Here’s a quick review on a book that had great impact on me.
The Basics
- Category: Investing, Personal Development
- Originally Published: 2005 (I read the 2023 edition)
- Pages: 351
Book Summary / What This Book Is About
This book is a compilation of eleven talks given by Berkshire Hathaway partner, investor, and thinker Charlie Munger.
The theme of this book, or at least the one that I took from it, was the importance of gaining worldly wisdom through continual learning. What Charlie means by “worldly wisdom” is simply understanding of how the world works. Understanding people, systems, economies, biology, etc.; that’s the world whose understanding we want to have.
Here are the main concepts that stick out at me the most.
One, Charlie calls us to take a multi-disciplinary approach to learning. That is, study things that are outside your area of expertise and by doing so, you will actually become better at your area of expertise because you will see how different areas of study are related and have a better understanding of how the world works (aka you will have gained “worldly wisdom.”).
Two: if you only stick to one subject, you will begin to suffer from man-with-hammer tendency. A man whose only tool is a hammer will see every problem as a nail that needs to get beat. My current area of expertise is insurance and for me to suffer from man-with-hammer tendency would be if I primarily analyzed life through the lens of insurance. “What’s the problem, Eli?” “A lack of insurance.” “What’s the solution?” “More insurance, obviously.”
Three: Charlie frequently talked about the lollapalooza effect which is that multiple factors contribute to big events and can’t be explained by a singular cause. I think this is more important than most people realize. We live in a world where single explanations seem to dominate. The world is complicated, and reducing events to single causes isn’t doing wisdom any favors. I want to bring back wisdom. How do you do that? Understand the Lollapalooza Effect.
Four: technology often does not benefit the buyer of the new-tech tool, such as the business owner who writes the check. Rather, it (maybe) benefits the consumer or the customer. This one hit me hard because I’m a business owner, much like the ones in the examples described by Charlie Munger, and I often must buy technology not because of how it benefits us in the business, but because I must or else I’ll go extinct. Technically, it benefits our customers, but they often complain too. Most often we buy a new tech tool because we’re finding ourselves overwhelmed with the problems that the last tech tool created. I appreciated Charlie’s take because it’s good to get noticed. I feel like if we really thought about it: are we better off with the our current tech stack than we were 10, 20, 30 years ago? Technology is often sold as giving us our time back, but is it? Are we busier now or in the past? Or we buy it because it is supposed to save us money, but does it? Are profits higher now than they were in the past?
Five: the best way to persuade someone is by appealing to their interest, not by reason, your interest, or many of the other reasons that people try to get you to do things for them. If you want influence someone, you need to start by asking yourself, what’s in it for them? In my world of insurance, this concept is obvious. We would never ask for the sale because we could really use it to help pay for our kid’s college, or because our manager needs us to close one more deal or we’re fired. No, you sell the insurance based on what it does for the client!
Main Takeaway / The First Thing I Think About When I Think About This Book
The lollapalooza effect and multi-disciplinary approach were the tandem main takeaways for me. The way I look at it, those two concepts fit together. The principle that there are multiple reasons for an outcome is also the reason why you would want to have a multidisciplinary approach to things. If you view things through one discipline or source you may arrive at an overly simplified reason as to what caused the problem which can cause you to resort to a single simple skill as the solution – which may work at times, but will likely make you wrong more often than not. So if you want to be right more often than not, gain worldly wisdom by taking a multi-disciplinary approach. How many areas in life can this be helpful?
Final Thoughts
Man, what a great book. It had a profound influence on me. I only wish I could remember more of it and recite it on command. I also wish that I had made it to Omaha to hear him speak at the Berkshire Hathaway annual meetings while he was still alive. Charlie died at the end of 2023, at the age of 99, only a month or so away from his 100th birthday. He was writing and speaking all the way up to the end. That’s the kind of productive life I want to have.
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