over 100 other models. Together, these models form a massive force. It’s the combined power of two, three, or even four forces acting in the same direction, and what you get is usually more than just the sum of those forces.
The reason for building this kind of multidisciplinary thinking model is that, according to Munger, the universe is a complex whole. All human knowledge is an attempt to understand this complex whole, and the various disciplines do not have rigid boundaries. Instead, they are interrelated and influence one another. If we only use a single mode of thinking to view the world, we risk distorting reality until it fits our model, which leads to foolish and absurd mistakes. As Charlie Munger often quotes, “To a man with a hammer, everything looks like a nail.” We have a similar ancient joke in China: a beggar who has been begging on the streets for years says, "If I were the emperor, I would carry a golden bowl to beg." Though exaggerated, this joke somewhat reflects the limitations of a single-minded way of thinking.
When we talk about “multidisciplinary thinking,” we usually view it as a methodology. But at its core, it is a basic attitude toward understanding the world. This attitude is inclusive and systematic—what Munger calls “multidimensional.” Why is that? Let me try to explain.
Have you noticed that the more mature a person becomes, the less they talk about propositions, and the more they focus on explanations from different perspectives? What does “no propositions, just explanations” mean? It means that when faced with a problem, mature individuals rarely express direct opinions, such as what the government should do, what is right or wrong, or who is good and who is bad. They don’t discuss or comment on those topics. Instead, they are more concerned with whether there are different explanations for a phenomenon and whether they can view it from a different angle.
Someone might say, "Doesn’t that mean it’s just empty talk without action?" On the contrary, caring about what others are doing is empty talk—you’re interfering with someone else’s actions. The real focus should be on different perspectives of the world, which will guide your own actions. In the journey from subjective understanding to objective practice, it is important to recognize the deep gap between the subjective world and the objective world. The subjective world has a set of absolute principles, but in the objective world, what matters is action that is just right.
How can we understand this? Let me give an example. When learning to drive, we first study traffic regulations and the mechanical principles of cars. These are part of the subjective world, and we learn many principles. But once we get into the car and hit the road, these principles don’t matter much. At every moment when driving, should you turn the wheel left or right? Neither. What matters in driving is doing what is “just right”—not too far left, not too far right. This is the practice of the objective world. In every specific task in life, whether writing, crafting, playing sports, or starting a business, we must find the “just right” dynamic balance between conflicting principles.
It can be said that every educated young person already has a subjective world in their mind, understanding many principles. So, what is the task for the rest of their life? It’s about continuously dealing with situations where the subjective world and the objective world don’t align, constantly striving to find that “just right” balance.
Isn’t honesty a principle we should all adhere to? That’s the principle of the subjective world. But why is it sometimes necessary to lie in the objective world, and it doesn’t seem to be considered a moral flaw? Didn’t we agree that the law seeks justice? Why does the law also consider the costs of pursuing justice in practice? Didn’t we agree that hard work and kindness will lead to a bright future? So why, despite our efforts, do we still find ourselves in less-than-ideal situations? You’ve probably heard the saying, "I’ve heard all the right things, but I still can’t live my life properly." This describes the phenomenon we are talking about.
This gap between the subjective and objective worlds is something we can fall into at any moment. If we manage to climb out of it, we have bridged that gap, assimilating what doesn’t align with our subjective world into our bodies, self-destructing it, and then rebuilding ourselves. This process is called growth. So, the older we get and the faster we grow, the more capable we are of accommodating a variety of complex, diverse things within our mental world. This is why Charlie Munger repeatedly emphasizes the “multidisciplinary thinking model” in Poor Charlie’s Almanack—it is the adhesive between our subjective and objective worlds and the safety net that prevents us from falling into the gap.
By this point, you may understand why we initially said that “multidisciplinary thinking” is a basic attitude for understanding the world. Why do many mature people avoid propositions and only talk about explanations? Because the more angles you approach a phenomenon from, the more it helps you grow. As an outsider, it’s easy to criticize others, especially when commenting on their specific actions and practices. Saying who’s right or wrong is simple and cheap—it’s just taking the principles already existing in your subjective world and waving them around. Although it may feel good, it doesn’t benefit your personal growth. You are simply pointing fingers at someone else’s practice. To apply this to our own actions, we must maintain an inclusive and multidimensional perspective, allowing more ideas and viewpoints to coexist in our mental world, ultimately nurturing our own practice. This is where Charlie Munger’s “multidisciplinary thinking model” becomes a powerful tool.
Part 2: Building a Good Knowledge System through Multidisciplinary and Inverse Thinking
By now, you should have a clear understanding of the value of the “multidisciplinary thinking model.” We repeatedly emphasize that merely talking about principles is not enough—the key is to apply them in practice. Of course, daily life is full of various practices, and one thing that every lifelong learner can relate to is building a solid knowledge system.
Here, we’ll introduce another thinking model: inverse thinking.
