Charlie Munger Changed My Life [8 Lessons]

Video

Summary

• I've applied Charlie Munger's inverted thinking process to grow my businesses by considering how to destroy a business first and then inverting that to make it thrive. This approach leads to different solutions than when trying to solve problems positively.
• Munger emphasized simplicity in business and investments, often dismissing complex deals by labeling them "too hard." I've adopted this approach, recognizing that simplicity scales better and reduces complications.
• An ideal business, as per Munger's philosophy, is unique, leverages high margins ("expensive and airy"), offers sticky products that customers repeatedly purchase, and is managed by an owner-like leader. This guides my investment and business decisions.
• Munger's approach to negotiation and relationships in business was not to need the last dollar, leaving some benefits for others. This builds reputations and relationships for long-term deal-making, which I find to be a valuable insight.
• The significance of a strong brand was evident in Munger and Buffett's investment in Apple. Their ability to charge premium prices indicated a strategic moat. This reinforced my focus on building strong branding in my businesses.
• Living within your means is the most fundamental financial advice I've assimilated from Munger. It's more important than complicated investment strategies, and it's essential for both personal finance and business operations.
• The importance of focusing on business fundamentals can't be overstated. In my experience, consistently addressing the basics leads to advanced business outcomes without the need for overly complex strategies.
• Learning from the mistakes of others, rather than making and repeating my own, has been instrumental. It allows me to benefit from collective wisdom and avoid unnecessary setbacks.
• Munger's life taught me the value of knowing when enough is enough and the importance of striving for independence and contentment over endless financial gain. This perspective shapes my optimization strategies and life choices.

How To Take Action

I would suggest starting with the simple idea of inverted thinking. Think about what could ruin your business, then do the opposite. If bad service could kill your business, focus on amazing customer experiences. Let everyone know about your great product, and earn those glowing reviews.

Keep things simple in your business. If something feels too complex, it might not be worth it. Complexity can become a nightmare as you grow, so when faced with a choice, pick the simpler path. Remember, simplicity scales.

Create a business similar to Munger's ideal: it should be unique, have big profit margins (“expensive and airy”), offer products your customers will keep buying (sticky), and be led by an owner-like boss. Focus on building a strong brand that people trust and will pay more for.

Negotiate so there's something in it for everyone. You don't need to get the last dollar in every deal. Being fair builds relationships and your reputation, which can be worth way more in the long run.

Live within your means – for real. If you always spend less than you earn, everything else gets easier. Forget complex trading strategies until you've got budgeting down.

And hey, keep it basic. Work on getting the fundamentals right in your business. That will take you further than any fancy tricks.

Learn from others' mistakes. You don't have to make them all yourself. It saves time and pain!

Finally, be like Charlie Munger and know what you're working for. Aim for independence and happiness, not just endless money-making. When your life is balanced and you're doing what you love, that's worth more than anything you could buy.

Quotes by Alex Hormozi

"Charlie said the the death of most people is liquor is the Three L's liquor leverage and ladies"

– Alex Hormozi

"We want to have businesses that are so wonderful that an idiot could run it"

– Alex Hormozi

"The next thing I learned from Charlie is his absolute obsession with Simplicity and his abhorrence of complexity"

– Alex Hormozi

"If you always spend less than you earn you will literally never need money"

– Alex Hormozi

"A wise person learns from the mistakes of others"

