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In Towards Greatness


Warren Buffett and Charlie Munger on friendship

From 2002 Berkshire Hathaway’s Annual Meeting:

Question: Hello, Mr. Buffett and Mr. Munger. I am 12 years old. […] My question is not about money. It’s about friendship. How do you remain friends and business partners for so long? And what advice do you have for young people like me in selecting true friends and future business partners? Thank you.

Buffett: Well, when Charlie and I met in 1959 we were introduced by the Davis family, and they predicted that within 30 minutes we would either not be able to stand each other or we would get along terrifically.

And that was a fairly insightful analysis, actually, by the Davises, because you had two personalities that both had some tendencies toward dominance in certain situations.

But we hit it off. We have disagreed, but we have never had an argument that I can remember at all in 43 years.

And yet we both have strong opinions and they aren’t the same strong opinions at times.

But the truth is we’ve had an enormous amount of fun together, we continue to have an enormous amount of fun, and nothing will change that, basically.

It may have worked better because he’s in California and I’m in Omaha, I don’t know.

I’ll let Charlie comment on it.

Munger: Well, that’s a wonderful question you’ve asked, because Warren and I both know some very successful businessmen who have not one true friend on earth. And rightly so.

Buffett: That’s true.

Munger: And that is no way to live a life. And if by asking that question, you’re asking: how do I get the right friends? You are really onto the right question.

And when you get with the right friends, if you’ve worked hard at becoming the right sort of fellow, I think you’ll recognize what you have and then all you have to do is hang on.

Buffett: The real question is: what do you like in other people? I mean, what do you want from a friend?

And if you’ll think about it, there are certain qualities that you admire in other people, that you find likeable, and that cause you to want to be around certain people.

And then look at those qualities and say to yourself, “Which of these is it physically or mentally impossible for me to have?” And the answer will be none.

I mean, it’s only reasonable that if certain things that attract you to other people that, if you possess those, they will attract other people to you.

And secondarily, if you find certain things repulsive in other people — whether they brag or they’re dishonest or whatever it may be — if that turns you off, it’s going to turn other people off if you possess those qualities.

And those are choices. You know, very few of those things are in your DNA. They are choices.

And they are also habits. I mean, if you have habits that attract people early on, you’ll have them later on. And if you have habits that repel people, you’re not going to cure it when you’re 60 or 70.

Buffett: It’s not a complicated equation. And, as I remember, Benjamin Franklin did something like that one time. Didn’t he list the qualities he admired, and then just set out to acquire them?

Munger: Absolutely. He went at it the way you’ve gone after acquiring money.

Buffett: They’re not mutually exclusive.

Munger: No [they are not].


Their advice in a nutshell:

  1. Figure out the qualities that you like in other people. They are the kind of friends you want
  2. Be the person that has the very same qualities that you admire in other people. Why? Because having those qualities will likely attract like-minded and like-behaved people to you — the friends you are looking for!
  3. Once you have them, simply hang on

They also threw in the conversation some other interesting observations about themselves, and human nature in general:

Charlie Munger on finding one’s special advantages

In a recent interview (14 Dec 2020), the 96-year-old sage Charlie Munger talked about career decisions — including the circumstances around his own decisions, and the lessons that he has learned from the decisions he made.

If I were forced to compress his remarks into a paragraph, it would be along the lines of:

You ought to know that, first and foremost, most careers involve tough competition. If you seek to win big, you must get to know what your special advantages are. How? By following your interests and seeking direct feedback from hands-on experiences. The earlier, the better, because it may take decades. After you discover your advantages, go fish where they can be well applied. And, very importantly, keep an eye on the tailwinds — the wind might help you when it blows hard.

What follows is the transcript in verbatim of his comments and advice on career.

(I reordered the content and split it into topics to make it for easier reading.)

Enjoy!


On starting a carreer in law:

(It seems like he started with law because, at the time, he haven’t realized yet what he was particularly good at.)

Munger: My father had gone to the Harvard Law School, and my grandfather was a distinguished judge in Nebraska. So that was a natural course of activity for me.

