Charlie Munger’s “Poor Charlie’s Almanack”: Book Review, Notes + Analysis

Poor Ash’s Almanack > Book Reviews > Effective Thinking

Overall Rating: ★★★★★★★ (7/7) (life-changing)

Per-Hour Learning Potential / Utility: ★★★★★★★ (7/7)

Readability: ★★★★★★★ (7/7)

Challenge Level: 1/5 (None) | ~500 pages

Blurb/Description: The book that started it all and inspired my latticework of mental models.

Summary: See the multidisciplinary rationality mental model for the general idea.  Charlie overviews the idea of a latticework of mental models, as well as providing pithy insights on a wide variety of practical topics – both personal and professional.

Highlights: It’s funny as well as educational.

Lowlights: None.  There’s one talk that people have a bit of a difficult time understanding.

Mental Model / ART Thinking Points: culture / status quo biastrait adaptivitycognition / intuition /habit / stressmulticausalityprobabilistic thinkingmindfulnessagencyincentivesloss aversion,memorylocal vs. global optimizationcontrast biashyperbolic discountingsocial connectionn-order impactsluck vs. skill, marginal utilitystructural problem solvingproduct vs. packaging,overconfidencerationalitysunk costsbayesian reasoningsalienceinversionmargin of safety,nonlinearitybottlenecksfeedback

You should buy a copy of Poor Charlie’s Almanack if: you have a pulse.

Reading Tips: none

Pairs Well With: any book reviewed on this site.  Consider hitting the 80/20 Mental Models Learning Journey next.


Reread Value: 5/5 (Extreme)

More Detailed Notes + Analysis (SPOILERS BELOW):

IMPORTANT: the below commentary DOES NOT SUBSTITUTE for READING THE BOOK.  Full stop. This commentary is NOT a comprehensive summary of the lessons of the book, or intended to be comprehensive.  It was primarily created for my own personal reference.

Much of the below will be utterly incomprehensible if you have not read the book, or if you do not have the book on hand to reference.  Even if it was comprehensive, you would be depriving yourself of the vast majority of the learning opportunity by only reading the “Cliff Notes.”  Do so at your own peril.

I provide these notes and analysis for five use cases.  First, they may help you decide which books you should put on your shelf, based on a quick review of some of the ideas discussed.  

Second, as I discuss in the memory mental model, time-delayed re-encoding strengthens memory, and notes can also serve as a “cue” to enhance recall.  However, taking notes is a time consuming process that many busy students and professionals opt out of, so hopefully these notes can serve as a starting point to which you can append your own thoughts, marginalia, insights, etc.

Third, perhaps most importantly of all, I contextualize authors’ points with points from other books that either serve to strengthen, or weaken, the arguments made.  I also point out how specific examples tie in to specific mental models, which you are encouraged to read, thereby enriching your understanding and accelerating your learning.  Combining two and three, I recommend that you read these notes while the book’s still fresh in your mind – after a few days, perhaps.

Fourth, they will hopefully serve as a “discovery mechanism” for further related reading.

Fifth and finally, they will hopefully serve as an index for you to return to at a future point in time, to identify sections of the book worth rereading to help you better address current challenges and opportunities in your life – or to reinterpret and reimagine elements of the book in a light you didn’t see previously because you weren’t familiar with all the other models or books discussed in the third use case.

Please note: these notes are formatted horribly and are the worst on the entire site by a wide margin.  They were one of the last pieces of content I worked on and I assumed most readers would already have read PCA and not really derive much value from these.  I’ll pretty them up sometime… just not soon.

“[Charlie’s] mental models… center on fundamental truth, human accomplishment, human foibles, and the arduous path to wisdom.”  – Peter Kaufman (the editor)

Charlie is described as the Ben Franklin of our generation… and of course, Charlie didn’t just mimicFranklin; he built on Franklin.

As a youngster, Charlie was: not very athletic, very bookish, and:

“enjoyed challenging the conventional wisdom of teachers and fellow students.”  Physics became one of his favorite disciplines in college.

More biographical information is available in Damn Right, but summarily, he became a lawyer, made a lot of money via real estate development, and started an investment partnership.  Then he met Buffett, who encouraged him to leave law.

His investment partnership proved very successful, but after two tough years in the 1970s, he and Buffett both decided (after getting back to even) that they wanted to build equity through a holding company rather than a partnership.

Charlie describes himself as a “biography nut” and believes that “making friends with the eminent dead” works better than conceptual teaching.

