#329 Charlie Munger

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63 highlights · December 2023

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The Influence of Repetition and Role Models Repetition is persuasive in influencing people's behavior. Charlie Munger often repeats the same ideas over decades, particularly his admiration for his grandfather. Charlie's grandfather, a respected federal judge, played a significant role during the Depression, which inspired Charlie's personal conduct and the role he wanted to play for his own family. Charlie emphasizes the importance of being dependable and reliable for loved ones, as demonstrated by his grandfather's prudence and prosperity in helping extended family members during the Depression. Transcript: David Senra Were in the business of figuring out what makes people buy products, how you can influence other people. And they say over and over again that repetition is persuasive. You see the same thing with Charlie Munger. He'll repeat a lot of the same ideas, usually in different stories, sometimes in the very same story throughout the talks, even though the talks are given over multiple decades. And one person you'll know that Charlie talks about and repeats his admiration for a lot is his grandfather. And it struck me that the role that Charlie's grandfather played in his family inspired not only Charlie's personal conduct, but it's the role that he wanted to play for his kids and Grandkids as well. So I'm just going to read a few lines here because this really tells you like when you see who somebody admires, you can kind of tell like what's important to them.…
Lessons from the Depression Era During the Depression, Charlie Munger's grandfather demonstrated generosity and business acumen by rescuing a small bank owned by Charlie's uncle. The judge risked nearly half of his assets to exchange money for the bank's weak loans, enabling the bank to reopen. He also supported his son-in-law in purchasing a closed pharmacy, which prospered and secured the future of his daughter. Charlie learned the importance of mutual support from his family's experiences during the economic collapse, and sought to emulate the traits he admired in his grandfather. Transcript: David Senra It was very fascinating. You're going to see that happen here with Judge Munger. So it says, this era of the Depression provided real learning experiences for young Charlie Munger. He witnessed the generosity and business acumen of his grandfather as he helped rescue a small bank that was owned by Charlie's uncle, Tom. So Charlie's uncle had been running this bank. He wound up loaning out a bunch of money. There was a bunch of uncollectible notes. And obviously a ton of banks failed during the Depression. And so Tom calls Grandpa Munger for support. And the judge risks nearly half of his assets by exchanging his money for the bank's weak loans. This enabled Tom to open back up his doors. Charlie's grandfather eventually recovered most of his investment, but it took many, many years to do that, right? And then Judge Munger also was able to send his daughter's husband to…
The Importance of Trust in Business Relationships A conversation between Warren and Charlie led to Charlie deciding to quit law practice and go into business with Warren. Their bond was created by a handshake, and they both realized they were meant to be in business together. Trust is highlighted as one of the greatest economic forces in business, both within the company and with external partners and customers. Transcript: David Senra Warren was unenthusiastic about Charlie's continued practice of law. He believed it was a far less promising business than what Warren was doing. Warren's logic helped Charlie decide to quit law practice at the earliest point he could afford to do so. That's an important line. At the earliest point that he could afford to do so. Charlie has got a gang of kids. I think between him and his wife, when they're all said and done, I think they have eight, maybe nine children to support. When Charlie returned to Los Angeles, the conversations continued on the telephone and through lengthy letters. The conversations with Buffett, obviously. It was evident to both. This is really, really cool. It was evident to both that they were meant to be in business together. There was no formal partnership or contractual relationship. The bond was created by a handshake. Again, I had read that word, that sentence, I don't know, three times before I just read it to you. There was no formal partnership or contractual relationship. The bond was created by a…
Charlie's Compassion and Investment Journey Charlie left his law firm to start an investment partnership, choosing to give his share of the firm's capital to the family of his deceased partner. He then partnered with Jack Wheeler and decided to build equity through stock ownership in a holding company instead of managing funds directly for investors. Charlie's affinity for biographies, particularly Benjamin Franklin's, is evident in his speeches as he emphasizes the value of learning from the eminent dead. Transcript: David Senra So Charlie eventually winds up leaving the law firm and going into, he starts his own investment partnership. He's essentially investing other people's money. Buffett did this as well. Buffett's going to close down his partnership, which we'll get to in a minute. Charlie's eventually going to close down them and then they're going to team up and do Berkshire, right? But this was fascinating, speaks to who he was as a person. So he leaves the law firm that he founded, and he did not take his share of the firm's capital. Why? Instead, he directed that his share go to the estate of his young partner, Fred Warder, who died of cancer and left behind a wife and children. Charlie thought that she and the children needed the money more than he did. So he winds up building this partnership with Jack Wheeler. They run this partnership from 1962 to 1975. So it says Charlie followed Warren in concluding that he no longer wanted to manage funds directly for…
The Value of Learning from Biographies and the Eminent Dead The insight emphasizes the value of learning from biographies and becoming friends with the eminent dead to gain knowledge and insights. Charlie Munger's affinity for Benjamin Franklin's career is highlighted, with an emphasis on learning from the lives and personalities of historical figures to better understand and apply great concepts such as economics. The insight also emphasizes the importance of learning from the recommendations of knowledgeable individuals like Charlie Munger, who has practiced and preached the value of learning from the eminent dead. Transcript: David Senra Run this partnership from 1962 to 1975. So it says Charlie followed Warren in concluding that he no longer wanted to manage funds directly for investors. Warren had closed his own partnership in 1969. Instead, they resolved to build equity through stock ownership in a holding company. Now, what's fascinating is they end this short section on Charlie's life, right, with advice to do exactly what you and I do together every week, learn from biographies and become friends With the eminent dead. Charlie's affinity for Benjamin Franklin's expansive career can be found in many speeches. And whenever he holds an audience, large or small, and this is what Charlie says about this. I am a biography nut myself. And I think when you're trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people…
Focused Immersion and Multidisciplinary Approach The key to success for individuals like Warren Buffet and Charlie is their ability to wall off distractions and immerse themselves completely in their mental tasks. Charlie's approach involves combining big ideas from various disciplines like mathematics, physics, chemistry, biology, and psychology to gain a more accurate understanding of the world. Transcript: David Senra Night after night would sit in his favorite chair, reading something all but deaf to the roughhousing younger children, the blaring TV, and mom trying to summon him to dinner. Father's ability to wall off the most intrusive distractions from whatever mental task he was engaged in accounts as much as anything else for his success. People have said the same thing about Warren Buffett. It's in one of his biographies. It might be Snowball, it might be Making of the American Capitalist, but talks about they're all going on like a family vacation. They get on the private jet. I think the flight's like four or five hours. Warren sits there with all the stuff he's reading. People are having conversations. There's like kids everywhere. And like, you just cannot penetrate. When he is focused on what he's studying, when he's learning, he's essentially walled himself off from any distractions. Okay, so this is the last thing before we jump into the 11 different talks. This is really an overview. I made a list of five things that Charlie repeats and uses over and over…
Charlie Munger's Five Repeated Notions Charlie Munger emphasizes the importance of combining big ideas from multiple disciplines to gain a more accurate understanding of the world, criticizes the siloed nature of formal education and advocates for learning big ideas from various domains. He promotes self-education by developing a personal curriculum and highlights the rarity of good ideas, encouraging individuals to bet heavily when they find one. Transcript: David Senra He's essentially walled himself off from any distractions. Okay, so this is the last thing before we jump into the 11 different talks. This is really an overview. I made a list of five things that Charlie repeats and uses over and over again. So the first thing is that he's going to tell you, he calls it big ideas from the big disciplines. It says Charlie's big ideas from the big disciplines approach. Charlie combines big ideas from multiple disciplines to build a more accurate understanding of the world. He will explain a business problem, but he'll be using things from mathematics, from physics, from chemistry, from biology, and from psychology. So that's what he means by multidisciplinary. That's his biggest criticism of all forms of formal education is they just stay like siloed in their little domain and he's like have no respect for that have no respect for that go wherever Your curiosity takes you but you need to learn the big ideas in the big disciplines so he's and then the second thing is you…
Success through focused attention and multidisciplinary approach The key to the success of individuals like Warren Buffett and Charlie lies in their ability to wall off distractions and stay focused on their tasks. This focus allows them to deeply immerse themselves in their learning and work. Additionally, Charlie emphasizes the importance of incorporating big ideas from various disciplines to gain a more accurate understanding of the world. He criticizes formal education for siloing knowledge and advocates for a multidisciplinary approach. Transcript: David Senra Father's ability to wall off the most intrusive distractions from whatever mental task he was engaged in accounts as much as anything else for his success. People have said the same thing about Warren Buffett. It's in one of his biographies. It might be Snowball, it might be Making of the American Capitalist, but talks about they're all going on like a family vacation. They get on the private jet. I think the flight's like four or five hours. Warren sits there with all the stuff he's reading. People are having conversations. There's like kids everywhere. And like, you just cannot penetrate. When he is focused on what he's studying, when he's learning, he's essentially walled himself off from any distractions. Okay, so this is the last thing before we jump into the 11 different talks. This is really an overview. I made a list of five things that Charlie repeats and uses over and over again. So the first thing is…