– Alex Hormozi

Full Transcript

Charlie Munger was one of my greatest heroes and he just recently passed away at the age of 99 uh month and a half away from turning a [Music] 100 he lived one of the most exceptional lives both in his personal success but I would say more so in how much he was willing to give back to others to help others along the way and he embodied all of the traits that he espoused in the many speeches and talks and shareholder meetings that he had over his 99y year career and I want to share some of my personal biggest takeaways from having Charlie Munger as a hero that don't even come close to the many gems of wisdom he shared but are some of the ones that I use on a regular basis so right off the bat the first and biggest one is his process of inverted thinking now he purportedly claims that he's not the first person to say this Einstein always said invert always invert and so Charlie wood was a huge history buff and loved living in the past and reading autobiographies of the smartest people who had ever walked the Earth and a lot of his thinking processes were formulated from seeing how those people thought and he passed it along to people like you and me and inverted thinking is simply taking a very hard problem so if you said hey I want to grow my business trying to grow a business is in some ways more complex and difficult than saying if I were to destroy my business in as few moves as possible what would I do and so then thinking well if I wanted to absolutely destroy my business I would do this first and then I would do this second and then I would do this third and then I would do this fourth and you create that list and all of a sudden what's interesting about it is that we have such a stronger ability to find threats and negatives in our environment then we do positives and so it's like if I were to ask you hey tell me 10 things you're grateful for you might be like um well I right now if I said tell me 10 things tell me about 10 problems you have in your life you could probably rattle off a 100 without breaking a sweat it's because we we're way more wired to find threats in the environment than find good things now using that engine we apply it to a business or personal setting or any complex problem and say okay I'm going to find all the ways I'm going to destroy my business and then you invert it and so if for me to destroy my business I would make sure that I would never let anyone know about my stuff okay well then what would I do to invert that I would let as many people as human possible know about my stuff if I wanted to destroy my business I would make sure that we had uh terrible product so that anybody who bought it would immediately think it was awful and tell all their friends that it sucked and leave bad reviews okay so what's the opposite of that I want to have something that's exceptional that as soon as people get it they love it they tell the friends how great it is and then they leave positive reviews right and you can go down the list and start thinking okay if I wanted this negative thing to happen what would I do you say that and then you invert it and for whatever reason you get completely different answers than you would trying to think of it in the positive and I have done this Einstein did it Munger did it they're way more successful than I am in many ways and so it is a process that I've used in so many different parts of my life Charlie said the the death of most people is liquor is the Three L's liquor leverage and ladies uh so and so I'm not saying uh you avoid liquor ladies and leverage but to some degree that's pretty much what they did uh they never took on excessive debt beyond what they could very reasonably cover they uh they didn't fander uh like obviously Warren had two wives he had his own setup but they weren't running through many many women um and Charlie was pretty adamant about this he said I've never seen somebody whose life was better by including drugs and alcohol on them next thing I got from Charlie is his absolute obsession with Simplicity and his abhorrence of complexity and things that seem too complicated Charlie's most common response to Deals was too hard and I think that that shows so much humility in how he'd approach he's one of the greatest investors of all time and still the majority of deals that came in and he was brilliant he would just say too hard and so to me it's not like obviously he could think about it harder and figure it out or he probably did already know what it was but it just showed his absolute commitment to Simplicity and I think Warren was uh quoted by saying we want to have businesses that are so wonderful that an idiot could run it and then have wonderful people run it instead and I think about that a lot with the businesses that we want to invest in and even the business models that we choose to pursue because often times you have strategic decisions you need to make in your business you're like okay well there's this slightly more complicated thing or this simple thing which one should I do well often times if it's simpler at scale it becomes complex and complexity at scale becomes impossible and so he takes the path of leas resistance when it comes to some of these decisions and so I guess Charlie gave me a lot of permission to just say too tough too hard for me and I think a lot of times letting yourself off saving all that mental energy of trying to make an impossible or complex task work rather than just saying I'm I'm opting out I'm going to I'm going to follow the easier path because at the end of the day we're the ones who choose how hard we want our lives to be and so he's like yeah well if it's my choice then I just choose the easy life if a hard way to make money easy way to make money and you could choose either one then why would you not choose the easy one the next thing I learned from a concept that I remember as unique expensive sticky air managed by an owner and so basically that was their breakdown of the perfect business so unique in that it has a brand or something unique about it that makes it difficult for other people to copy this is when they talk about a competitive mode and so brand being one of the most obvious ones that you can use unique expensive so expensive and air actually are paired together which is you want something that you can buy for a penny and sell for a dollar not buy for 90 cents and sell for a dollar right you want to have a lot of margin in whatever it is that you sell