I went into law because I didn’t want to be a surgeon, I didn’t want to be a doctor, I didn’t want to be a college professor. I finally got through them, there was only one, I just went down the family path. And it wasn’t the wisest decision I ever ran.

On switching from law to full-time investing — his major career change happened after he did investing on the side for a decade or so and came out fairly good at it:

Munger: There were things I didn’t like about law practice, but I had an army of children to support, and no family money or anything to start with. So I had to make my way in life for this army of children.

What happened was: my pitifully small earnings as a young man I kept underspending them, and I kept investing fairly boldly and fairly smartly. And at the end of my first 13 years of law practice I had more liquid investments than I made in all those years of law practice pre-tax.

I’d done that [my liquid investments] in my spare time with these little tiny sums. So it was natural for me, partly prompted by Warren Buffett’s success, to think I should just start working for myself instead of for other people. [If I had done that] in my spare time, I thought, “Well, what will happen if I do it full time?”


On how tailwinds help everyone — it doesn’t matter your special advantage (in fact, one may have none to count on), nor does it matter if you trying to win big. The wind blows for everyone:

Munger: If you go into a career that’s very tough, you’re not going to do very well. And if you go into one where you have special advantages and you like the work, you’re going to do pretty well.

Moderator: So finding your own path is something you really recommend to everyone?

Munger: No! What I recommend to everyone — what helps everyone — is to get into something that’s going up and it just carries you along without much talent or work. If you pick a really strong place like, say, Costco, and you go to work at it, and you really are reliable and nice, you’re going to do fine in life. You’ve got a big tailwind.

But in elite education nobody wants to go to work for Costco from Harvard or MIT or Stanford. And, of course, it’s the one place where it would where be the easiest to get ahead.

On how competitive professional life is (if you are looking to get far ahead):

Munger: Just think of how hard it is to get far ahead in life. Suppose you want to get ahead at Caltech [because] you like the academic life. If you want it, Caltech is very good at getting people tenure. If you’re very brilliant and work 80-90 hours a week for 9-10 years, you get tenure. That is not what I call an easy life. And competing with the Homer Joe Stewarts!

I chose to avoid it because I knew I wouldn’t win big at it. [Of course I could have been] a perfectly successful professor by ordinary standards, but I would not have been a star.


On what it means to have special advantages on something:

Munger: When I was at Caltech I took this course of Thermodynamics from Homer Joe Stewart — by the way, a lovely human being and gifted beyond compare. And one thing I learned from him was that no matter how hard I would try, I could never be as good at Thermodynamics as Homer Joe Stewart.

I think that is a very useful lesson, I knew what I could do and I couldn’t. I never even considered trying to compete with the Homer Joe Stewarts of the world in Thermodynamics.

On how hard it is to teach special advantages in poker or chess or investing for everyone. People seem to “embody” their special advantages, as if they had the perfect temperament for a given activity. Things are suppose to “click” and come “naturally”:

Munger: If you asked, “How could Caltech teach people how to win chess tournaments or poker tournaments?” You would find that some people at Caltech are very good at that, and others aren’t. And if you want to win at those things, you better bet on the people that are really very good at it, and not everybody is.

I don’t think Caltech can make great investors out of most people. I think great investors to some extent are like great chess players. They’re almost born to be investors.

Moderator: Because of the tolerance for risk? The patience? What are the traits?

Munger: Obviously you have to know a lot.

But partly it’s temperament, partly it’s deferred gratification. You got to be willing to wait. Good investing requires a weird combination of patience and aggression, and not many people have it.

It [also] requires a big amount of self-awareness — how much you know and how much you don’t know. You have to know the edge of your own competency, and a lot of brilliant people are no good at knowing the edge of their own competency. They think they’re way smarter than they are. Of course that’s dangerous and causes trouble.

So I think Caltech would have a hard time teaching everybody to be a great investor.

Moderator: Could it help people discover that they have that temperament? Or is this something that you mostly should try on your own?

Munger: I think you find out whether you got the qualities to win at poker by playing poker.

Moderator: That’s a very empirical approach, Charlie.

Munger: Yes, but I think it’s right.

