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Charlie Munger in Praise of Multidisciplinary Thinking

A multidisciplinary approach involves drawing appropriately from multiple disciplines to redefine problems outside of normal boundaries and reach solutions based on a new understanding of complex situations.

'Charlie Munger The Complete Investor' by Tren Griffin (ISBN 023117098X) From ‘Charlie Munger: The Complete Investor’ by Tren Griffin

No one can know everything, but you can work to understand the big important models in each discipline at a basic level so they can collectively add value in a decision-making process. Simply put, Munger believes that people who think very broadly and understand many different models from many different disciplines make better decisions and are therefore better investors.

Multidisciplinary thinking offers a schema or a philosophical template within which thinkers can find an intellectual connectedness to decompartmentalize their approach and face the new intellectual horizons with a broader perspective. Single disciplines are too narrow a perspective regarding many phenomena.

Human thought, as it has evolved in detached disciplines, and the physical systems within which we live exhibit a level of complexity across and within systems that makes it impossible to understand the important phenomena that are affecting humans today from the perspective of any single incomplete system of thought. Thus interconnected systems and high levels of complexity yield a situation in which multidisciplinary tactics to understanding and problem solving produce the real growth industry in the next generation of scholarly thought.

Disciplines develop their own internal ways of looking at the phenomena that interest them. Become broadly knowledgeable about any particular phenomenon as possible before constructing theories and asserting truth assertions. Problems arise from the lack of a viewpoint from which one can understand the relationship between various disciplines.

'Conceptual Foundations for Multidisciplinary Thinking' by Stephen Kline (ISBN 0804724091) In ‘Conceptual Foundations for Multidisciplinary Thinking’, Stanford’s Prof. Stephen Jay Kline expounds the necessity of multidisciplinary discourse:

Multidisciplinary discourse is more than just important. We can have a complete intellectual system, one that covers all the necessary territory, only if we add multidisciplinary discourse to the knowledge within the disciplines. This is true not only in principle but also for strong pragmatic reasons. This will assure the safety of our more global ideas.

Producing and applying knowledge no longer work within strict disciplinary boundaries. New dimensions of intricacy, scale, and uncertainty in technical problems put them beyond the reach of one-thought disciplines. Advances with the most impact are born at the frontiers of more than one engineering discipline.

Multidisciplinarity refers more to the internalization of knowledge. This happens when abstract associations are developed using an outlook in one discipline to transform a perspective in another or research techniques developed in one elaborate a theoretic framework in another.

To get the most out of their R&D workforce, many organizations seek persons who comprehend a range of science and engineering principles and procedures to guarantee that work will be advanced even if a specific expert were not always available.

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Posted in Hobbies and Pursuits Mental Models and Psychology

Charlie Munger’s 10 Rules for Investment Success

Charlie Munger's 10 Rules for Investment Success When Charlie Munger talks, people listen— particularly if they want to know how to invest their money.

Munger, who is the vice-chairman of Berkshire Hathaway, has delivered instrumental guidance to Berkshire’s renowned founder, Warren Buffett, and many others. By means of what Munger identifies as “elementary world wisdom,” Munger’s technique weighs risk and reward, make the most of fact-based data and abating emotion.

Keeping it simple, Munger declares, “I observe what works and what doesn’t and why.” Like Buffett, Munger pulls much of his motivation from post-Great Depression era investor Benjamin Graham, a “value investor.” Graham sought “mispriced assets” with values greater than people think.

Charlie Munger has some advice for investors.

  1. Measure risk: All investment evaluations should begin by measuring risk, especially reputational.
  2. Be independent: Only in fairy tales are emperors told they’re naked.
  3. Prepare ahead: The only way to win is to work, work, work, and hope to have a few insights.
  4. Have intellectual humility: Acknowledging what you don’t know is the dawning of wisdom.
  5. Analyze rigorously: Use effective checklists to minimize errors and omissions.
  6. Allocate assets wisely: Proper allocation of capital is an investor’s No. 1 job.
  7. Have patience: Resist the natural human bias to act.
  8. Be decisive: When proper circumstances present themselves, act with decisiveness and conviction.
  9. Be ready for change: Accept unremovable complexity.
  10. Stay focused: Keep it simple and remember what you set out to do.