Charlie Munger's Principles and Approach to Learning and Investing Charlie Munger emphasizes the importance of multidisciplinary learning, encouraging individuals to explore diverse fields. He advocates for developing a personal curriculum and being self-taught. Munger believes in betting heavily on rare good ideas and stresses the significance of commitment and holding positions for a long period in investment decisions. Transcript: David Senra Will explain a business problem, but he'll be using things from mathematics, from physics, from chemistry, from biology, and from psychology. So that's what he means by multidisciplinary. That's his biggest criticism of all forms of formal education is they just stay like siloed in their little domain and he's like have no respect for that have no respect for that go wherever Your curiosity takes you but you need to learn the big ideas in the big disciplines so he's and then the second thing is you have to develop your own personal curriculum you have to develop Your own personal curriculum this is a self-taught system the self-taught statement is no exaggeration Charlie once said, to this day, I have never taken any course anywhere in chemistry, Economics, psychology, or business. The third thing, good ideas are rare. Bet heavily when you find one. I think this is starting to get through to more people. I think this will actually be more common than it was because how much Charlie and Warren talk about this. Charlie will not…
Recognizing the Importance of Psychological Factors in Decision Making The speaker emphasizes the significance of understanding the psychological factors of human misjudgment and considers it one of the most important mental models. The longest talk, 'the psychology of human misjudgment', took 50 hours to revise and has an animated video commissioned by a friend. Additionally, the speaker highlights the importance of assessing and understanding competitive advantage in various aspects, emphasizing the virtue of durability in decision making. Transcript: David Senra If you only said, if you only had to read one thing, it would be the very last talk, the talk 11, which is the psychology of human misjudgment. Charlie recognizes that even among the most competent people, decisions are not always made on a purely rational basis. He considers the psychological factors of human misjudgment some of the most important mental models. So that is the longest talk by far. I think it's the one that he spent the most time on. I think he said he spent 50 hours revising that talk just to publish it in this book. My friend Andrew Wilkinson, the founder of Tiny, actually made, he commissioned an animated video on this talk. I will leave, I'll find the link and leave it down below in the show notes. And then the final thing before we jump into the first talk, above all, he attempts to assess and understand competitive advantage in every respect, products, market, trademarks, Employees,…
Importance of a Company's Moat and Charlie Munger's Love of Inversion A company's competitive advantage, referred to as its moat by Charlie Munger, is crucial for its durability and success. Munger's focus on great businesses having moats was highlighted in a conversation where he emphasized the importance of a business's ability to remain a money generator, indicating the presence of a moat. Additionally, Munger's penchant for inversion principle was evident in a commencement address where he emphasized the importance of focusing on things to avoid in order to reach a state of misery, rather than pursuing happiness directly. Transcript: David Senra The durability of that advantage, Charlie refers to a company's competitive advantage as its moat, which is the barrier that it presents against incursions. This is the note I left myself on this page. Charlie only focuses on great businesses and great businesses have moats. It was very fascinating in the conversation between John Collison and Charlie Munger. This is again, I think towards the end, maybe the middle of the podcast, John asked like, hey, if we came and me and my brother Patrick came in and pitched you on Stripe, what would you want To know about Stripe? And he essentially, one sentence, this is again, what is the most important thing? Charlie only focuses on great businesses and great businesses have moats. And so Charlie's answer to John was, is it likely to remain forever as a money generator? In other words,…
The Power of Inversion Principle in Graduation Speeches Charlie Munger employs the inversion principle in his graduation speech by presenting what one should do to achieve a state of misery rather than giving advice for a happy life. This approach emulates a speech by Johnny Carson, who also spoke about avoiding certain behaviors to guarantee misery. Carson outlined three prescriptions for misery: ingesting chemicals to alter mood, envy, and resentment. Munger then added a fourth, which was self-pity. Both speeches emphasize the significance of avoiding these negative behaviors to lead a fulfilling life. Transcript: David Senra Right away, we see Charlie's love of inversion because most graduation speakers are going to say, hey, this is what you should do to get a happy life. Charlie does not do that. He uses the inversion principle, and he says, I'm going to make the opposite case by setting forth what you should do if you want to reach a state of misery. Now, he is going to emulate a talk that Johnny Carson gave at this school as well a few years before Charlie Munger did. And Johnny Carson did the same thing where he's like, I want to tell you, like, I'm going to give you a speech on the things to avoid. And what was fascinating about that is Carson said in that speech that he couldn't tell the graduating class how to be happy, but he could tell them for personal experience how to guarantee Misery. I read Johnny Carson's autobiography, or excuse me, biography. It's…
Understanding the Impact of Reliance, Envy, and Resentment Relying on others leads to a miserable life. Envy is a natural human tendency to be cured, as it is a driving force in the world, according to Warren Buffett. Resentment only leads to bitterness, and the solution is the Disraeli compromise, where one puts the names of those who wronged them on pieces of paper in a drawer to let go of resentment. Transcript: David Senra Once you start relying on them, there's no way you're going to have a, like you're going to have a miserable life if you rely on them. Number two, envy. And number three, resentment. So envy is something that Munger talks about over and over again. He's like, you have to live a good life. You have to cure yourself of this inherent part of our human nature, which is we like to be envious, or not even like to be. We are prone to be envious of others. There's something that he repeats over and over again that he learned from Warren Buffett. Warren would tell Charlie over and over again that it's not greed that drives the world, but envy. Envy drives the world. And Charlie later in life talks about the fact that he is one of the best things he ever did was that he cured himself of envy. A third part to this is avoiding resentment. And so he is going to give us advice. He's like, you know, you don't want to be to become a bitter person because that's all resentment does. It's just going to make you bitter. He's actually going to quote the solution to…
The Disraeli Compromise and Prescription for a Miserable Life The insight reveals the Disraeli compromise, where individuals place the names of those who wronged them in a drawer and take pleasure in noting how the world has taken down their enemies without their assistance. Additionally, it provides a prescription for a miserable life, including ingesting chemicals to alter emotions, being envious of others, holding onto resentment, and being unreliable, leading to distrust and exclusion from the best human contributions in company. Transcript: David Senra So he is going to give us advice. He's like, you know, you don't want to be to become a bitter person because that's all resentment does. It's just going to make you bitter. He's actually going to quote the solution to this, that Benjamin Disraeli, which was a he was a prime minister of the United Kingdom back in the 1800s. And this is what he did. So it's called the Disraeli Compromise. And so one way Disraeli learned to give up vengeance as a motivation for action was he needed some outlet for his resentment, right? He couldn't just quit cold turkey. So he would put the names of people who wronged him on pieces of paper in a drawer. So what Charlie's describing to us is called the Disraeli Compromise. By putting the names of people who wronged him on pieces of paper in the drawer. Then from time to time, he reviewed these names and took pleasure in noting the way the world had taken his enemies down without his…
Importance of Perseverance and Learning from the Best Work The insight emphasizes the importance of not learning from the best work done before use and shares a historical account of a man who mastered the work of his predecessors despite a poor start. It stresses the value of perseverance by advising to stay down after facing severe reverses and not giving up, highlighting the significance of determination in the success of entrepreneurs. Transcript: David Senra Other aspect of avoiding vicarious wisdom is the rule of not absolutely under no circumstances learn from the best work done before yours. And then he adds this great story here. If you want to be non-miserable, right, which is the opposite, he's trying to teach you, hey, this is a whole prescription for misery. Obviously, he's teaching us about inversion, but somebody that was able to have a non-miserable result. And so he gives us this historical account. There was once a man who mastered the work of his best predecessors, despite a poor start and a very rough time. Eventually, his own work attracted wide attention. And he said of his work, if I have seen a little farther than another man, it is because I stood on the circle of giants. The bones of that man lie buried now under an unusual inscription. Here lie the remains of all that was mortal in Sir Isaac Newton. Charlie's third prescription, which is the seventh, the final one in this talk. Go down and stay down when you get your first, second, and third…
The Importance of Determination in Overcoming Adversity In the battle of life, it's crucial to persevere through severe reverses and not give up. Determination plays a more important role than intelligence in the success of entrepreneurs, as highlighted by a story shared by Paul Graham. Even with decreasing intelligence but unwavering determination, a person can still succeed. Conversely, having high intelligence but lacking determination can lead to being ineffectual. The message is clear: in the face of adversity, it's essential to stay determined and not give up. Transcript: David Senra Go down and stay down when you get your first, second, and third severe reverse in the battle of life. There is so much adversity out there, even for the lucky and wise. So we are not persevering. We are quitting. Something that I use to remind myself on the importance of not giving up. And I really do believe what Paul Graham said. He was asked one time, what plays a more important role in the success of entrepreneurs, determination or intelligence? And he said determination by far. And he tells this fantastic story where he's like, let's say you take two people. They both start out 100 with 100 in both determination and intelligence. You start taking away, decreasing the amount of intelligence, but keeping their determination at 100. That person's still going to wind up rich. I think he said, but they'll own like a bunch of, they'll figure out a way to make money and they'll own like a…