Obviously it helps to know the basic math of Fermat and Pascal but everybody [in a sense] knows that stuff.

But having the temperament, where Fermat and Pascal is the most part of you, where it is your ear and nose, that’s a different kind of a person. And I think it’s hard to teach that.

Warren and I have talked about this. In the early days, we talked about our way of doing things, which [was] working so well. We found [that] some people got it, and that they instantly converted our way, and did very well. And some people, no matter how carefully we explained it, and no matter how successful they were, they could never adapt it. [People] either got it fast or they didn’t get it at all. That’s my experience.

So how are we supposed to find the special advantages that one might have? Charlie wasn’t asked this question, but he did offer a comment that sort of touches on that:

Munger: If you pursue any career with enough fanaticism, that’s very likely to work better than not having the fanaticism. So, if you look at Warren Buffett, he had this fanatic interest in investments from an early age. And he kept making small investments, even with his [tiny little] savings [at the time], and he finally learned how to be pretty good at it. And so if you want to succeed in investments, start early, try hard, and keep doing it. All success comes that way by and large.


My own understanding is that there are activities where feedback is faster and easier to get than others. Munger himself needed 13 years figure out that investing was the thing that he liked and was good at. To be fair, there have been hardships in his family life that have certainly delayed him. Nevertheless, if he were not born in the same town as Buffett, it could had taken him longer.

In fact, in some parallel universe, there may be a Charlie Munger who had never made the move and is still a lawyer. That Charlie is certainly less happy with work than the investor that inhabits our planet. But such is life.


Update — February 2021

In Daily Journal’s 2021 AGM, Charlie was asked a follow-up question about greatness in chess and investing:

Question: I enjoyed your Caltech interview and wanted you to elaborate and provide more insights on your point of great investors and great chess players. How are they similar or different? Have you seen the television show Queen’s Gambit on Netflix?

Munger: I have seen an episode or two of the Queen’s Gambit.

What I think is interesting about chess is, to some extent, you can’t learn it unless you have a certain natural gift. And even if you have a natural gift, you can’t be good at it unless you start playing at a very young age and get huge experience. So, it’s a very interesting competitive field.

I think people have the theory that any intelligent hardworking person can get to be a great investor. I think any intelligent person can get to be pretty good as an investor and avoid certain obvious traps. But I don’t think everybody can be a great investor or a great chess player.

I knew a man once, Henry Singleton, who was not a chess champion. But he could play chess blindfolded at just below the Grandmaster level. Henry was a genius. And there aren’t many people that can do that. And if you can’t do that, you’re not gonna win the great chess championships of the world, and you’re not gonna do as well in business as Henry Singleton did.

I think some of these things are very difficult and I think, by and large, it’s a mistake to hire investment management — [that is,] to hire armies of people to make conclusions [about investments]. You’re better off concentrating your decision power on one person the way the Li Lu partnership does and then choose the right person [of course].

I don’t think it’s easy for ordinary people to become great investors.


In other words, to Munger, true greatness is born and must be practiced from young ages.

Also, if you stumble upon an outstanding performer in some field, try not dilute his or her performance by blending it in a team with other less-than-absolutely-great performers.

Charlie Munger’s lessons about business ethics

In 12 Feb 2020, Charlie Munger chaired the Daily Journal Corporation’s Annual Shareholders Meeting (2-hour video stream, transcript).

Charlie’s remarks about business ethics have always been on point. Here are excerpts of his most recent commentary on the theme that have ressonated with me.

On avoiding businesses that make money by tricking people:

Munger: And it’s a very good thing to be doing. The world needs what we’re trying to do [at the Daily Journal Corporation]. And we’re trying to reward the right people. And really trying to serve the customers.

When it comes to customers, my ambition is to be as close to Costco as I can possibly be. I’ve never been associated with a company that works harder than Costco to make sure that customers are served well. I mean, I just love success that occurs that way. And I hate success where you deliberately trying to cheat people or sell them something that’s not good for them. Like gambling service in Las Vegas.