Munger has argued that if “you’re investing for 40 years in some pension fund, what difference does it make if the path from start to finish is a little more bumpy or a little different than everybody else’s so long as it’s all going to work out well in the end? So what if there’s a little extra volatility.”

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Charlie Munger’s Sit-on-Your-Ass Investing Concept

Charlie Munger presented the model of “Sit on your ass investing” at the 2000 Berkshire Hathaway Annual meeting. Description courtesy of Losch Management Company, an Orlando, Florida-based investment advisor.

'Charlie Munger: The Complete Investor' by Tren Griffin (ISBN 023117098X) You have value investing, and growth investing, but now we also have “sit on your ass investing”, which is better.

The problem with value investing is it requires too much work.

First you have to find an undervalued stock and buy it cheap. Then you have to sell it when it the price reaches or exceeds your calculated figure for its intrinsic value.

Because this requires many decisions over a long period of time, Charlie Munger prefers his own method in which all you have to do is pick a really great company when it is attractively priced, and then just sit on your ass. The great advantage being that it only requires one decision.

Charlie said: “If you buy a business just because it’s undervalued then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies then you can sit on your ass … that’s a good thing.”

The whole idea of not having to do something extraordinary is one all investors should heed, yet it is easy to forget, particularly in stressful situations.

Recommended Reading: ‘Charlie Munger: The Complete Investor’ by Tren Griffin

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Mungerisms: Amusing Quotes from Charlie Munger from the Berkshire Hathaway 2014 Annual Meeting

Amusing Quotes from Charlie Munger from the Berkshire Hathaway 2014 Annual Meeting

Charlie Munger is not always politically correct, always offers a wealth of information, and hilarious now and then. At the 2014 annual meeting of Berkshire Hathaway, here are some of his best zingers:

  • On the interplay between CEOs and corporate directors regarding compensation: “You start paying directors of corporations two or three hundred thousand dollars a year, it creates a daisy chain of reciprocity where they keep raising the CEO and he keeps recommending more pay for the directors.”
  • On CEO pay and work habits: “Does the Supreme Court work less hard because they don’t get paid like corporate executives? We have some corporate directors who draw more pay than members of the Supreme Court. That’s crazy,”
  • 'Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger' by Peter D. Kaufman and Ed Wexler (ISBN 1578645018) On taxing the 1%: “The taxes on wealth were much higher when I was much younger. So for somebody of my age, I don’t think they’re ruining the world because I’ve lived through way more punitive taxes on the rich than we have now … I don’t think everybody who’s been especially favored should take the last dollar that he or she should get. I think we all have an obligation to dampen these fires of envy.”
  • On Facebook, Twitter, and the appeal of social media: “It just doesn’t interest me at all to gab all the time on the Internet with people and I certainly hate the idea of young people putting in permanent form the dumbest thoughts and the dumbest reports of action that you can ever imagine.”
  • On his favorite advance in technology: “I’m in love with the Xerox machine.”
  • On Donald Sterling, the then-owner of NBA Clippers, who then faced racial remarks and lifetime ban:”He’s a peculiar man. He’s past 80. His girlfriend has had so many facelifts she practically can’t smile. This is not the noblest ideal of what the American businessman should be.”

Insightful books about Charlie Munger

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Posted in Investing and Finance Philosophy and Wisdom

Prem Watsa’s Recommended Books for 2015

Prem Watsa of Fairfax Financial Holdings (Canada)

Legendary investor and philanthropist John Templeton was Prem Watsa’s mentor and was deeply interested in spiritual growth. In the past, Watsa has recurrently recommended Templeton’s “Riches for the Mind and Spirit”, “The Templeton Plan”, and “Discovering Laws of Life”.

Legendary investor and philanthropist John Templeton In the Fairfax Financial Holdings’ annual meetings in previous years, Watsa has also highlighted an inspirational movie called “The Little Red Wagon” that the Templeton Foundation supported. In an interview with online investment community Gurufocus, Watsa previously said,

But I try to be neutral, sometimes more short than long, but that’s John Templeton. So John, one of the key lessons he taught me was to be flexible. His investment philosophy was always value oriented, long term, buy at the point of maximum pessimism, but be flexible in your thinking, and that’s what we try to apply.

