• YAPSS

Collection: Charlie Munger - #184 'Tricks to Achieve Financial Success'


Video Link: https://youtu.be/MT7FmIXR0g0


In this episode, Charlie Munger talks about the bag of tricks he used that caused his financial success.


In this episode, you’ll learn:

  • How to solve problems through inversion?

  • How can a non-prodigious man get prodigious results?

To check out all Collection: Charlie Munger <click here>

 

[Transcript]

(Source: https://youtu.be/Rh1WCzfCP24)

CHARLIE MUNGER 00:00

But what caused the financial success was not extreme mobility.


You know, I have a good mind, but I am way short of prodigy and I've had results in life that are prodigious and that came from tricks. I just learned a few basic tricks from people like my grandfather.


JACK DANGERMOND 00:24

What were those tricks?


LARRY BURGESS 00:24

What kind of – (Laughter) Now, everybody's leaning in wanted to know. (Laughs)


CHARLIE MUNGER 00:31

It's too late for you old guys. (Laughter)


Yeah, the – No, there are all kinds of tricks that I just got into by accident in life. One, I invert all the time. And I was a weather forecaster when I was in the Air Corps, and how did I handle my new assignment?


Being a weather forecaster in the Air Corps is a lot like being a doctor that reads x-rays. It's a pretty solitary, you're on the hanger in the middle of the night and drawing weather maps and killing pilots, but you're not interfacing with a bunch of your fellow men very much.


And so I figured out the minute I was actually making weather forecast for real pilots. I said, how can I kill these pilots? And that's not the question that most people would ask, but I want to know what's the easiest way to kill them would be so I could avoid it.


And so I thought it through and reverse that way and I finally figured out, I said, there are only two ways I'm ever gonna get was in the Ferry Command. There are only two ways I'm going to kill a pilot, I'm going to get him into icing his plane can't handle and that will kill him, or I'm going to get him someplace where he's gonna run out of gas before he can land because all the airports are sucked in. And I just was fanatic about avoiding those two hazards.


And if Kobe Bryant had somebody like me, he'll still be with us. Yeah, it was so stupid to kill yourself that way.


And but just that basic – I may have learned that to my grandfather. My grandfather would say that when I'm swimming, he'd say swim as long as you want, but stay near the shore. Well – but you can laugh, but – (Laughter) – he was a very wise man. (Laughter)


JACK DANGERMOND 02:30

What I'm hearing you say is that you has a discipline to look at what the risk is on the other side of the situation and you avoid that? That's one of the rules.


CHARLIE MUNGER 02:40

Well, it's just – it's like a lot of practical problems in algebra, if you invert, you can solve it easily. If you don't, you can't solve it easily.


JACK DANGERMOND 02:51

Exactly right.


CHARLIE MUNGER 02:51

And so, of course I had that trick very early. And most people they say, how can you – please tell us what you do to save India or to help India? And of course, I would approach it differently. I'd say what could I do who's most easily hurt India and approaching it in reverse that way, I got better results.


JACK DANGERMOND 03:13

You look at the vulnerabilities.


CHARLIE MUNGER 03:15

Yeah, yes, and I have a whole bag of tricks like that. I've been through the ROTC both in high school and college. And the ROTC taught me to fire mortar shells or artillery shells, one shot over, one shot short and then kapow.


Well, I never shot any damn shells but I've been using that mental trick all my life. That's why how I determine what size to make something, over and under and kapow.


And so I just got a bag of tricks. And I got the right bag of tricks early, and of course, it's been of enormous help to me.


Let me give an example, I had a client once when I was a young lawyer and he owned a bunch of hilly ranch land on the edge of civilization, not very far from here in Southern California. (Laughter)


And the Edison Company came through and they wanted a new easement through his land, they already had some easements. And he hired the leading appraiser in Orange County – real estate appraiser – and said to them and he had the idea that he should have $250,000 for this easement from the Edison Company. And this leading appraiser who was very pompous and very old and very distinguished.


And he told him, no, I'm sorry it's only $125,000 value in your damn ranch. And so he came to me, he said, Charlie can you talk some sense into this elderly appraiser? And so I looked at his problem and I told the appraiser what I thought how he's doing his own appraisal wrong. I'm not a real estate appraiser, he is.


And what he had done is, what he was taught to do an appraisal school. He thought the problems through in two dimensions and he figured out from comparable sales with the value per acre was, and he computed the acreage, and he had something a little bit on the damage these easement would do to the remaining property. And so it was all done in two dimensions.


And I said this appraiser, you've got to do this in three dimension. You know, God gave us three dimensions. And I said, if they put the utility towers, big transmission line towers which is why the Edison is going, it's gonna freeze the grade and the logical way to [Inaudible] is to lop off the top of the hills and put them in the valley. That's the way [Inaudible] is developed and they're doing enormous damage to you by freezing the grade.


And he said, he wouldn't change a damn thing. So I said to my elderly client, I think you have to fire this twit. (Laughter) And I will hire you an appraiser who can think. And so I got him $600,000 – (Laughter) – which wasn't at all hard because I was dealing with a bunch of honest engineers of the Edison who did think in three dimensions.


But again, that's so simple, but you'd be surprised how many lawyers would screw that one up. And of course, people like that appraiser who didn't know his own business very well because he didn't pay attention to the fundamentals. Those people are always with us.


And if you just have the mental trick of constantly going back to the basics. It's pretty basic insight that the geometrical problem in a real world is three-dimensional.


JACK DANGERMOND 06:56

Are you conscious of the rules or they're just there?


CHARLIE MUNGER 07:01

Well, it's so habitual with me.


JACK DANGERMOND 07:03

Yeah, I understand.


CHARLIE MUNGER 07:04

And I revolve possibilities and I rag problems hard, if they don't yield, I come back. And so this is just a bag of tricks and it enables a non-prodigious man to get prodigious results.

93 views0 comments