I do think there’s something to be said [on that]. You have the option for selling stuff that’s good for people instead of stuff that tricks them. And any rate, that’s our approach. I would choose that approach even if I made less money. In fact, I think you make more.

It reminds me of Warren Buffet’s favorite saying, he says, “You always take the high road.” he says, “It’s less crowded.” And that’s the system.

On being rewarded only after delivering value to customers:

Gerry Salzman: As we move forward, the financial results will depend upon the number of users in these various justice agencies. Yes, we do get implementation fees, but we can only take that into income when everything is delivered. And so we focus on trying to get to the point where everything is delivered. Then we can take it into income and reflected in the financial statements.

Munger: This is a very important thing that everybody in this room should understand. We have no simple way of just counting up hours and sending little invoices to the government. That’s what most consultants like to do, which is bill hours. But we don’t. We only get the right to collect money [after] the thing works. And we do that on purpose.

It reminds me of one of my favorite tales which really happened. When I was young, a lot of the earth moving was not done with bulldozers, it was done by teams of mules who were guided by contractors who ran these mule teams and their big plows.

And there was a contractor who had an enormous number of mules, and when the war came, the big builder called him and said, “I’ve got a cost plus contract with the government, I’m going to make you cost plus and I want your mules to start tomorrow morning on this big project.” Cost plus cost plus percentage of cost. And this contractor said, “Oh, no.” He says, “I can’t do that.” And he goes, “Why not?” He said, “Well”, he said, “I get business all these years because I’m so efficient.” And he said, “When I take it cost plus contract, even my mules seem to know it and they all go to hell.”

On avoiding excesses and misalignments:

Munger: I don’t like it when bad stuff comes in. I don’t like it when investment bankers talk about EBITDA, which I translate as “bullshit earnings”.

And I don’t like all this talk about J-curves and all these private sales of software companies from one venture capital to another, and markups. It looks like a daisy chain to me. So I think there’s a lot of wretched excess in it.

But it reflects an underlying sound development, which is this huge growth of software changing the technology of the world. But it’s going to have some unpleasant consequences because there’s so much wretched excess in it. I bet that almost everybody in this room has somebody in software in the family.

I’ve got two people in private equity in my family, and private equity has grown into the trillions. And, of course, it’s a very peculiar development because there’s a lot of promotion and a lot of crazy buying. It’s what I call “fee-driven buying”, much of it, where people are buying things to get the fees. I’m not used to that. I buy things because I think they’re going to work for me for the long pull, as the owner! I’m not thinking about scraping fees off along the way. So it’s a very different.

It makes me very nervous to have all this fee-driven buying. Wherever they’re successful, they just raise a fund that’s twice as big as the last one. Throw more money at more deals. And of course, with more money and more overhead, it’s an (inaudible) demand for fees.

Will the world provide wonderful results for all these people? The answer is no, it won’t. It’s gonna be a lot of tragedy.

On what wretched excess could lead to:

Munger: Finance by its nature, the temptations are too great and it goes to wretched excess. And of course, I don’t like it. I don’t think it’s good for the country.

I would argue that the wretched excess that led to the Great Depression, which led to the rise of Hitler. I think we pay a big price eventually for wretched excess and stupidity and greed and so forth. I’m all for staying in control. In other words, I’m all for behaving a lot more like Confucius.


Bonus — Charlie’s commencement address at USC Law School in 2007 is also pure gold in terms of life wisdom. After listening to it, check out this summary as well.

Nima Arkani-Hamed on the important skill of turning big ideas into sharp questions

Physicist Nima Arkani-Hamed delivered a series of lectures on “Research Skills” in 2009 as part of the Perimeter Scholars International (PSI) program at the Perimeter Institute for Theoretical Physics.

Here is Nima talking about the most important research skill of all:

It is a remarkable thing that some of the questions that people started thinking about 2000 years ago— The intervening 2000 years have brought us to a place where we can actually work on them. And it is a meaningful thing to work on them.

They have been sharpen to the point where you can work on them. This is one of the—

If I had to say: What is the real, overarching skill of research? [What is] the thing that you cannot be taught, but that has to be experienced. And that has to be gone through a number of times. [It is] this process of taking very big ideas and turning them into sharp questions that you can actually work on. That is the greatest skill of all.