The importance of explaining why in communication Explaining the 'why' behind tasks and decisions can lead to increased compliance and persuasion. Businessman Carl Braun's rule of '5W's (who, what, where, when, why)' in company communications emphasized the importance of telling employees why they need to do something. This psychological tendency in human nature, as emphasized by Munger, highlights that people will better understand, consider as important, and be more likely to comply when they are provided with the reasoning behind a request. Transcript: David Senra Found like this little like maybe 60 page book, which was like an internal company book for the CF Engineering Company. And I did a podcast on it a long time ago. I don't know if I ever published the podcast. I can't find it anywhere. So I should go back and actually find that book and reread it and see if there's lessons in there for you and I to learn from. But one idea that Munger repeats that's one of the most important ideas that you learn from Carl Braun really speaks to this psychological tendency in human nature that you will get More compliance and be more persuasive if you tell people why. If you tell your employees why you need them to do what you need them to do. This was so important to Carl Braun that if you were inside his company and you didn't do this, the second time you did it, you would be fired. So this is a little bit about that. A very great businessman named Carl Braun designed and…
Advantages of Scale and Social Proof in Advertising The insight of the snip emphasizes the advantages of scale in advertising, particularly in television advertising, which leads to greater brand recognition and access to distribution channels. This increased recognition creates a psychological effect known as social proof, where more people feel compelled to buy the well-known brands. This cycle of scale, social proof, and increased sales leads to winner-take-all dynamics and allows for greater specialization within the company. Transcript: David Senra And they all greatly increase the efficacy of each one. So he's talking about television advertising, right? Which is essentially an advantage of scale that Procter& Gamble had. Now there's more advantages to that scale that start with, hey, being big to begin with, and this new technology is invented, then I can partake in that technology and my smaller competitors Can't. Then what happens is more people know about the products and the brands that Procter& Gamble own. That leads to another psychological effect, which is social proof. Social proof, because more people hear about it, they think, oh, other people are buying these brands. I should just do the same thing. Social proof leads to more sales. More sales then lead to more distribution. More distribution leads to this like winner take all or winner take most flywheel. And then as the company has more resources inside of the company, you can actually have greater…
The Importance of Worldwide Distribution Network in Business Strategy Having a worldwide distribution network can provide a company with a unique and expensive advantage, making it difficult for competitors to dislodge them. This advantage also uncovers investment opportunities not available to others. In the case of Coca-Cola, its worldwide distribution network allowed it to create partnerships with other companies, such as Monster Energy Drink, and expand its presence in every corner of the world. Transcript: David Senra Moat. That's the way you think about it. So he's talking about like, who's also another company that did this? Well, Coca-Cola. And why is that so important to Coca-Cola? Because one advantage that Coca-Cola has is that it's available almost everywhere in the world. That worldwide distribution, right? One, it takes a long time to develop, is really expensive, is only something that they possess. And so he calls this a huge advantage. And then he follows up on why that's important. If you think about it, once you get enough advantages of that type, it can be very hard for anybody to dislodge you. And it can also uncover great investment opportunities not available to anybody else because they don't have the advantages. I was wondering why I was listening to this business breakdowns episode on Coca-Cola, right? And I was wondering why, like, it doesn't matter where I'm at when I'm traveling. It might be like in a small city or whatever. I'll go and like go…
Disadvantages of Scale and Narrow Specialization in Market Entry Scale can disadvantage established companies as they become less nimble, allowing smaller, specialized entrants to beat them in the market. This is illustrated by the story of a magazine called motocross, which targeted a specific and dedicated audience, achieving high profitability despite its narrow focus. The tale serves as a reminder that the inevitable expansion of successful ventures creates opportunities for niche players to thrive. Transcript: David Senra So then he flips it. He's like, well, what does that do to new startups or new entrants into a market? Well, there's disadvantages of scale as well. So I just did, I think two weeks ago, I just did this episode on Warren Buffett and Charlie Munger's, one of their favorite managers, this guy named Tom Murphy, who was running Capital Cities, who winds up buying ABC. Berkshire Hathaway was their largest shareholder. And so Munger had a front row seat to a disadvantage of scale. So he says, we had trade publications at Capital Cities and ABC that were getting murdered. Our competitors were beating us. And the way they beat us was by going to a narrower specialization. So it always starts out small and it expands. That inevitable expansion opens up for somebody else to niche back down, right? And this is exactly what happens. The way they beat us was to go to a narrower specialization, like an ecosystem. You're getting narrower and narrower…
The Pitfalls of Scale and Bureaucracy in Businesses Scale occasionally scaling down and intensifying gives the big advantage. Bigger is not always better. The great defect of scale is getting bureaucratic, which leads to fat, dumb, unmotivated bureaucracies with layers of management and associated costs. These bureaucracies are slow to make decisions and are focused on protecting territories rather than the company's mission. Therefore, businesses face an everlasting battle between leveraging the advantages of scale and avoiding unproductive bureaucracies. Transcript: David Senra And this is hilarious. This is why Munger is so, he's such a great teacher because he makes you laugh and you remember the stuff. Motocross is read by a bunch of nuts who like to participate in tournaments where they turn somersaults on their motorcycles, but they care about it. For them, it is the principal purpose of life. A magazine called Motocross is a total necessity to these people, and its profit margins would make you salivate. So occasionally, scaling down and intensifying, scaling down and intensifying gives you the big advantage. Bigger is not always better. The great defect of scale, another great defect of scale, is of course, as you get big, you get bureaucratic. Again, this is grounded in human nature. So he talks about always focusing on what the incentives are. The incentives in a bureaucracy are perverse. Incentives are no longer the company's mission. It's, hey, how do I…
The Battle between Scale and Bureaucracy The everlasting battle in business is between the advantages of scale and the avoidance of bureaucracies. An example from Sam Walton's autobiography illustrates the battle against bureaucratic creep, where the focus is on doing things right the first time to avoid adding unnecessary layers of bureaucracy. Transcript: David Senra People run circles around them. So life is an everlasting battle between those two forces to get these advantages of scale on one side and avoid bureaucracies who do very little work on another side. And so he's going to give you an example of Sam Walton. What's fascinating is if you read Sam Walton's autobiography, which I've done, I think I've done two or three podcasts on Sam. In that book, it was fascinating. He starts out this nimble guy and builds this giant company. And he says, it doesn't matter. Every year, bureaucratic creep is inevitable, and you have to beat it back across the line. And it usually comes from the leader or the founder really paying attention to stuff. He talks about one thing that he hated that his company was doing in the book was that new merchandise would come into the store. They would have to label, like put the prices on it. And in many cases they were putting wrong prices on it. So then somebody had this idea, okay, okay, we're going to hire a bunch of people and they have like these scanners. And then after it's been priced, they scan it to make sure it's the right price.…
The Power of Scale and Fanaticism in Walmart's Success Sam Walton's success with Walmart demonstrates the combined power of scale and fanaticism, allowing him to surpass established competitors through relentless dedication and smart imitation. Starting from a single store, Walton played the chain store game better than anyone else and implemented a competitive strategy akin to a prize fighter seeking a great record. Despite not inventing much, his relentless approach propelled Walmart past competitors like Sears, showcasing the impact of scale and passion in business success. Transcript: David Senra Like this is another layer of bureaucracy. And so it's like, why don't we just do it right the first time? And so in this story, Charlie does something that's brilliant. He adds another element to this story that he's been telling us now going over six, seven pages. And the main thing, it's one of my favorite things he's ever said. Sam Walton's one of my favorite entrepreneurs. But he said, Sam Walton, this is my summation about what I'm about to read you. Sam Walton's an interesting example of how scale and fanaticism combine to be very, very powerful. It's quite interesting to think about Walmart starting from a single store in Arkansas against Sears with its name, reputation, and all of its billions. How does a guy in Bentonville, Arkansas with no money blow right by Sears? And he does it in his own lifetime. In fact, during his own late lifetime because he was already…
Sam Walton's Shrewd Competitive Strategy Sam Walton leveraged his years of retail experience and implemented a shrewd competitive strategy to build Walmart into a retail giant. Starting with one store at the age of 44, he emulated successful practices of others with fanaticism and systematically outperformed smaller operators. As Walmart grew, he also took on and surpassed bigger competitors, demonstrating how scale and fanaticism can be a potent combination for success. Transcript: David Senra In fact, during his own late lifetime because he was already pretty old by the time he started out with his one little store. So he'd had a bunch of experience in like retailing and discount retailing. Let's say I think it was 44, if my memory serves me correct, when he started his first Walmart, but he'd been working in retail for like 20 plus years by the time. But Charlie is right that he starts out with one Walmart and I think he's 44 at the time. He played the chain store game harder and better than anyone else. Sam Walton invented practically nothing, but he copied everything anybody ever did that was smart. And he did it with more fanaticism. So he right by them all. He also had a very interesting competitive strategy in the early days. He was like a prize fighter who wanted a great record so he could be in the finals. So what did he do? He went out and fought 42 palookas. So like, you know, 42 like mediocre operators, essentially. And the result was knockout after knockout…