Discussing Cicero (p. 27 – p. 28, in the “Praising Old Age” chapter), Munger notes that:

Cicero dead had influenced many more people than Cicero alive… in fact, a form of government prescribed by Cicero surrounded me right there in Nebraska.”

(See also Peter Thiel’s discussion of similar topics in Zero to One.)

Charlie is clearly a believer in the concept of “ deep work” – per many sources, this one specifically being his friend Glen Mitchel:

“He knows how to take all of his brains and all of his energy and all of his thought and focus exactly on a single problem, to the exclusion of anything else  

People will come into the room and pat him on the back or offer him another cup of coffee or something, and he won’t even acknowledge their presence because he is using 100% of his huge intellect.”

See multitasking.

Chapter 2 introduces the mental models approach… perfect summary of “ man with a hammer” syndrome:

“You must know the big ideas in the big disciplines and use them routinely – all of them, not just a few.  Most people are trained in one model – economics, for example – and try to solve all problems in one way.

You know the sold saying: ‘to the man with a hammer, the world looks like a nail.’  This is a dumb way of handling problems.”

More interesting than anything in the chapter (which I already know at this point) is the left sidebar on p. 56 – “Charlie has developed an unusual additional attribute – a willingness, even an eagerness, to identify and acknowledge his own mistakes and learn from them.”

Charlie is a dedicated autodidact:

“I have never taken any course, anywhere, in chemistry, economics, psychology, or business.”

On marginal utility, perhaps particularly appropriate for today’s environment:

“It takes character to sit there with all that cash and do nothing.  I didn’t get to where I am by going after mediocre opportunities.”

Charlie echoes Ben Franklin on honesty and integrity.  Also, on inversion:

“We try more to profit from always remembering the obvious than from grasping the esoteric… it is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

On Buffett:

“it’s remarkable.  Most seventy-two-year-old men are not improving, but Warren is.”

Page 99 is great.

Page 100 – “most people are too fretful; they worry too much.  Success means being very patient, but aggressive when it’s time.”  Interesting – I agree, but how to square this up with overconfidence…?

“Berkshire in its history has made money betting on sure things.”

Pages 103-104 – quality matters, and mistakes of omission can be big ones too…

Page 137 – on social proof, and also inversion:

“If your new behavior earns you a little temporary unpopularity with your peer group, then the hell with them.”


“a lot of success in life and business comes from knowing what you want to avoid.”

Page 138 –

“Envy is really a stupid sin because it’s the only one you could never possibly have any fun at.  There’s a lot of pain and no fun. Why would you want to get on that trolley?”

  1. 145, on Lou Simpson, social proof, and process vs. outcome: –

“You can’t believe the pressure that he was under, year after year, as the world seemed to be reaping enormous gains while he, correctly, avoided the bubble altogether, staying true to fundamentals.  Lou was a wonderful example in that period – intelligent, honorable, and true to his fundamentals.”

Now we get to the talks!

Talk 1: Harvard (High) School Commencement Speech (Prescriptions For Misery)

Charlie starts the talk with some humor, acknowledging the audience’s fear over how long the speech will last and comparing himself to a horse that can count to seven – it’s impressive because it’s a horse!  (Humor.)

Via inversion, Munger establishes ways to guarantee yourself a miserable life: drugs, resentment, envy, unreliability, not learning from others, not picking yourself up ( agency), not avoiding bad things.

Talk 2: Worldly Wisdom

He starts with math – particularly probabilistic thinking including permutations/combinations, giving the example of decision trees ( disaggregation) – then brings up psychology, focusing on the “reason-respecting tendency’ (see Cialdini).  He says “why” is important, because people understand it better, consider it more comportant, etc.

Nonlinearity including Breakpoints, critical mass, THE PSYCHOLOGY OF MISJUDGMENT (covered later in the book).  He references Hitler’s army (see Christopher Browning’s “ Ordinary Men – OrdM review + notes).

He then moves on to microeconomics and mentions the advantages of scale (citing TV advertising – again, nonlinearity).  He goes back to social proof.  However, scale also brings bureaucracy… he talks about incentives.

He talks about shooting the messenger, i.e. association bias:

“if people tell you what you really don’t want to hear – what’s unpleasant – there’s an almost automatic reaction of antipathy.  You hvae to train yourself out of it. It isn’t foredestined that you have to be this way. But you will tend to be this way if you don’t think about it.”

Munger goes back to scale, talking about chain stores (see “ The Great A&P”  – GAP review + notes– and “ Made in America – WMT reiew + notes).