Books Recommended by Prem Watsa at Fairfax’s Annual Meeting on 16-Apr-2015

At the annual meeting of shareholders of Fairfax Financial Holdings Limited on 16-Apr-2015 at the Roy Thomson Hall in Toronto, Prem Watsa recommended the following books:

  1. John Templeton’s “Riches for the Mind and Spirit”. Watsa mentioned a quote about giving that he said Fairfax feels very strongly about: “Self-improvement comes mainly from trying to help others.” In speaking of Fairfax’s philanthropic efforts, Watsa also said it’s better to help the receivers grow.
  2. Stephen G. Post’s “Is Ultimate Reality Unlimited Love?” For fifteen years, Post held discussions with John Templeton on the topic of pure unlimited love. The book covers how John Templeton arrived at his philosophy as a youth growing up in Tennessee. This book draws from previously unpublished letters and interviews with physicists, theologians, and other close associates and family of John Templeton.
  3. 'Investing the Templeton Way' by Lauren Templeton, Scott Phillips (ISBN 0071545638) Lauren Templeton and Scott Phillips’s “Investing the Templeton Way”. Lauren Templeton is the grand-niece of John Templeton and Scott Phillips is her husband. Together, they run Chattanooga, Tennessee-based Templeton & Phillips Capital Management. Investing the Templeton Way focuses on the critical role of temperament, and how mastering this element to investing equips the investor to succeed across the span of time and varying market circumstances.
  4. Louis V. Gerstner, Jr.’s “Who Says Elephants Can’t Dance?” This book is an account of IBM’s historic turnaround led by Gerstner during his tenure as chairman and CEO of IBM from April 1993 until March 2002. Gerstner led IBM from the brink of bankruptcy and mainframe obscurity back into the forefront of the technology business.
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The Four Filters of Warren Buffett and Charlie Munger

Charlie Munger and Warren Buffett, Berkshire Hathaway

Countless portfolio managers, hedge fund managers, investment analysts, mutual funds, institutional pools of capital and individual investors have grown up devouring everything that’s been said or written by or about Warren Buffett and Charlie Munger over the years.

In the 2007 letter to Berkshire Hathaway shareholders, Warren Buffett wrote, “Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.” Based on this sage advice, value investors must look for:

  • A business that we can understand. A business within your circle of competence.
  • A business with favorable long-term prospects. A business with a line of business that is not easy to duplicate. A business with excellent cash flow profile: excellent ability to generate and invest cash.
  • A business led and perated by honest and competent people.
  • A business available for sale at a very attractive price.
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Prem Watsa’s Recommended Books for 2014

Prem Watsa of Fairfax Financial Holdings (Canada)

Prem Watsa is a shrewd investor who is often called the Canadian Warren Buffett. He is an immigrant from India who arrived in Canada in 1972 and has been running Fairfax Financial Holdings since 1985. Prem Watsa was born in Hyderabad and studied chemical engineering at IIT-Chennai before emigrating to Canada. Under his leadership, Fairfax’s sales and earnings have been growing and it’s stock price has compounded at the average rate of 19 percent annually.

On understanding and managing risk, Prem Watsa has said, “this idea exists in the marketplace that you can take any risk, put it into a structure, into an asset-backed bond, and you can eliminate, get rid of the risk. … Protect yourself, you don’t know when Katrina comes in.”

Here are five books recommended by Prem Watsa at the 2014 annual meeting of Fairfax Financial Holdings on 09-Apr-2014, Wednesday at Toronto’s Roy Thomson Hall.

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Books Recommended by Berkshire Hathaway’s Charlie Munger

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time—none, zero. You’d be amazed at how much Warren reads—at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”
— Charlie Munger

Charlie Munger (Vice-Chairman at Berkshire Hathaway) and Mugerisms Charlie Munger is Warren Buffett’s partner and Vice-Chairman at Berkshire Hathaway, the investment conglomerate. In his capacity, Munger has been a behind-the-scenes co-thinker at Berkshire and has influenced many a decision made by Warren Buffett.

At the 2004 annual meeting of Berkshire Hathaway, Charlie Munger said,

“We read a lot. I don’t know anyone who’s wise who doesn’t read a lot. But that’s not enough: You have to have a temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them.”
— Charlie Munger

Munger was chair of Wesco Financial Corporation from 1984 through 2011. He is also the chair of the Daily Journal Corporation, based in Los Angeles, California, and a director of Costco Wholesale Corporation. Unlike Warren Buffett, Charlie Munger has claimed that he is a generalist for whom investment is only one of a broad range of interests that include architecture, philosophy, philanthropy, investing, yacht-design, etc.