The power of staying in your domain of expertise Staying in your domain of expertise, as illustrated by the story of Patterson and National Cash Register, is a powerful concept emphasized by Charlie Munger. Patterson's success with cash registers led him to realize his expertise was in selling them, not in running a store. Charlie Munger advises that competing in domains where you don't have an edge is a sure way to lose, and it's crucial to figure out where your edge lies. The story also highlights the importance of staying in an area of expertise, as demonstrated by the success of Ed Thorpe, who has been a master of various fields in his lifetime. Transcript: David Senra Just don't know where the money's coming in. And so the cash register, the solution that it solved was it finally accounted for and organized all the cash flowing in and out of the company. And Patterson knew that this was so powerful because he buys this new piece of equipment, the cash register for a store, immediately starts making money. Then he immediately closes his store and decides, forget this. The bigger opportunity is to provide the service that was provided to me. I should be selling the cash registers. I should not be in the store. And so he got there right on the very edge and then just stayed there for a very, very long time. So that's why Munger uses Patterson and National Cash Register as a illustration of this very important model to Charlie Munger that surfing is a very powerful model.…
Find Your Edge to Succeed In order to succeed, it is important to compete in domains where you have an edge, as advised by Charlie Munger and exemplified by the life of Ed Thorpe. Ed Thorpe's autobiography emphasizes the importance of only playing games or making investments where you have an edge, which aligns with Charlie Munger's advice. This insight is a valuable lesson from two highly successful individuals. Transcript: David Senra That's not smart. Most people are competing in domains where they don't have an edge. Charlie says, if you play games where other people have the aptitudes and you don't, you're going to lose. And that's as close to certain as any prediction you can make. You have to figure out where you've got an edge. And there's this guy named Ed Thorpe, who I talk about ad nauseum. Ed Thorpe is really my blueprint for life. He's one of maybe a handful of people I feel mastered life out of all the people we've studied in the podcast together. It's episode 222, if you don't know what I'm talking about. He's an inventor of the first quantitative hedge fund. He was the first LP in the Citadel. He invented the first handheld computer with Claude Shannon. The guy was just flat out genius. He's still alive to this day. Took care of his health. Incredible. But in Ed's unbelievable autobiography, which I heavily recommend you read, it's called A Man for All Markets, episode 222 again, he says something. He's writing that book. I think he's in his 70s or 80s. I…
The Surest Way to Get Rich and the Value of Trusting Your Judgement The surest way to get rich as a money manager is to play only those games or make those investments where you have an edge. Trusting your own judgment and going all-in on a good opportunity, instead of diversifying, can significantly improve your financial welfare according to a story about Warren Buffett. Transcript: David Senra So let me read a quote from that book that sounds a lot like the advice that Charlie Munger just gave us. I also believe then, as I do now, after more than 50 years as a money manager, that the surest way to get rich is to play only those games or make those investments where I have an edge. That is exactly, you have two of the smartest people I've ever come across, Charlie Munger and Ed Thorpe. No doubt, if you talk to Charlie Munger or you read his, you heard him speak, you'd think he's a genius. I think if you study Ed Thorpe, you would arrive at the same conclusion. In fact, the first time I did at Thorpe, it was like a long time ago, so maybe 80 or 90 or something like that. And I got this email or message from somebody who listened to the podcast and then bought the book after and read it. And they're like, hey, you left out the fact in the podcast that this guy's a genius. I was like, well, I think pretty obvious the way that he lived his life. He's a genius, but that's fine. From now on, that message stuck in my mind. So every time I bring up Ed Thorpe, I have to bring up…
The importance of focus and concentration in investing The key to successful investing is to think carefully about investments, load up on well-considered choices, and bet heavily when the odds are in your favor. A few crucial insights can account for most of the success in investing, emphasizing the importance of focus and concentration in businesses where one has an edge and deep understanding. Transcript: David Senra Once you'd punch through the card, you couldn't make any more investments at all. Under those rules, this is still Warren speaking the whole time, right? Under those rules, you'd really think carefully about what you did, and you'd be forced to load up on what you'd really thought about. So you'd do much better. Again, this is not Charlie speaking. This is a concept that seems perfectly obvious to me and to Warren. It seems perfectly obvious. It just isn't conventional wisdom. And so this is Charlie's explicit advice to you and I. The wise bet heavily when the world offers them that opportunity. They bet big when they have the odds, and the rest of the time they don't. It's just that simple. That is a very simple concept, and to me it's obviously right. Practically nobody operates way. How many insights do you need? Well, I'd argue that you don't need many in a lifetime. If you look at Berkshire Hathaway and all of its accumulated billions, the top 10 insights account for most of it. Most of the money came from 10 insights. And if you go back, I always…
The Importance of Focus and Concentration in Business The main lesson is the importance of focus, betting heavily and being concentrated in the business that you have an edge and know well. This is illustrated by the speaker's exclusive focus on founders and obsession with it. The insights are drawn from the business approaches of historical figures like Rockefeller and Carnegie, who achieved great wealth by concentrating on their core businesses and selling off distractions to avoid being swayed by other opportunities. Transcript: David Senra And if you go back, I always think about this because people are like, you know, I think the main lesson that you and I are learning over and over again is the importance of focus. I think betting heavily and being concentrated in a business that you have an edge and you know well is an element of focus. It's why I only focus on founders. I really don't, you know, don't do any investing. I don't really care about it. I just care about what I'm doing. I want to be completely obsessed with it. So that's not a new idea. I just stole that idea. Like if you can read a bunch on Rockefeller, right? Rockefeller made all his money in Standard Oil, and then he would make some really weird investment decisions and lost a bunch of money outside of Standard Oil for the most part. But the way I look at it is like, okay, if Rockefeller only had Standard Oil, never made another investment in anything fabulously wealthy, Carnegie, Andrew Carnegie,…
The Value of Staying in the Game Long Enough to Get Lucky The insight emphasizes the importance of staying in the game long enough to get lucky, illustrated through examples from Disney and Coca-Cola. It highlights how both companies greatly benefitted from the invention of technologies that greatly appreciated the assets they owned. For Disney, the invention of the video cassette, DVD, and streaming led to the realization of the value of their movies, while Coca-Cola prospered with the widespread adoption of refrigeration. The key message is that companies can benefit significantly from external advancements without having to invent or do anything, as demonstrated by the enormous tailwind of billions of dollars received by Disney. Transcript: David Senra So this is something you and I have talked about over and over again. You see example after example in biography. And the way I've described in the past is like, you really should try to stay in the game long enough to get lucky. And he talks about Disney and then Coca-Cola. And he's giving this talk. He's asked this question on Disney. And he says they had all these movies in the can. So movies they own for decades, right? The value of those movies could not be collected until many, many decades in the future where there is an invention of a technology not made by Disney that greatly appreciates the assets It has. This is incredible. So it says they had all these movies in the can. And then he used the same example that…
The Value of Surrounding Oneself with Great People and Businesses Being around great people and great businesses produces fewer problems, as exemplified by the speaker's father's clients. One client, Grant McFadden, was a self-made man with charm and integrity, who treated his employees, customers, and problems right. On the other hand, the other client was difficult and overreaching, providing a constant stream of legal business due to his problematic nature. This taught the speaker the value of surrounding oneself with great individuals and businesses to prevent problems, as opposed to dealing with constant legal issues. Transcript: David Senra And this also ties together with another thing, which is Charlie's clear predilection to going for great, to like just being around great people and great businesses. They just produce a lot less problems. And so his father was, had his own law practice in Omaha and Charlie's got to know some of his father's clients and got to, you know, essentially be, have these conversations with his Father, learn a lot from his father. And so this is something he learned. And again, meta lesson is how to teach a lesson and why you want to go for great. Here's another model for my father's law practice. When I was very young, one of his best friends was this guy named Grant McFadden. He owned a bunch of Ford dealerships. He was a perfectly marvelous man. He was self-made and he made his own way in the world. He was a brilliant man of enormous…