  1. 185 – 186 – he brings up an interesting question (“demented Kellogg” ← LOL) – why do some industries consolidate profitably and some don’t?  See n-order impactsarms races.

Page 188: on technology:

“the great lesson in microeconomics is to discriminate between when technology is going to help you and when it’s going to kill you.  And most people do not get this straight in their heads. But a fellow like Buffett does.”

P 188 – 190 – “ arms race’ mental model (though he doesn’t call it that)

  1. 190 – Charlie’s “surfing” model – I missed this on the first read-thru – is this what I call “gradients”?  Reread page 191

Circle of competence… he talks about strong-form EMH, makes a lot of the same points I do re: Richard Thaler’s “ Misbehaving” M review + notes):

to the man with a hammer, every problem looks like a nail.  If you’re good at manipulating higher mathematics in a consistent way, why not make an assumption that enables you to use your tool?” 

(page 195)

Nice principal-agent, local vs. global optimization demonstration in the sidebar on 199 – “Mister, I don’t sell to fish.”

Talk Three – Worldly Wisdom Extended

Siloes (local vs. global optimizatoin) referenced on p 223

He mentions IFF – I’ve been meaning to work on them forever…

P 229 – 231 – he talks about the dangers of ideology

(I went on a Wikipedia rabbit-hole about scurvy and ended up here:

P 238 – 239 nice discussion of multiple mental models working together.  Munger on stressincentives, and n-order impacts:

“ Stress is real.  And its misery can be real.  So you want to compensate people for their stress in the workplace.  It seems like a noble thing to do.

But the trouble with such a compensation practice is that it’s practically impossible to delete huge cheating… so you were trying to help your civilization.  But what you did was create enormous damage, net.

So it’s much better to let some things go uncompensated – to let life be hard – than to create systems that are easy to cheat.”

  1. 242 – I forgot that this is where I got my investment approach from, apparently! Inversionintellectual humility, and probabilistic thinking:

“Ninety-eight percent of the time, our attitude toward the market is… that we’re agnostic.  We don’t know. […] We’re always looking for something where we think we have an insight which gives us a big statistical advantage.  […]

We have no system for having automatic good judgment on all investment decisions that can be made.  […] We just look for no-brainer decisions.

[…] So we’ve succeeded by making the world easy for ourselves, not by solving hard problems.”

A lot of investors (and people) miss this: as I discuss elsewhere, need for cognition is dose-dependent and there’s not always a payoff to solving harder problems.

  1. 243 – Grove book recommended
  2. 245 – 246 mistakes, psychological denial, and deprival superreaction syndrome ( loss aversion)
  3. 254: on product vs. packaging, and circle of competence:

“you must have the confidence to override people with more credentials than you whose cognitionis impaired by incentive-caused bias or some similar psychological force that is obviously present.  […] you’ve got to know what you know and what you don’t know.”

On saying “I don’t know,” p 255, he references the bee that can’t dance for a route straight up…

Talk Four: Practical Thought about Practical Thought (Coke Inversion Talk)


Materiality – figure out big questions

Numeracy – basic math

Inversion – solve backward

Multidisciplinary models

“ Lollapalooza

The problem: with an initial investment of $2MM in the non-alcoholic beverage industry, how can you turn it into $2 trillion in 150 years?  (ignore dividends, I guess)

I don’t see why this is apparently so confusing… it seems pretty straightforward, no?

He mentions Richard Thaler on p. 295… Thaler’s “ Misbehaving ( M review + notes) is my favorite book.

Talk Five: The Need for More Multidisciplinary Skills

Munger notes that professionals without a broad multidisciplinary background will fall prey to incentive -caused bias and “ man with a hammer syndrome and thus:

“drift toward the conclusion that what is good for the professional is good for the client and the wider civilization.”

Munger notes elements of pilot school that are valuable – multidisciplinary, taught to practice-based fluency ( habitconditioning), inversion, checklists ( structural problem solving), routine re-training in aircraft simulators recency bias / memory)

Feynman mentioned on page 314.

Page 316 – autodidacticism…

Talk Six – Investment Practices of Foundations

Cites the “ Lake Wobegon” effect (my word) – 90% of Swedish drivers think they’re above-average – overoptimism.