And that’s something that I will try to get you some flavor of towards the latter part of the lectures.

The original videos, C09028 - 09/10 PSI - Research Skills, are hosted at PIRSA. Stiched parts have been uploaded to YouTube as well.

The full curriculum from 2009-2010 PSI is here. In fact, all lectures from every single year have been recorded and made available online for free. Isn’t it awesome?

V. I. Arnold on teaching mathematics

The mathematician V. I. Arnold delivered an interesting (and quite opinionated) speech in 1997 (archive).

Here are two excerpts with his views about how math has been taught:

In the middle of the twentieth century it was attempted to divide physics and mathematics. The consequences turned out to be catastrophic. Whole generations of mathematicians grew up without knowing half of their science and, of course, in total ignorance of any other sciences. They first began teaching their ugly scholastic pseudo-mathematics to their students, then to schoolchildren (forgetting Hardy’s warning that ugly mathematics has no permanent place under the Sun).

Attempts to create “pure” deductive-axiomatic mathematics have led to the rejection of the scheme used in physics (observation — model — investigation of the model — conclusions — testing by observations) and its substitution by the scheme: definition — theorem — proof. It is impossible to understand an unmotivated definition but this does not stop the criminal algebraists-axiomatisators. For example, they would readily define the product of natural numbers by means of the long multiplication rule. With this the commutativity of multiplication becomes difficult to prove but it is still possible to deduce it as a theorem from the axioms. It is then possible to force poor students to learn this theorem and its proof (with the aim of raising the standing of both the science and the persons teaching it). It is obvious that such definitions and such proofs can only harm the teaching and practical work.

It is only possible to understand the commutativity of multiplication by counting and re-counting soldiers by ranks and files or by calculating the area of a rectangle in the two ways. Any attempt to do without this interference by physics and reality into mathematics is sectarianism and isolationism which destroy the image of mathematics as a useful human activity in the eyes of all sensible people.

Kapil Hari Paranjape wrote a thoughtful response to Arnold (archive).

Let me also quote two insightful Hacker News comments:

@marcelluspye: I feel there needs to necessarily be a separation of the doing of mathematics and the teaching of mathematics in these kinds of matters. In the teaching of mathematics, especially in the more ‘abstract’ areas, there is not nearly enough driving of intuition, and the ‘problems’ students are given often are unrelated to the ‘problems’ the theory they are learning about was created to solve. Pushing things in the concrete direction is probably the right direction for pedagogy.

@tnecniv: Indeed. By far the best teachers I’ve had for math courses spent a good deal of time discussing the history of the topic and motivating its creation.

Daniel Gross on the creative process of Swedish House Mafia

Daniel Gross on twitter:

Video of Swedish House Mafia making one of the most successful songs of the last decade reminds me of how Apple designs —

A torrent of ideas plus very fast editorial decisions.

To which Luke Rocksalt responded:

You should watch their documentary “Leave the World Behind”. It shows them renting a super expensive house on the Gold Coast for a weekend to come up with their greatest hit, “Don’t You Worry Child”

And Cory Jarrel added:

Thanks for sharing this. Here’s the full video featuring 2010’s Ultra performance

Harj Taggar on the human motives in conversations

Harj Taggar writes about our motives while having “idea” conversations. Read his essay here.

My summary —

We may think that the goal of a conversation is getting closer to the truth. But in reality, human nature often “gets in the way”.

With family you may avoid going for the truth in order to protect the relationship. Something similar happens with a meek person — who agrees with everyone so they’ll be liked. Politicians also need to be liked, but they may be more skilled in adding some truism to the conversation (to try to sound profound).

Then there is the chronic debater, who tries to win the argument at all costs. “They care what you think about them, but their identity is wrapped up in seeming smart rather than being liked.”

Finally, there are people “who care only about figuring out if you believe the same things they do”. The worst variation of this is people who act as “You’re either with us, or against us”. But it could just be people who (strongly) prefer to be around others who think like them.