Learning to Prevent Problems and Behave Wisely Wisdom lies in prevention rather than fixing problems. It is important to learn from individuals like Grant McFadden, who values treating employees, customers, and problems right, and is quick to walk away from troubling situations. The legal business often involves dealing with grossly defective individuals, creating a significant amount of work. It is crucial to emulate the behavior of wise individuals and learn valuable lessons in a way that requires mental effort, ensuring better retention and application in life. Transcript: David Senra This overreaching blowhard, instead of working more for a wonderful man like your friend, Grant McFadden? My father said, Grant McFadden treats his employees right, his customers right, and his problems right. And if he gets involved with a psychotic, he quickly walks away and works out an exit as fast as he can. Therefore, Grant McFadden doesn't have enough law business to keep you going. Wisdom is prevention. He prevents the problems. The lawyers are hired to fix the problems. But Mr. X is a walking minefield of wonderful legal business. This case demonstrates one of the troubles with practicing law. This is now Charlie speaking. To a considerable extent, you're going to be dealing with grossly defective people. They create an enormous amount of law business. And even when your own client is a paragon of virtue, you'll often be dealing with gross defectives on the other side. Like Ben…
The Importance of Learning, Sharing, and Removing Erroneous Ideas The speaker emphasizes the importance of learning from long dead predecessors and sharing that knowledge with future generations. He stresses the value of not only sharing good knowledge, but also removing erroneous or bad ideas from the minds of others. By doing so, one can create real financial value for others and prevent them from making decisions based on false conclusions. Transcript: David Senra I owe a lot to these long dead predecessors. What is he saying? I've benefited so much that somebody that engaged in lifetime learning and then catalog what they learned and sent it down to the next generations. Why am I not doing the same thing? I should do the same thing. I am doing the same thing is what he's telling us. I owe a lot to these long dead predecessors. And if you like poor Charlie Zamanek, so do you. And I want to tie that idea together with something else that is discussed in the book. It's like not only sharing everything that you learn that you know is good, but also the importance of removing what you feel is an erroneous or a bad idea from the heads of other people. And in some cases, in business cases, you can create a ton of real financial value for other people. This story he's about to tell us is how Warren Buffett created a billion dollars of value for the Washington Post shareholders. And it was this spreading that Warren Buffett and Charlie Munger, if you read the shareholder…
Criticizing Efficient Market Theory and its Impact on Decision Making Efficient market theory has spread through academic institutions and business schools globally, but Warren Buffet and Charlie Munger criticize this theory. They argue that adopting the hard form of efficient market theory leads to flawed conclusions and illogical behavior, such as viewing share buybacks as foolish. An example is given of a partner at McKinsey who adopted this theory and became a consultant for the Washington Post, leading to undervaluation of the company's stock. This story highlights the negative impact of blindly accepting the efficient market theory on decision making and business strategies. Transcript: David Senra It was this spreading that Warren Buffett and Charlie Munger, if you read the shareholder letters, you hear them talk, they rail against this thing that got spread through academic Institutions and the business schools all over the world. It's efficient market theory. And so his point was that if you adopted the hard form of efficient market theory, then you logically derived. He's saying you got a bad idea in your head. And then if you believe that bad idea to be true, then it's logical what comes next. So his point is like, we're trying to remove that bad idea. So you don't do, you don't think it's true and then logically keep adjusting your behavior based on that false conclusion. So he's like, listen, if you believed, if you adopted the hard form of efficient market…
The Economic Benefit of Multidisciplinary Education and Training The Washington Post stock was undervalued, but the advice given due to prior education was detrimental. Warren Buffett's advice to buy back stock enriched the shareholders by over a billion dollars. The story illustrates the economic benefit of learning and understanding such concepts. Another story emphasizes the need for multidisciplinary education and how it can improve problem-solving in business opportunities. Transcript: David Senra The Washington Post stock was selling at a fifth of what an orangutan could figure out was the plain value per share by just counting up the values and dividing. But he so believed what he had been taught in graduate school that he advised the Washington Post, who was paying him for this advice, this is crazy, that it shouldn't buy its own stock. Well, fortunately, they put Warren Buffett on the board and he convinced them to buy back more than half of the outstanding stock, which enriched the remaining shareholders by much More than a billion dollars. And that's one of the great things about what you and I are doing. This isn't, yeah, it's fun learning these things. I'm obsessed with these stories. You probably are too. But there is real economic benefit to doing this. It's unbelievable. It can be fun and enrich yourself and your loved ones and your partners and your friends. Another story that I love that Charlie has is about something a Harvard Business School professor…
The Value of Multidisciplinary Thinking in Business Problem Solving The insight emphasizes the importance of multidisciplinary thinking in solving business problems, as illustrated by a test given by a Harvard Business School professor. The test involved two unworldly old ladies who inherited a New England shoe factory facing serious business issues. The students were asked to provide written advice to the old ladies, and only one student received a top grade for a winning short response. The test demonstrated the benefit of mastering big ideas from different domains in approaching business opportunities. Transcript: David Senra And so you're only going to use business stuff you learn in business school to solve business problems. He's like, then you're going to lose to people that are more multidisciplinary. And this is a great illustration of how mastering the big ideas and other domains can actually benefit way you think about these business opportunities. So this professor from Harvard Business School, this happened a couple decades before he's telling a story, gave a test involving two unworldly, that's really important, there's Two words I want you to remember here. This professor gave a test involving two unworldly old ladies who had just inherited a New England shoe factory that made shoes and was beset with serious business problems that were Described in great detail on this test. Okay, the two words in those sentences, in that first sentence, it's really…
The Winning Answer Relied on Fundamental Concepts from Psychology and Economics The winning answer in a business school competition was based on fundamental concepts like agency costs and marginal utility from psychology and economics, rather than the most recent business school teachings. Charlie emphasizes the moral duty of acquiring wisdom and passing it on, quoting the founder of Polaroid and referencing Confucius' teachings on the value transfer from one generation to the next. Transcript: David Senra Advantage. That is the end of the answer. This is Charlie describing why that was right. Thus, the winning answer relied not on what the students had most recently been taught in business school, but instead on more fundamental concepts like agency costs and marginal Utility lifted from undergraduate psychology and economics. One of my favorite quotes I've ever heard comes from the founder of Polaroid, Steve Jobs Hero, and the patron saint of Founders Podcast, which is our beloved Edwin Land. And he said that optimism is a moral duty. And Charlie gave this commencement address at USC back in 2007, I think. Full talk. It's like almost 40 minutes long. It's on YouTube. Obviously, the edited transcript is in the book as well. And Charlie's going to add something to Edmund Land in the sense of what else is a moral duty. And he believes that the acquisition of wisdom is a moral duty. And then once you acquire it, you obviously pass it on. And so he starts to talk like, why am…
The Duty of Acquiring and Passing on Wisdom Acquisition of wisdom is considered a moral duty by Charlie, who believes that once acquired, it should always be passed on to the next generation. He emphasizes the importance of appreciating the sacrifices, wisdom, and values passed from one generation to the next. Charlie emphasizes the idea that being deserving of what you want is the safest way to achieve it, whether in personal life or in business. He also stresses the significance of being a learning machine, stating that the acquisition of wisdom is not just for personal advancement but as a moral duty, requiring a commitment to lifelong learning for success. Transcript: David Senra Charlie's going to add something to Edmund Land in the sense of what else is a moral duty. And he believes that the acquisition of wisdom is a moral duty. And then once you acquire it, you obviously pass it on. And so he starts to talk like, why am I this old man up here lecturing you or trying to tell you something on the day of your graduation? And he says the sacrifices and the wisdom and the value transfer that come from one generation to the next should always be appreciated. He's constantly quoting and crediting Confucius with teaching him that because it was a very central tenet to Confucius's teachings. So there's a bunch of ideas in this talk that he wants to pass on to the next generation. I just want to pull a couple of them out. First is this idea that he learned when he was really…
The Importance of Ethos and Continuous Learning in Business Success In business, it is crucial to have an ethos of delivering what you would buy yourself and being a continuous learning machine. Acquiring wisdom is seen as a moral duty, and it is emphasized that without lifetime learning, one cannot expect to succeed. The example of Warren Buffett is used to highlight the significance of continuous learning, where it is noted that he spends a considerable amount of time reading and engaging in discussions with knowledgeable individuals. Transcript: David Senra He says the same thing in business. You want to deliver to the world what you would buy if you were on the other end. By and large, the people who have this ethos rise in life. The other people who rise in life are learning machines. So that's where he goes into the acquisition of wisdom is a moral duty. It's not just something you do to advance in life. It requires that you're hooked on lifetime learning. Without lifetime learning, you people are not going to do very well. You're not going to get very far in life based on what you already know. And he uses Warren Buffett as an example. Like, listen, Berkshire put up the greatest long-term investment record in the history of civilization, right? The skill that got Berkshire through one decade would not have survised to get it through the next decade with comparable levels of achievement. Warren Buffett had to be a continuous learning machine. And the people that are…
