Griffin, Charlie Munger

Fans of Warren Buffett’s sidekick will welcome the publication of Charlie Munger: The Complete Investor by Tren Griffin (forthcoming, Columbia Business School Publishing). Unfortunately, they most likely won’t learn much that they didn’t already know. The author relies exclusively on published material—speeches, records of annual meetings, interviews, and writings.

For those who aren’t familiar with Munger’s ideas, however, this brief book offers a solid introduction. It sets out quotations from Munger “in a logical order, typically followed by an explanation” by the author. It also places his thought within the context of the value investing principles of Benjamin Graham.

A voracious reader whose knowledge spans a wide range of academic disciplines (as Griffin describes him, “He knows a lot about a lot, and he knows a little about nearly everything”), Munger is probably best known for his notion of a latticework of mental models. As he said, “You have to realize the truth of biologist Julian Huxley’s idea that ‘Life is just one damn relatedness after another.’ So you must have the models, and you must see the relatedness and the effects from the relatedness.” (p. 46)

For Munger, the wise investor should read extensively, analyze like a fox (as opposed to a hedgehog), and act decisively and in scale when the right opportunity presents itself.

A corollary of his multidisciplinary approach to investing is that one shouldn’t rely solely on quantitative analysis. Although Munger was a math major as an undergraduate, he recognizes the limitations of measuring. “You’ve got a complex system and it spews out a lot of wonderful numbers that enable you to measure some factors. But there are other factors that are terribly important, [yet] there’s no precise numbering you can put to these factors. … Well, practically (1) everybody overweighs the stuff that can be numbered, because it yields to the statistical techniques they’re taught in academia, and (2) doesn’t mix in the hard-to-measure stuff that may be more important. That is a mistake I’ve tried all my life to avoid….” (p. 45) And again, “People calculate too much and think too little.” (p. 46)

As for acting decisively, Munger said during the 1996 Wesco annual meeting: “Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.” (p. 65)

Charlie Munger is a wise (as well as an exceedingly smart—and rich) man. It’s worth an investor’s while to know what makes him tick.