Charlie Munger: 100 Years of Wisdom Summed up in 20 Minutes

Common Sense: A Talk by Charlie Munger

In this talk, Charlie Munger discusses the importance of common sense and how to develop it. He shares his personal experiences and strategies for avoiding folly and solving problems.

The Importance of Common Sense

• Common sense is not common, but rather uncommon sense.

• A person with common sense can operate over a broad range of human territory without making big mistakes.

• Identifying folly and avoiding it is an important strategy for developing common sense.

Strategies for Developing Common Sense

• Learn from people who are better than you in their respective fields.

• Use inversion to solve problems by turning them around backwards.

• Collect big ideas from various disciplines and use them to solve problems in daily life.

• Collect inanities (i.e., trivial or silly things), which can be a fun and instructive activity.

Benefits of Developing Common Sense

• Collecting inanities can be a source of amusement and instruction throughout one's life.

The High Road in Life

Charlie Munger talks about taking the high road in life and how it leads to success. He also discusses the importance of synthesis when dealing with conflicting ideas.

Taking the High Road

• Taking the high road in life is less crowded and leads to success.

Synthesis

• When there are conflicting ideas, synthesis is demanded.

• Many people retreat into their orthodoxy instead of synthesizing new ideas.

• Charlie Munger looks up information or tries to figure things out if he can't find an answer. If he has a poor approximation, he uses that until it gets better.

Occam's Razor and Lollapalooza Results

Charlie Munger discusses Occam's Razor and its counter corollary as well as his supplement to this corollary called "Lollapalooza Results."

Occam's Razor

• Occam's Razor is a wonderful way to think. It argues that everything should be made as simple as possible but no more simple than necessary.

• Einstein may have developed a counter corollary to Occam's Razor which states that everything should be made as simple as possible but no more simple than necessary. This idea is very sound according to Charlie Munger.

Lollapalooza Results

• In messy social science, if you observe a lollapalooza result, look for a confluence of multiple causes operating in the same direction.

• Charlie Munger stumbled upon this idea when trying to explain how the Moonies were able to brainwash people. He found that they were using about six social psychology ideas in combination with Pavlovian stress.

• Charlie Munger's supplement to Einstein's corollary is looking for a confluence of causes when you see a lollapalooza result in social science. This has been enormously helpful to him because it helps him avoid twisting every problem into whatever little concept he started with.

Introduction

In this section, the speaker talks about his attitude towards social discourse and investing money. He also mentions his admiration for Benjamin Franklin and how he identifies with him.

Attitude Towards Social Discourse and Investing Money

• The speaker believes that having an ordinary social discourse is dangerous but it's a good way to invest money.

• He thinks that academia poorly teaches social science in America, making people more incompetent than they need to be.

Admiration for Benjamin Franklin

• The speaker idolizes Benjamin Franklin because he was a self-educated man who wandered over a vast amount of territory and was competent over the full range.

• Franklin's knowledge was psychological, as he was a great observer of human nature.

Implications of Poorly Taught Social Science

In this section, the speaker discusses the implications of poorly taught social science in America. He gives examples to illustrate how people lack competence in certain areas.

Example 1: Laws of Chemistry vs. Economics

• People at Caltech know that laws of chemistry do not apply practically everywhere except in hot plasma.

• However, when asked if they would raise or lower prices to sell more units, people who have taken economics courses struggle to answer.

• Only 1 in 50 people come up with the idea that luxury goods are an exception where raising prices can increase sales.

Example 2: Beckman Instruments Company

• Bill Ballhouse, CEO of Beckman Instruments Company recognized that their complex gizmo had lousy figures but was much better than other gizmos sold at higher prices.

• Ballhouse realized that if it failed, it imposed enormous costs on the owner and recognized that the low price sent the wrong signal.

• He raised the price enormously and sold way more units while profits went up dramatically.

Illegitimate Use of Increased Price to Increase Sales

In this section, the speaker talks about how raising prices and using the money to enhance sales is a big part of the capitalist condition. He gives examples of legitimate and illegitimate ways to do it.

Direct Bribery

• The main answer to the question of whether you raise or lower prices to sell more units is very simple: raise the price and use the money to bribe the other guy's purchasing agent.

• This is an obvious solution that many people fail to recognize.

Title Insurance, Load Mutual Funds, and Defense Contracting

• Direct bribery is used in title insurance, load mutual funds, and defense contracting.

• There are legitimate ways to increase sales through advertising or providing information but there's also a lot of illegitimate use of increased price.

Fixing the Social Sciences

In this section, Charlie Munger discusses the need to adopt necessary elements and practice using them over a considerable period of time in a considerable area of complexity. He then poses an interesting question about whether we can fix the social sciences so they aren't such total horse's asses.

Can We Fix the Social Sciences?

• Charlie believes that it is possible to fix the social sciences.

• However, he thinks it is unlikely to happen anytime soon due to academia's crazy reward system that allows people to be as silly as they are in many departments.

• There is a lot of extreme craziness in some of the liberal arts, and they select people who share their craziness.

• It is not necessary for academia to tolerate forever this lack of multidisciplinary competence.

The Liberal Arts Will Come Around

In this section, Charlie Munger talks about how he believes that eventually, the liberal arts will come around and embrace multidisciplinary competence.

The Liberal Arts Will Come Around

• Charlie believes that eventually, the liberal arts will come around and embrace multidisciplinary competence because they're smart.

• However, it will take a different incentive or even a different system for this change to occur.

• Caltech could potentially lead this change if they were able to find an unusual person to do it for them.

Extreme Craziness in Some Liberal Arts Departments

In this section, Charlie Munger shares his thoughts on extreme craziness in some liberal arts departments.

Extreme Craziness in Some Liberal Arts Departments

• There is a lot of extreme craziness in some liberal arts departments.

• They select people who share their craziness.

• Charlie shares a story about PJ O'Rourke, who said that the last communist dictator of Albania was only comfortable with two places in the world: the communist dictator of North Korea and the English department at Yale.

Lack of Multidisciplinary Competence

In this section, Charlie Munger discusses the lack of multidisciplinary competence in academia.

Lack of Multidisciplinary Competence

• It is not necessary for academia to tolerate forever this lack of multidisciplinary competence.

• It's not that hard to achieve if some aging untrained fat old man can do it.

• A different incentive or even a different system might be needed for change to occur.