Charlie Munger has a method where, before thinking about where to go, he first thinks about where not to go. He calls this "inverse thinking." This approach of thinking about things backward is what we commonly refer to as inverse thinking. It is actually a common method in mathematical proofs, used to test our ability to transfer thinking. Many people, when doing math proofs in school, may have used inverse thinking naturally, or in exams when using the process of elimination for multiple-choice questions. But in real life, few people consciously apply this approach to problem-solving.
Munger is a big advocate of inverse thinking. He believes that for complex systems and the human brain, using inverse thinking often makes problems easier to solve. He typically starts by figuring out what should be avoided, and only then does he consider what action to take. Similarly, when building a good knowledge system, it’s best to first think about what constitutes a bad knowledge system and avoid that.
In fact, bad knowledge systems share three main characteristics: lack of depth, oversimplification, and disconnectedness.
Let’s start with the first one: lack of depth. This is easy to understand. Even if a person has a broad range of knowledge, they should at least have deep expertise in one area. If you know a little about everything but fail to understand anything deeply, you’ll find it hard to connect phenomena with underlying principles. In this case, your competitive edge in society will be weak.
The second characteristic is oversimplification. An oversimplified knowledge system results in a narrow perspective. For example, most people are familiar with the brand Muji. The company noticed a problem in its employee management: those who worked in sales often believed that "the success of a product is primarily due to sales," while those who worked in product development often thought, "the success of a product is primarily due to product quality, and sales are not as important." Clearly, both views are overly simplistic. To address this, Muji decided to implement a cross-department job rotation system. Some employees from product development would switch to sales, and some from sales would switch to finance. This was to help employees develop a balanced and comprehensive view, avoiding an oversimplified approach to solving problems.
The third issue is disconnectedness. In life, we observe various phenomena—Phenomenon 1 and Phenomenon 2—which might be explained by the same theory. Similarly, Theory 1 and Theory 2 may share a common underlying framework. But disconnectedness means that we fail to recognize the common threads between pieces of knowledge, much like clothes piled haphazardly without being organized. Over time, this not only increases our cognitive load but also leads to a fragmented, chaotic knowledge system.
Having understood what constitutes a bad knowledge system, let’s now discuss what a good knowledge system looks like. A well-structured knowledge system has a unique characteristic: it appears like the letter T on a macro level, but like the letter Y on a micro level.
Why is it like a T on a macro level? This means that a good knowledge system is deep in one specific area, but also possesses a broad, multidisciplinary perspective. This is just like the letter T. Who serves as a role model here? None other than Charlie Munger. He, together with Warren Buffett, created the most outstanding investment record in history, with an annual compounded return rate exceeding 20%. How did he achieve this? Munger attributes his success to having established his own thinking framework early on, which he calls the “multidisciplinary thinking model.” Simply put, it means you must be familiar with the important theories of major disciplines and frequently apply them—all of them—not just a few.
We all know that most people only use the thinking model from one discipline they have studied. For example, if they study economics, they might try to apply that one approach to solve all problems. As the saying goes, “If you have a hammer, everything looks like a nail.” This is actually a clumsy way of solving problems. When applied in the investment field, it is generally not effective.
So how does Charlie Munger approach this? The secret is still “multidisciplinary thinking.” Munger’s investment method is completely different from the crude systems used by most investors. When Munger wants to invest in a company, he does not simply evaluate its financial information at a surface level. Instead, he conducts a thorough analysis of its internal operations and the overall “ecosystem” it operates within. To do this, Munger borrows and combines analytical tools and methods from various traditional disciplines, including history, psychology, mathematics, engineering, physics, statistics, economics, and so on. Why so many disciplines? Munger’s answer is that almost every system is influenced by multiple factors, so in order to truly understand a system, you must skillfully apply a diverse range of thinking from different disciplines. This is what we mean by the T-shaped structure on the macro level.
Now, let’s talk about why, on a micro level, it looks like the letter Y.
For example, when you are designing something, you might only use knowledge from design. But the Y-shaped knowledge structure means that you shouldn’t just use design knowledge; you should also integrate knowledge from other fields. For instance, combining design and cognitive science is a great example of a Y-shaped knowledge structure. If you want to design a poster, you should consider: What information should the audience prioritize? What emotional reactions might they have? Does it meet their expectations? Will it spark their curiosity? Can they understand how to act without much thought? Think about it—if a designer understands cognitive principles, even basic ones, their designs will be much more effective than if they didn’t. So, the Y-shaped knowledge structure emphasizes that, at the micro application level, you need to deliberately combine knowledge from at least two disciplines. Why deliberately? Because for most people, when doing something they’re good at, they will fall into conventional patterns. Without deliberate effort, it’s hard to integrate knowledge from other disciplines.
So, that’s the second core idea from Poor Charlie’s Almanack. In today’s society, building a solid knowledge system is incredibly important. What constitutes a good knowledge system, and how do we build such a system? We’ve used Charlie Munger’s inverse thinking to analyze what constitutes a “bad” knowledge system, and based on his “multidisciplinary thinking model,” we’ve outlined what makes a “good” knowledge system. Moreover, we’ve pointed out three steps to building a good knowledge system: 1) Find deep knowledge points; 2) Establish a multidisciplinary knowledge system; 3) Integrate and cross-use knowledge.