The Importance of Intense Interest and Trust in Career Success Identifying intense interests and pursuing a career related to them is essential for excelling in a field. Working with people whom you like, admire, and trust, especially in the early stages of your career, is crucial. Trust is stated to be one of the greatest economic forces and building a seamless web of deserved trust is crucial for personal and professional success. Transcript: David Senra One of my favorite things, the way I think about Charlie, what he taught me, is that, ask yourself, what are you intensely interested in? And then just do that for a living. Another thing that I've found is that intense interest in any subject is indispensable if you're going to excel at it. You need to maneuver yourself into doing something in which you have an intense interest. And you want to combine that with working only, working only with people that you like, admire, and trust, people that you want to be like, that you trust, that you admire. Do not, he says, do not, just quit. Quit your job. Maneuver yourself, especially in the beginning of your career. Try to work underneath. Now, he's talking about partners, but also this applies to career advice. Try to work underneath people that you actually admire and trust and you want to be like. Hopefully, your partners are like that too. And if they are and you have this trust, it just, again, what did he say that was such a surprising statement? Trust is one of the…
Maximizing a Seamless Web of Deserved Trust and Embracing Bad News The key to success is building a web of deserved trust through reliable people. Embracing bad news is crucial for leaders, as the 'Persian messenger syndrome' often leads successful leaders to dislike hearing bad news. Instead, they should encourage the open communication of bad news, as observed at Berkshire, where it is believed that the good news takes care of itself when the bad news is addressed. This syndrome, rooted in human nature, dates back to ancient Persia and is still prevalent in modern life. Transcript: David Senra Not much fancy procedure, just totally reliable people correctly trusting one another. In your own life, what you want to maximize is a seamless web of deserved trust. Charlie also has this great story that I think actually embedded in the story is really great advice. And he calls the story the Persian messenger syndrome. And it's very common. He's observed it multiple times that leaders of companies, as they get more successful, they tend to dislike hearing bad news. And you should actually do the opposite. And he talks about at Berkshire that, hey, tell us the bad news because the good news takes care of itself. And this is, again, a well-known like psychological tendency that you see in human nature throughout history. The Persian messenger syndrome, ancient Persians actually killed some messengers whose sole fault was that they brought home truthful bad news, like they just…
The Value of Welcoming Bad News and Seeking Ground Truth The insight is to counteract the 'cocoon of unreality' by welcoming bad news and seeking ground truth. At Berkshire, there is a habit of promptly sharing bad news, as it is seen as more important than good news. This approach is similar to Jim Casey's method at UPS, where he would talk to delivery drivers to get a more accurate picture of the reality on the ground, which often differed from the more positive, less accurate reports from executives. The Persian messenger syndrome, where messengers bring more positive but less accurate news, can be avoided by actively seeking out and valuing accurate information. Transcript: David Senra And you're in a cocoon of unreality is what he called it, a cocoon of unreality. And so he says that Berkshire, the way they counteract this is they have a habit of welcoming bad news. There's a common injunction at Berkshire HQ, always tell us the bad news promptly. It is only the good news that can wait. I noticed when I got to this section, I thought of something that I learned when I was reading the biography of the founder of UPS, this guy named Jim Casey. I covered this book a long time ago, all the way back on episode 192. And Jim Casey noticed this as well. I was like, well, he's running the company. He's got all these executives, but these executives, the only people that have contact with them, they tend to give like a distortion of like a more favorable distortion of the…
The Power of Incentives in Shifting Employee Behavior Changing the payment structure from hourly to per shift resulted in employees completing tasks much faster and with fault-free rapid performance. This highlights the impact of incentives on employee behavior and performance. A similar case at Xerox showed how the sales commission structure led to pushing an inferior machine, demonstrating the powerful influence of incentives on decision-making and behavior. Transcript: David Senra And finally, somebody had the happy thought that it was foolish to pay the night shift by the hour when what the employer wanted was not maximize billable hours of employee servitude, But fault-free, rapid performance of a particular task. If they pay the employees per shift, this is what they decided to do. They wound up paying the employees per shift and told them that once that you can go home once all the planes were loaded. And so before this, they could never hit the successful completion of this task on time. And suddenly, because the incentive structure changed, hey, do the job, you can go home, you get just paid by the job, not by the hour. They wound up doing it way faster and this is the first time that they actually got fault free rapid performance of this particular task that was central to their business performance. This pops up again and again. He talks about the history of Xerox. One of the Xerox founders is a guy named Joe Wilson. He had a similar experience. He couldn't…
Importance of Ignoring the Example of Others When They Are Wrong The psychological tendency of following others' examples is observable in industries, leading to the spread of both good and bad ideas. Using the oil industry as an example, the speaker highlights the negative outcomes of companies blindly following trends. The key lesson emphasized is the importance of learning to ignore examples from others when they are wrong, as it is a valuable skill in self-improvement. An anecdote about a little boy in Texas vividly illustrates this point, emphasizing the need to think independently and not blindly follow the crowd. Transcript: David Senra Line. They are acting like teenagers, just following anybody around them. And he talks about that this psychological tendency is very observable and you see it usually start in like an industry. If one idea starts with one company industry, whether it's a good idea or bad idea, it'll be spread to other industries. So use an example in the oil industry. If one oil company foolishly buys a mind, other oil companies often quickly join in buying minds. These oil company buying fads actually bloomed with terrible results. And he does a great job distilling down his main point here. If only one lesson is to be chosen from a package of lessons involving social proof tendency and used in self-improvement, my favorite would be as follows. Learn how to ignore the example from others when they are wrong because few skills are more worth having.…
Importance of Ignoring Wrong Examples and Consistent Practice One important lesson is to learn how to ignore the examples from others when they are wrong, as few skills are more worth having. This is illustrated by an anecdote about a little boy in Texas who corrected his teacher's understanding of sheep. Additionally, the importance of consistent practice is highlighted by a famous pianist, who noticed performance deterioration after just one day of not practicing, and the audience noticed it after a week's gap in practice. Transcript: David Senra Oil company buying fads actually bloomed with terrible results. And he does a great job distilling down his main point here. If only one lesson is to be chosen from a package of lessons involving social proof tendency and used in self-improvement, my favorite would be as follows. Learn how to ignore the example from others when they are wrong because few skills are more worth having. Learn how to ignore the examples from others when they are wrong because few skills are more worth having. He's got a great anecdote about this. This is how I really have remembered this story more than anything. And so Munger says, one of my favorite stories is about the little boy in Texas. The teacher asked the class if there are nine sheep in the pen and one jumps out, how many are left? And everybody got the answer right except the little boy who said, none of them are left. And the teacher said, you don't understand arithmetic. And he said,…
Hiring Strategy Insights from Established Founders Established founders such as Steve Jobs and David Ogilvy advocate for the strategy of finding great work and then hiring the people who produced it, which works best when a company is already established and well-known. This approach involves reaching out to potential hires who have created impressive work and engaging them in conversation, sometimes without explicitly offering a job. By following this strategy, companies can potentially attract talented individuals who are already producing high-quality work. Transcript: David Senra Start searching all my notes. And so that's what I did here. And so there's a bunch of, you know, I don't have, I may have like 10 or 15 different founders talking about hiring. The first idea is the most obvious, but I think probably works best when you're already established. So Steve Jobs is talking about, hey, you know, the great way to hire is just find great work and find the people that did that and then try to hire them. When you're Steve Jobs, that's a lot easier, right? Than if you're just somebody that doesn't have reputation, maybe you don't have resources, maybe your company's rather new or not as well known. David Ogilvie, I just did Confessions of an Advertising Man a couple episodes ago, I think 306 or something like that, 307. And he did the same thing. But he's David Ogilvie at that point. So he would find, he'd go through magazines, find great advertising, great copywriting,…
Priority of Social Skills in Hiring and Proactive Talent Acquisition Hiring based on social skills is prioritized over intelligence, drive, and hard work, as emphasized in Rockefeller's approach. He valued the ability to deal with people as a crucial commodity. Additionally, hiring talented individuals proactively, regardless of current need, was preferred over filling specific job openings, as demonstrated by Rockefeller's practice. Transcript: David Senra Usually you can do this. I actually have a friend. I can't say who it is. He's doing this right now, actually. I have a friend that's really good at doing this. He's finding people that do great stuff on the internet and then just cold, cold DMing them and then getting, convincing them to work on things. And that usually works, especially with people like younger people early in their career. There's a bunch of different ways to think about this and a bunch of different ways to prioritize. So the first thing that came to mind that I found surprising is you read any biography on Rockefeller. And he had a couple ideas where he felt the optimization, you know, table stakes, that you're intelligent and you're driven and you're hardworking, right? We don't even have like if you're listening to this, you already know that. But he prioritized hiring people with social skills. And so this is what he said. The ability to deal with people is as purchasable a commodity as sugar or coffee. And I pay more for that ability than any…