Talk Seven – no notes

Talk Eight – The Great Financial Scandal of 2003– no notes

Talk Nine

Extreme success usually one of four categories:

Extreme max or minimization of one or two variables

Adding success factors so that a bigger combination drives success ( lollapalooza / multicausality)

Extreme of good performance over many factors


  1. 391  392 – great example of inversion thinking


  1. 393 bottom of page 4 – captures Valeant perfectly (a decade before the fact)
  2. 399 – “they’d click off a little something that their professors gave them and spit it back.  But in terms of really understanding how it all fits together, I would confidently predict that most people couldn’t do it very well.”


  1. 402 – 403 excellent discussion of n-order impacts (continues on pages 406 – 407)
  2. 410 “the craving for perfect fairness causes a lot of terrible problems in system function.  Some systems should be made deliberately unfair to individuals because they’ll be fairer on average for all of us.”


Talk Ten – USC School of Law Commencement Address

“The acquisition of wisdom is a moral duty… the skill that got Berkshire through one decade would not have sufficed to get it through the next decade, with comparable levels of achievement.”  See relative skill vs. absolute skill.

Page 430 on ideology 

“I have what I call an iron prescription that helps me keep sane when I drift toward preferring one intense ideology over another.  I feel that I’m not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition.”

– I seem to recall this quote is what made me decide to entirely give up any interest in politics.

P.431 – “self pity is always counterproductive”

  1. 436 – “intense interest in any subject is indispensable if you’re really going to excel in it.  I could force myself to be fairly good in a lot of things, but I couldn’t excel in anything in which I didn’t have an intense interest.”
  2. 437 – “life is very likely to provide terrible blows, unfair blows.  Some people recover, and others don’t. And there I think the attitude of Epictetus helps guide one to the right reaction.  He thought that every mischance in life, however bad, created an opportunity to behave well. He believed every mischance provided an opportunity to learn something useful.  One’s duty was not to become immersed in self-pity, but to utilize each terrible blow in constructive fashion.”

Talk Eleven: The Psychology of Human Misjudgment

“… and partly, I had found that theory-structure was a superpower in helping one get what one wanted, as I had early discovered in school wherein I had excelled without labor, guided by theory, while many others, without mastery of theory, failed despite monstrous effort.”

Structual problem solving via making mental models a habit so they’re integrated into intuition s.cognition.

Like Thaler, Charlie started collecting anomalies.   Man-with-a-hammer syndrome:

“I became so avid a collector of instances of bad judgment that I paid no attention to boundaries between professional territories.  After all, why should I search for some tiny, unimportant, hard-to-find new stupidity in my own field when some large, important, easy-to-find stupidity was just over the fence in the other fellow’s professional territory?  

Besides, I could already see that real-world problems didn’t neatly lie within territorial boundaries.  They jumped right across. And I was dubious of any approach that, when two things were inextricably intertwined and interconnected, would try and think about one thing but not the other.”

P 446 – 447 interesting discussion of ants and analogy to humans.

The first misjudgment is incentives (placed thus because it’s the most important).  Interesting note on p. 452 about the gallbladder surgeon – this is often subconscious/indirect rather than conscious/direct – an example of this in the real world might be prophylactic wisdom tooth extraction (which I don’t believe needs to be nearly as universal as it is).

  1. 453 “bad behavior is intensely habit-forming when it is rewarded.”
  2. 456 people tend to game systems (recall the college rat breeding thing) – n-order impacts cross-read…

“Dread, and avoid as much as you can, rewarding people for what can be easily faked.”

2: liking/loving tendency, 3: disliking/hating tendency

4: Doubt-avoidance tendency, the antithesis to probabilistic thinking which is often triggered by some combination of “puzzlement and stress

5: consistency bias (he calls it inconsistency-avoidance tendency)… this is why initiation ceremonies exist.  See sunk costs.

6: curiosity tendency

7: kantian fairness (see fairness model)

8: envy tendency

9: reciprocation tendency – don’t let your purchasing agents be bribed (interaction with principal-agent)

10: association tendency… “people underappraise both the competency and morals of competitors they dislike”

11:denial, 12: self-regard (the latter of which he believes causes endowment effect)

13: overoptimism tendency ( overoptimism)

14: deprival superreaction tendency ( loss aversion)

15: social proof – the shingle story on p. 482 is special ( social proof)

16: contrast bias (can lead to creeping incrementalism)

17: stress

18: availability bias (see saliencevividness)

19: use it or lose it tendency

20L drugs

21: senescence

22: authority misinfluence (see also Ordinary Men)

23: twaddle  (honeybee)

24: reason-respecting tendency (see also Cialdini)

25: lollapalooza tendency

  1. 495 – he mentions Colin Camerer (see also Misbehaving… he worked w/ Thaler)