Part 3: Munger’s Investment Philosophy
Now , you may be wondering, since Munger is a titan of the investment world, does he have his own unique investment strategy? Of course, he does. In this final section of our interpretation, we will focus on his investment philosophy.
According to Charlie Munger, investment opportunities can be divided into three categories: projects that are worth investing in, projects that are not worth investing in, and projects that are too difficult to understand. He only invests in the “worthwhile” projects, avoiding the other two categories. For example, Munger has never invested in the pharmaceutical or high-tech industries because he considers them to be “too difficult to understand.”
So, how does one assess whether a project is worth investing in? Munger has four criteria for screening investments, and we’ll go over them here.
The First Criterion: The project must be easily understandable, have room for growth, and be able to survive in any market environment. Munger says you should invest within your “circle of competence.” If you don’t understand a project, even if others speak highly of it, don’t invest. Don’t overestimate your own abilities, and certainly don’t blindly follow the crowd.
The Second Criterion: You cannot focus solely on the company’s financial statements. Both internal and external factors must be taken into account. Financial reports may tell you about the current value of a company, but they cannot predict its future profitability. Investment requires that a project be able to generate profits in the future. Therefore, even if the financials look good, don’t rush to invest. You need to consider many other factors, such as the character of the company’s founders, whether suppliers can maintain their contracts, and the company’s inventory situation, among others.
The Third Criterion: You need to evaluate whether the company has a “moat.” What is a moat? It refers to the barriers to entry within an industry. A company’s most important competitive advantage is not how much it made this year, but whether it can continue to generate profits in the future. How can a company ensure continued profitability? By building a moat. If a company has no industry barriers and the entry threshold is low, then many competitors will enter the market, and it will be uncertain who will emerge victorious. Therefore, the ability to establish a moat is a key indicator of whether a project is worth investing in.
The Fourth Criterion: It is better to invest in large companies with fair stock prices than to invest in smaller companies with low stock prices. This is because, considering the possibility that other shareholders may inject more capital or transfer their shares, leading to stock dilution and reduced dividends, large companies have a higher value and more stable returns. For instance, the companies that Munger and Buffett invested in, such as The Washington Post, the Government Employees Insurance Company, and Coca-Cola, are all large enterprises. When a project meets the standards mentioned earlier, that’s when it’s time to “go big” and make a significant investment.
Munger believes that all intelligent investing is value investing. You must first assess the value of a business, then assess the value of its stock, and finally evaluate whether you should hold that stock based on the company’s competitive advantages.
To help understand the concept of “value investing,” I’d like to share a small story.
Charlie Munger’s Chinese investment partner is Li Lu. When Li Lu first met Munger, Munger was already approaching his 80s, and naturally, his energy and stamina were not what they once were. The two often met at 7:30 a.m., during breakfast time. On their first meeting, Li Lu arrived almost on time, only to find that Munger had already finished his breakfast and was reading the newspaper. Li Lu felt embarrassed—he wasn’t late, but he had made the old man wait. So, for the next meeting, Li Lu arrived 15 minutes early, but Munger was already sitting there reading the newspaper. On the third meeting, Li Lu arrived 30 minutes early, but Munger was still there, reading the newspaper. On the fourth occasion, Li Lu decided to arrive an hour early, and finally, he arrived before Munger. Fifteen minutes later, Munger leisurely walked in, carrying a stack of newspapers, and began his breakfast without any hurry. Only after finishing the newspaper did he look up and begin their conversation for the day.
If you met such an elderly gentleman in life, what would your impression be? You see, Munger didn’t boast about himself. He simply lived this way. He has lived like this for years, presenting himself as reliable, studious, and respectful of others, without needing any extra words. He commands respect from his partners without saying much at all.
When you understand this, you will also begin to grasp the deeper meaning of Munger and Buffett’s insistence on value investing. Value investing isn’t simply about buying a stock and holding it for the long term. Value investing is about rejecting all speculative opportunities and only considering the future of a stock based on its intrinsic value. A stock’s price may fluctuate due to short-term factors, but the most important, most reliable factor is whether the stock is priced appropriately for its long-term value.
“The best way to get something is to make yourself worthy of it.” This is one of Charlie Munger’s most famous quotes. On the surface, this quote might sound like typical “self-help wisdom.” There’s a popular definition of self-help wisdom: it’s like serving a steaming bowl of soup without giving you a spoon. In other words, it offers great advice but lacks practical methods for achieving it.
But is Munger’s philosophy truly an unachievable piece of self-help advice? Not at all. For instance, if we consider his quote “The best way to get something is to make yourself worthy of it” in the context of his value investing strategy, we realize that these two ideas are actually one and the same. We could think of the former as the “mindset” and the latter as the “method.” Whether we can see the connection between the two depends on the depth of our own understanding.
Summary
In fact, the core lesson of Charlie Munger’s Poor Charlie’s Almanack boils down to this one sentence: You must enhance yourself in order to strengthen your perception of the world. Only then can your internal capabilities grow and align with the broader trends of the world. Once this alignment improves, whether you’re investing, starting a business, or doing anything else, success will follow effortlessly.
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