Hiring talented people proactively and without defined roles The insight emphasizes the importance of hiring talented people proactively, without waiting for specific job openings. It reflects the approach of Rockefeller, who hired talented individuals as he found them, regardless of immediate need. This proactive hiring strategy allowed him to assemble a strong executive team and grow his company. Additionally, the insight highlights the significance of effectively interviewing and hiring individuals like Vannevar Bush, who played a key role in connecting scientific field, private enterprise, and government during critical historical periods. Transcript: David Senra Than any other under the sun. There's the second part to this though. And this also works well if you have access to more resources. Rockefeller would hire people as he found, as he found talented people, not as he needed them. It's not like, okay, Standard Oil has six open spots. Let's go find six candidates, right? He'd come across what he considered a talented person. He didn't even matter if he didn't know what they were going to do. He's like, I'm just going to stack his team. And if you really think about his partners at Standard Oil, he essentially built a company, executive team of founders of because he was buying up all their company. So it's very rare, but there's a line from Titan. I want to read to you taking for granted the growth of his empire. He hired talented people as found, not as needed.…
Unorthodox Job Interview Techniques in Hiring Creative People Unorthodox job interview techniques like posing technical problems and asking about reading habits have been used by successful entrepreneurs like Nolan Bushnell and the founder of AMRAD to hire creative individuals. The founder of AMRAD hired a physicist based on his ability to solve a technical problem, while Nolan Bushnell valued candidates' enthusiasm for reading over specific book preferences in order to build a foundation of creative people in his companies. Transcript: David Senra Over and over again. I read his fantastic autobiography called Pieces of the Action, and I came across this weird highlight. And so this is his brilliant and unusual job interview process. And so he's talking about this organization he's running called AMRAD. At AMRAD, I hired a young physicist from Texas named C.G. Smith. The way I hired him is interesting. An interview of that sort is always likely to be on an artificial basis and somewhat embarrassing. So I discussed with him a technical point on which I was then genuinely puzzled. The next day, he came in with a neat solution, and I hired him at once. Here's another idea. This is from Nolan Bushnell. Nolan Bushnell is the founder of Atari, founder of Chuck E. Cheese and Steve Jobs' mentor. He hired Steve Jobs when Steve Jobs was like 19 at Atari. He would ask people their reading habits in interviews. This is why. One of the best ways his whole thing was he wanted to build…
Importance of Reading Habits in Identifying Creative People Nolan Bushnell, the founder of Atari and Steve Jobs' mentor, believed in hiring creative people for his companies. He used to ask about candidates' reading habits in interviews to identify creative individuals, as he believed that creative and passionate people are enthusiastic about reading. He valued curiosity and passion in people, and found that those who are apathetic and indifferent tend not to be readers. He emphasized that it's not about which books people read, but the simple fact that they read at all. He shared an anecdote about a woman in her late 20s who had read every book he had read, and even the ones he hadn't read, demonstrating her extensive reading habits. Transcript: David Senra In with a neat solution, and I hired him at once. Here's another idea. This is from Nolan Bushnell. Nolan Bushnell is the founder of Atari, founder of Chuck E. Cheese and Steve Jobs' mentor. He hired Steve Jobs when Steve Jobs was like 19 at Atari. He would ask people their reading habits in interviews. This is why. One of the best ways his whole thing was he wanted to build all of his companies laid on a foundation of creative people. So that's what he's looking for. He's like, I need creative people. One of the best ways to find creative people is to ask a simple question. What books do you like? I've never met a creative person in my life that didn't respond with enthusiasm to a question about reading habits.…
The Importance of Reading Habits in Identifying Creative and Talented Individuals Reading habits can be a powerful indicator of creativity, curiosity, and passion in individuals. Creative people often respond with enthusiasm when asked about their reading habits. The specific genre of books people read is not as important as the fact that they read at all. Curious and passionate individuals tend to be avid readers, while apathetic and indifferent individuals are less inclined to read. This correlation between reading habits and characteristics like curiosity and passion was demonstrated in an anecdote where a job candidate's extensive reading impressed the interviewer enough to secure her a position in international marketing, which required a multifaceted approach. The interviewer attributed the candidate's extensive reading to having a 'brain with a lot of moving parts', indicating the link between reading habits and a multifaceted, problem-solving mindset. Transcript: David Senra People. One of the best ways to find creative people is to ask a simple question. What books do you like? I've never met a creative person in my life that didn't respond with enthusiasm to a question about reading habits. Actually, which books people read is not as important as the simple fact that they read it all. I've known many talented engineers who hated science fiction but loved, say, books on birdwatching. A blatant but often accurate generalization. People who are curious and…
Insights on importance of studying and organizing thoughts Studying and organizing thoughts is crucial for leaders as it helps in understanding various perspectives, retaining knowledge, and learning from the experiences and wisdom of notable figures such as Steve Jobs, Rockefeller, Bush, and Warren Buffett. These leaders emphasize the significance of finding people who are better than oneself for hiring, which can be challenging as the company grows. Steve Jobs notes the rarity of assembling an entire team of top performers in a large company. Transcript: David Senra Marketing, which was having problems. This is why. This is why I'm reading this whole section to you. A job with a lot of moving parts benefits from a brain that has a lot of moving parts. It wouldn't be possible to have read that many books without such a brain. So do you see what I mean? Like we start with Steve Jobs saying, this is the most important thing that your role as the leader of the company and the founders do. Right. And you are, and it's so important to study. And this is why I'm glad this, this question exists and why I'm glad that I've, I took the time and I had like the foresight to like, Hey, I should really organize my thoughts and notes. Cause there's no way I would have remembered all this without being, being able to search my read wise. Right. But you have Rockefeller saying, this is what's important to me. You have Bush saying, this is how I hire. Now you have Nolan Bush now saying,…
Prioritizing Quality Over Speed in Hiring Companies should prioritize hiring top talent, even if it means taking longer to recruit. The quality of hires should be so high that even existing employees wouldn't be hired again. PayPal's focus on speed led to rapid growth, but they prioritized quality in hiring, ensuring that hiring A players was always the top priority to maintain overall excellence in the company. Transcript: David Senra Overall talent pool is always improving. And they talk about this idea on Amazon where the future hires that we do should be so good that if you had applied for the job you already have at Amazon, you wouldn't get in. That's a very interesting idea. Take your time with recruiting. Take your time with hiring. There's this great book on the history of PayPal. It's written, actually, I've recently become friends with the author. His name is Jimmy Soni. And this is in his book. The most fascinating thing that I found was that PayPal prioritized speed. So from the time they're founded to the time they sell to eBay, like four years. Jimmy spent more time researching the book than four. He spent six years researching the book. I always tease him because like you took longer on a book than they took to start and sell their company. It just speaks to like the quality he's trying to do. But as a byproduct of that, like obviously they move fast, but they prioritize speed over everything else except in one area, recruiting. Max Ludgeon kept the bar for…
Hiring Based on Self-Confidence Hiring based on self-confidence can have a significant impact on a company, as demonstrated in the case of Larry Ellison. Insisting on hiring only the most confident individuals, as opposed to the smartest, can lead to recruiting the most arrogant candidates. This approach, although unconventional, can provide insight into the importance of self-confidence in hiring decisions. Transcript: David Senra Down. Let's read that again. A players hire A players, B players hire C players, so the first B player you hire takes the whole company down. Additionally, the team, the company leaders mandated that all prospects, here's another idea for you, all prospects must meet every single member of the team. Now, the next one is the most bizarre. It makes sense if you study, I did this three-part on Larry Ellison, three-part series on Larry Ellison. I should read those books again because the podcast is like 50 times bigger than when I publish those episodes. And he's just crazy. So he would hire based on the self-confidence level of the candidate. Listen to this. I have tears in my eyes. I don't know why I'm laughing. Okay. This is just so – because this is – you read about Larry Ellison and he's one of these people it's like really easy to interface with because you just, you just know exactly who he is and What's important to him. That's why I think it's so funny. Ellison insisted that his recruiters hire only the finest and cockiest new college…
The Importance of Self-Discovery in Entrepreneurship Self-discovery is essential for entrepreneurs to determine their life's mission and the type of founder they are. The personality of a founder largely shapes the culture of their company, as seen in the case of Steve Jobs and Apple. Hiring the right people who align with the founder's vision and values is crucial for the success of a company, as demonstrated by Ellison at Oracle and Sharp at Four Seasons. Additionally, learning from biographies and the ideas of predecessors is a common trait among history's greatest founders. Transcript: David Senra Smartest person you know? And if they said yes, they would hire them. If they said no, they would say who is, and they would go hire that guy instead. I don't know if you got the smartest people that way, but you definitely got the most arrogant. Ellicent, and this is why, the personality of the founder is largely the culture of the company. Apple is Steve Jobs. Apple is just Steve Jobs with 10,000 lives, right? I was just texting a founder friend of mine. He listens to the podcast. I actually met him through the podcast. And he's going through this like process of self-discovery. Like he's already started a bunch of companies that are really successful, but he's like, I think I'm more of this type of founder than the other type of founder. And that's good that he's doing that because hopefully his next mission is like his life's mission, you know? And you can't get to your…