In a nutshell — besides seeking the truth, one should also accounts for the urge of being liked, sounding smart, winning, and good old tribalism.

Nabeel Qureshi on traits to cultivate

Nabeel Qureshi makes some interesting observations on what it takes to be “intelligent”:

I concluded that what we call ‘intelligence’ is as much about virtues such as honesty, integrity, and bravery, as it is about ‘raw intellect’.

Intelligent people simply aren’t willing to accept answers that they don’t understand — no matter how many other people try to convince them of it, or how many other people believe it, if they aren’t able to convince themselves of it, they won’t accept it.

Importantly, this is a ‘software’ trait & is independent of more ‘hardware’ traits such as processing speed, working memory, and other such things.

Moreover, I have noticed that these ‘hardware’ traits vary greatly in the smartest people I know – some are remarkably quick thinkers, calculators, readers, whereas others are ‘slow’. The software traits, though, they all have in common – and can, with effort, be learned.

This quality of “not stopping at an unsatisfactory answer” deserves some examination.

One component of it is energy: thinking hard takes effort, and it’s much easier to just stop at an answer that seems to make sense, than to pursue everything that you don’t quite get down an endless, and rapidly proliferating, series of rabbit holes.

It’s also so easy to think that you understand something, when you actually don’t. So even figuring out whether you understand something or not requires you to attack the thing from multiple angles and test your own understanding.

This requires a lot of intrinsic motivation, because it’s so hard; so most people simply don’t do it.

But it’s not just energy. You have to be able to motivate yourself to spend large quantities of energy on a problem, which means on some level that not understanding something — or having a bug in your thinking — bothers you a lot. You have the drive, the will to know.

Related to this is honesty, or integrity: a sort of compulsive unwillingness, or inability, to lie to yourself. Feynman said that the first rule of science is that you do not fool yourself, and you are the easiest person to fool. It is uniquely easy to lie to yourself because there is no external force keeping you honest; only you can run the constant loop of asking “do I really understand this?”.

(This is why writing is important. It’s harder to fool yourself that you understand something when you sit down to write about it and it comes out all disjointed and confused. Writing forces clarity.)

Another quality I have noticed in very intelligent people is being unafraid to look stupid.

Most people are not willing to do this – looking stupid takes courage, and sometimes it’s easier to just let things slide. It is striking how many situations I am in where I start asking basic questions, feel guilty for slowing the group down, and it turns out that nobody understood what was going on to begin with (often people message me privately saying that they’re relieved I asked), but I was the only one who actually spoke up and asked about it.

This is a habit. It’s easy to pick up. And it makes you smarter.

Michael Faraday was used to recreate “everything” from scratch

Nabeel Qureshi writes:

The physicist Michael Faraday believed nothing without being able to experimentally demonstrate it himself, no matter how tedious the demonstation.

Understanding something really deeply is connected to our physical intuition. A simple “words based” understanding can only go so far. Visualizing something, in three dimensions, can help you with a concrete “hook” that your brain can grasp onto and use as a model; understanding then has a physical context that it can “take place in”.

Faraday, again, had this quality in spades – the book makes it clear that this is partly because he was bad at mathematics and thus understood everything through the medium of experiments, and contrasts this with the French scientists (such as Ampere) who understood everything in a highly abstract way.

But Faraday’s physical intuition led him to some of the most crucial discoveries in all of science […]

Nabeel quotes the book “Faraday, Maxwell, and the Electromagnetic Field: How Two Men Revolutionized Physics”:

Simply hearing or reading of such things was never enough for Faraday. When assessing the work of others, he always had to repeat, and perhaps extend, their experiments. It became a lifelong habit—his way of establishing ownership over an idea.

Just as he did countless times later in other settings, he set out to demonstrate this new phenomenon to his own satisfaction. When he had saved enough money to buy the materials, he made a battery from seven copper halfpennies and seven discs cut from a sheet of zinc, interleaved with pieces of paper soaked in salt water. He fixed a copper wire to each end plate, dipped the other ends of the wires in a solution of Epsom salts (magnesium sulfate), and watched.