Timeless Principles for Business, Investing, and Project Success
This week I was reflecting on the life of Charlie Munger who passed on the 28th November. He was the Vice Chairman of Berkshire Hathaway and the longtime business partner of Warren Buffet. There are few people in the business world that have such a long term success. It’s interesting to look at the principles that guided his life. Here are some thoughts on the key ideas that stand out about his approach to business, investing strategy and key takeaways that are useful for project delivery.
“Remember that reputation and integrity are your most valuable assets — and can be lost in a heartbeat.”Charlie Munger
Principles of Good Business:
Mental Models and Multidisciplinary Thinking: Central to Munger’s approach is the idea of mental models, a concept borrowed from various disciplines such as psychology, economics, and physics. He believed in the power of multidisciplinary thinking, urging business leaders to widen their intellectual horizons. This approach enables a deeper understanding of complex business problems and fosters better decision-making.
Long-Term Focus: Munger’s philosophy aligns with the notion of investing for the long term. He advocates for businesses to adopt a patient and enduring perspective, putting aside short-termism for sustainable growth. This commitment to long-term success encourages good business practices that prioritize stability, ethical conduct, and value creation over immediate gains.
Risk Management and Avoidance of Stupidity: Munger places a high premium on avoiding unnecessary risks and, in his own words, “knowing where you’re competent and where you aren’t.” This emphasis on risk management underscores good business practice, emphasizing the importance of prudence and strategic foresight in decision-making. Munger also advocates for the avoidance of avoidable mistakes, recognizing that learning from others’ errors is a hallmark of intelligence.
“It’s not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”Charlie Munger
Principle for investing:
Charlie Munger and Warren Buffet’s approach to investing has been effective for the best part of a century. The principles are timeless and presented in this short clip from a BBC interview. In this eighty second clip some key principles are laid out that are brilliant in their simplicity.
Durable Competitive advantage: Choose a business that you understand with some intrinsic characteristics that give it a durable competitive advantage
The company is run by competent people: Ideally this company has a competent, talented and intelligent management team. (A good business can still make a profit if run by incompetent people when it has a durable competitive advantage.)
The Price is right: No matter how wonderful the company it is not worth an infinite price. Buy it at a price that makes sense that gives a margin of safety that allows for the uncertainties of this world.
This succinct summary of principles of investing are quite profound, they sound so simple but require discipline and a rational unemotional approach to implement. There is an excellent Podcast series that goes into this in great detail starting with these principles which I have enjoyed listening to. Well worth a listen if you want to understand these principles more.
“The big money is not in the buying or the selling, but in the waiting.”Charlie Munger
Principles for project success:
There are three lessons that I think we can learn from Charlie Munger’s life with an approach to improving project delivery.
Inversion: One of the key skills of critical thinking Munger used in his business thinking was the importance of inversion. Inversion is a problem-solving technique that involves turning problems around into reverse. By doing so, you often think better and find solutions that would have been difficult to see otherwise. For instance, instead of asking “How can I help India?”, ask “How can I hurt India?”. This approach can help you identify potential pitfalls and avoid them.
Deserving what you want: Munger also emphasized the importance of deserving what you want. To get what you want, you must first deserve it. Trust, success, and admiration are earned, not given. This principle can be applied to project delivery by focusing on delivering value to your stakeholders. By doing so, you will earn their trust and respect, which will help you succeed in your projects.
Rationality: Finally, Munger believed in the importance of rationality. Rationality is a binding principle that can help you make better decisions in business and life. Making emotional decisions rarely leads you down the right path. Therefore, it’s important to approach problems with a rational and objective mindset.
“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Slug it out one inch at a time, day by day”Charlie Munger
Charlie Munger was steadfast throughout his life in following what he believed in. He was curious, read a lot and sought every opportunity to improve his knowledge. He focused on the understandable and made sure that he only invested in what he could understand. He had a balanced approach to risk and used inversion to see the opposite point of view.
The rewards come to those who patiently and diligently move forward each day. The key things that I have taken away are the need to be curious and gain as much perspective as possible, act rationally avoiding stupidity and focus on the long term that is where success lies.