Founder's mission and hiring strategy for success The founder's belief in aligning missions with personal identity shaped the company's culture and contributed to its success. Additionally, the founder of Four Seasons recognized the value of hiring the right people as a form of distribution for the hotel, inspired by reading biographies of successful individuals. By emulating the strategy of Cesar Ritz, who partnered with renowned chefs, he leveraged the power of association to attract more customers and increase activity at the hotel. Transcript: David Senra Doing that because hopefully his next mission is like his life's mission, you know? And you can't get to your life's mission unless you figured out who you are. Ellison knew who he was. Ellison's swaggering, combative style became a part of the company's identity. This arrogant culture had a lot to do with Oracle's success. Here's another odd idea for you. Izzy Sharp, the founder of Four Seasons, actually could figure it out that in his business, which was hotels, right, that hiring the right person could actually be a form of distribution For his hotel. He gave me the idea because of what? What do we know? What do you and I know in our bones? That history's greatest founders all read biographies. They all read biographies of people that came before them and took ideas from them. Izzy Sharp is trying to build Four Seasons. What do you think he did? He picked up a biography of Cesar Ritz, the guy that Ritz Carlton is…
Problem-Solving in Recruiting and Retaining Talent Recruiting and retaining great talent can be challenging when personal circumstances prevent a candidate from relocating. Successful founders and leaders demonstrate problem-solving skills by creatively addressing such issues, as seen in the example of Elon Musk convincing a candidate to join SpaceX by arranging for the transfer of the candidate's spouse's job to the new location. Transcript: David Senra Is fascinating. That is a fascinating idea. Okay, here's the problem. You can identify great people, right? Maybe they even want to come work. Like you've identified them, you've sold them, hey, this is our mission, this is what we're doing. And yet humans have complicated lives. They have spouses. They have kids. They have a reason maybe they can't move across the country to work for you, even though they want to. So there's a problem-solving element that you see in these books on you have to solve. Like you've already identified the person. You've recruited them. They can't go for some other reason. Okay. Well, the great founders are not going to take no for an answer. I read in this book called Liftoff, which is about the first six years of SpaceX, this is what Elon Musk did. They had anticipated his friend's issue. Having convinced Musk they needed to bring this brilliant young engineer from Turkey on board, it became a matter of solving the problem. His wife had a job in San Francisco. She would need one in Los…
Empowering and Developing Talent in Corporate Leadership A successful business owner in the Pacific Northwest focused on training internal talent rather than hiring external managers, allowing them to work their way up from entry-level positions. This approach was praised by Charlie Monger for its smart financial incentive structure. Similarly, a business owner in Utah owned multiple companies and emphasized empowering and trusting top talent, as demonstrated in his recruitment of a coach for the Utah Jazz. Transcript: David Senra Chain of tire companies in the Pacific Northwest. I actually found out about him because Charlie Munger is like, hey, you should read this biography. He said it in, he didn't say it to me personally. He said it to, in like one of the Berkshire meetings that to study, Les Schwab had one of the smartest financial incentive structures of any company that Charlie Munger had come across. So this is what Les Schwab did. He did not want to hire from, he didn't want to hire other people from other companies because they might come with bad habits. He liked to train his own executives. And so he says, in our 34 years of business, we have never hired a manager from the outside. Every single one of our more than 250 managers and assistant managers started at the bottom changing tires. They have all earned their management job by working up. And then another thing, if you're going to hire the best of the best and A players, A players don't like to be…
Hiring and Empowering A-Players: Insights from Successful Leaders Successful leaders believe in promoting from within and empowering A-players to make their own decisions. They value hiring individuals who can run the business and make their own decisions, and they believe that founders should develop skills that cannot be hired for. This approach is exemplified by Larry Miller's recruitment of Jerry Sloan as coach of the Utah Jazz and Thomas Edison's perspective on the role of applied scientists. Transcript: David Senra From the outside. Every single one of our more than 250 managers and assistant managers started at the bottom changing tires. They have all earned their management job by working up. And then another thing, if you're going to hire the best of the best and A players, A players don't like to be micromanaged. And so this came in Larry Miller's autobiography called Driven. He owns like, he owned like 93 companies all throughout Utah, car dealerships, movie theaters, all kinds of crazy stuff. But he also owned the NBA team, Utah Jazz. And what was fascinating is he's trying to recruit Jerry Sloan as the coach at the point. And Jerry Sloan would only take the job on one condition. And I really like it. I really like this idea. If you hire me, let me run the team and business, right? That's what you're hiring me for. One of the best things we had ever done was hire Jerry Sloan as coach. At the time, he said, I'm only going to ask you for one thing. If I get…
Importance of Hiring People who Think like You in Business The insight from the snip is that developing skills that cannot be easily hired for in capitalism is important, as capitalism rewards things that are rare and valuable. Building a business should be an expression of one's personality and core values. The art of building a business involves making non-economic important decisions based on who you are as a person and your core values. It may involve choosing less profitable decisions that align with your beliefs and values. Therefore, hiring people who think as you do is vital for business success, as they will align with your thinking and values, and contribute to the business as a top priority. Transcript: David Senra So when I read that paragraph for the first time, the note I left myself was develop skills that you can't hire for. Capitalism rewards things that are both rare and valuable. Estee Lauder would give you advice that you need to hire people aligned with your thinking and values. Hire the best people. This is vital. Hire people who think as you do and treat them well. In our business, they are a top priority. So this idea is like, that seems kind of weird. Like hire people who think like you. There's obviously not one right way to build a business. I think that your business should be an expression of your personality and who you are as a person at the core. And so I think there is an art to the building of your business. And the reason I use the word…
The Importance of Differentiated Pitch and Passionate Hiring A company should emphasize its unique mission and vision in its pitch to potential recruits, rather than relying on generic or undifferentiated pitches. The key to hiring lies in looking for passion and intensity in candidates, as evidenced by the success of Steve Jobs and Elon Musk. Founders should prioritize hiring by personally interviewing candidates and assessing their fit with the company's vision. Transcript: David Senra Wrong with valuable stock, smart people, or pressing problems? Nothing. But every company makes these claims. So they won't help you stand out. General and undifferentiated pitches to join your company. Don't say anything about why a recruit should join your company instead of many others. So that idea of like your pitch, your actual, he would tell you, you shouldn't be building an undifferentiated commodity business. But even above and beyond that, like the mission that you're trying to engage everybody to join you in, that pitch, that sale you're trying to make to potential recruits should be differentiated. If that person's applying to five other jobs, they may not like your mission, they may not like your pitch, but they shouldn't be able to compare it to anything else. Another quote from Nolan Bushnell, hire for passion and intensity. That's what he would do. All right. That's what he did when he found Steve Jobs. If there was a single characteristic that separates Steve Jobs from the…
The Importance of Hiring the Right People and Building an Inspiring Work Environment Hiring the right people is crucial, as emphasized by Elon Musk's hands-on approach to interviewing the first three thousand employees at SpaceX. He valued brilliance, hard work, and a no-nonsense attitude in his team members. Musk believed in personally meeting with every new hire to ensure they were the right fit, even if it meant working late nights and weekends. He also stressed the importance of building an environment where employees feel surrounded by equally talented individuals, believe in the impact of their work, and are part of a strong, clear vision. Transcript: David Senra Blast. This was the primary reason we hired him. And one thing all these founders have in common is that they know how important hiring is. And when something's important, you do it yourself. This is again, Elon Musk on hiring. He interviewed the first 3000 employees at SpaceX. That's how important it was. One of Musk's most valuable skills was his ability to determine whether someone would fit his mold. His people had to be brilliant. They had to be hardworking and there could be no nonsense. There are a ton of phonies out there and not many who are the real deal, Musk said, of his approach to interviewing engineers. I can usually tell within 15 minutes and I can for sure tell within a few days of working with them. Musk made hiring a priority. He personally met with every single person the company hired…
Episode AI notes 1. Repetition is persuasive in influencing people's behavior. Charlie Munger often repeats the same ideas over decades, particularly his admiration for his grandfather. Charlie emphasizes the importance of being dependable and reliable for loved ones. 2. The key to the success of individuals like Warren Buffett and Charlie lies in their ability to wall off distractions and stay focused on their tasks. This focus allows them to deeply immerse themselves in their learning and work. 3. Charlie Munger emphasizes the importance of combining big ideas from multiple disciplines to gain a more accurate understanding of the world. He promotes self-education by developing a personal curriculum and highlights the rarity of good ideas, encouraging individuals to bet heavily when they find one. 4. Charlie Munger emphasizes the importance of multidisciplinary learning, encouraging individuals to explore diverse fields. He advocates for developing a personal curriculum and being self-taught. Munger believes in betting heavily on rare good ideas and stresses the significance of commitment and holding positions for a long period in investment decisions. 5. The speaker emphasizes the significance of understanding the psychological factors of human misjudgment and considers it one of the most important mental models. Additionally, the speaker highlights the importance of assessing and understanding competitive advantage in various aspects, emphasizing the virtue of…

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