Charlie Munger is a voracious reader and engages in books on history, science, biography and psychology. He once said, “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time—none, zero. You’d be amazed at how much Warren reads—at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”

At the 2014 annual meeting of The Daily Journal Company that Charlie Munger leds as Chairman, Charlie said,

“I’m very selective. I, sometimes, skim. I, sometimes, read one chapter and I sometimes read the damn thing twice. It’s been my experience in life [that] if you just keep thinking and reading, you don’t have to work.”

Charlie Munger’s Book Recommendations in Biography

Charlie Munger’s Book Recommendations in Biology

Charlie Munger’s Book Recommendations in Business & Investing

Charlie Munger’s Book Recommendations in Management & Leadership

Charlie Munger’s Book Recommendations in Philosphy & Psychology

Charlie Munger’s Book Recommendations in Sociology

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Definitive List of Books on Warren Buffett, the World’s Greatest Investor

Warren Buffett, Berkshire Hathaway

Warren Buffett, the “Oracle of Omaha,” is the Chairman and CEO of Berkshire Hathaway. He is arguably the world’s most successful investor, and one of the richest and most respected businessmen in the world.

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time—none, zero. You’d be amazed at how much Warren reads—at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”
Charlie Munger

Warren Buffett, his partner Charlie Munger, and Berkshire Hathaway have become the face of capitalism at its best. The company is a multifaceted, extensive collection of businesses and investments spanning railroads to manufactured homes, underwear to jewelry, and encyclopedias to newspapers. Warren Buffett and Charlie Munger are exceptional investors and overseers of a vast business empire. They are brilliant at having discipline and rigor in their investment and management methodologies, in finding great businesses to invest in, and, letting the managers of Berkshire’s businesses go about their duties with little interference from headquarters. Another distinctive feature of Berkshire Hathaway is that Warren amd Charlie are in it for the long term, quite in contrast with traders, speculators, and buy-out artists who crowd Wall Street today.

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Posted in Investing and Finance Leaders and Innovators

Investment Process: Arrogance Will Always Get the Best of You in Finance

Investment Process: Arrogance Will Always Get the Best of You in Finance

It is necessary for the investors to think logically while investing and researching a stock. Investing isn’t about beating others at their game. It’s about controlling yourself at your own game. Overcoming dysfunctional psychological heuristics is a trained response. That trained response requires work and discipline—if you want to avoid that, buy an index fund. In a speech before the Foundation Financial Officers Group in Santa Monica, California, 14-Oct-1998, Warren Buffett’s partner Charlie Munger said:

Human nature being what it is, most people assume away worries like those I raise. After all, five centuries before Christ, Demosthenes noted that: “What a man wishes, he will believe”. And in self-appraisals of prospects and talents it is the norm, as Demosthenes predicted, for people to be ridiculously over-optimistic. For instance, a careful survey in Sweden showed that 90% of automobile drivers considered themselves above average. And people who are successfully selling something, as investment counselors do, make Swedish drivers sound like depressives. Virtually every investment expert’s public assessment is that he is above average, no matter what is the evidence to the contrary.

Smart, hard-working people aren’t exempted from professional disasters from overconfidence. Often, they just go aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods.

It is, of course, irritating that extra care in thinking is not all good but also introduces extra error. But most good things have undesired “side effects,” and thinking is no exception. The best defense is that of the best physicists, who systematically criticize themselves to an extreme degree, using a mindset described by Nobel laureate Richard Feynman as follows: “The first principle is that you must not fool yourself and you’re the easiest person to fool.

Warren Buffett’s success as an investor demanded not only deep analysis of financial documents but also a large measure of self-discipline and willpower to avoid getting caught in market bubbles and panics. Buffett’s decree “buy when everyone else is selling, sell when everyone else is buying” requires enormous self-confidence to implement. Investors don’t need to concern themselves with market psychology, price charts, or anything else not related to the intrinsic value of the company they’d like to invest in. In an interview with CNBC’s Becky Quick on 04-Mar-2013, Warren Buffett said,

But [a lot of Main Street investors] should hold a diversified group of really high-class companies, which you can do by buying an index fund. And then they should forget it. They should just pretend the stock market closes for five years and they shouldn’t look at prices every day…

Recommended Reading on Warren Buffett & Value Investing

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