so that you can make more gross profit so that you can reinvest in the business Andor take distributions as an owner so the sticky part is getting something that people will buy again and again and again and again and so that's both recurring and also reoccurring and so if you look at their portfolio they have recurring businesses like insurance but they also have reoccurring businesses like Coca-Cola so you probably have bought Coca-Cola products knowingly or unknowingly and you probably have never thought that you're on a Coca-Cola subscription but every time you buy a power raid or you get a Sprite or you go to the gas station you grab a drink or you go to a restaurant and you ask for a Diet Coke when you're there all of those even though they are reoccurring to you they are recurring to the parent company because that restaurant or that gas station regularly buys the same amount of coke even though you're not the one who's quote on the subscription and the further up the distribution chain you go the more reliable those purchases become and so they both wanted unique things that no one else could copy that you could charge a lot of money for that don't cost a lot and so the air piece is also low capital expenditure like you don't have to keep pouring money back into the business in order to keep it competitive sticky is that you want people to love the product such that they want to keep buying it again and again and so those are the actual economics of the business the second part of the business was who's running it right they said they want a business that's so wonderful that an idiot couldn't ruin it and then hire a wonderful person to run it and so when they talk talk about wonderful people they' I've pieced these pieces together from the the talks that both of them have given but it's that they want someone who acts like an owner they want them to behave as though 100% of their net worth is in the business that they're invested in and they cannot sell a stock ever and so when you get someone to think in that in that way then you get someone who was going to make ultimately very long-term decisions that's the only thing they're actually indexing for by setting the incentives in that way you have to imagine all of your net worth is in the one stock that you're running of the company and you can never sell it now what do you do is decision- making and that's the right decision for the business and so I think one of the other things that Charlie's been so good at is he just knows what enough is enough he said I don't need the last dollar and I'm roughly paraphrasing there but basically he believed that deals should are either good and obvious or bad and obvious he said you shouldn't need an Excel sheet to figure out if you're going to make money it should be clear that you're going to make money on the deal and so he didn't need to Big borrow and steal and negotiate and chisel away the other person's slice of the pie to get a few more percentage points he said either I'm going to make a lot of money or I'm not and so he was willing to leave meat on the bone uh or some room for other people at the table so that one other people could make money but I think the long-term thing is that those people would want to do deals with him again because imagine if you have if you're always known as a super tough negotiator that doesn't leave anything for anybody else it's like you might get that one deal but no one's going to call you first you're always going to be called as a last resort rather than the first person they call and the amount of benefit you get from being everyone's first call rather than their last call probably can't be accounted for for entire lifetime compounded with that kind of reputation so another one this is a big one that I learned from Charlie was actually the importance of brand and so if you look at their most recent and if you think about them as investors in my opinion they only got better because your discernment as a decision maker just only improves with time as long as your mental faculties are there and Charlie has shown I mean till the day he died that he had all of his meal mental faculties he did the shareholder meeting was still just smart as a whip and there for 6 hours answering questions and and and putting people in their PL people don't seem to get that point have any idea why Charlie war and if people weren't so often wrong we wouldn't be so rich and if you look at their largest most recent investment it's been apple and so right now over half of at least the last time I checked half of Berkshire hathway is just Apple half huge why were they willing to buy a technology company when they normally didn't buy into technology overall it was because they saw the brand of apple as the big strategic Moe they saw that Apple could keep creating products and they had such a loyal audience of people who would just buy anything that they put out that they felt the likelihood that this company would be able to charge above average prices for average products for the extended for for the foreseeable future was high and so they were willing to bet a huge amount of money on that company and they did and they were right yet again and so seeing that the companies they buy really are Brands you know Ben Bridges Jewelers you look think about C's candies think about Dairy Queen you think about about Geico these are all companies that are wholly owned by Berkshire hathway and they were willing to buy those companies because they saw that they had a strategic moat and it wasn't because they had some novel business thing it was because of the brands that those companies had built and when I saw that them as investors and me as a business owner in different hats both saw the importance of brand to me was very confirming on my investment now in trying to build the brand that I am so this is a big one uh Charlie talked about living within your means a lot and it's such an obvious thing but if you had all the rules of money written in order you could follow just rule number one and never need money ever again which is if you always spend less than you earn you will literally never need money you wouldn't even need your savings because you would always spend less than you earn so you would never lack for money it's rule number 1 2 3 4 5 6 7 8 9 10 because like you can't even do investing where rule number one is don't lose money rule number two is don't forget rule number one well you couldn't do that unless you spent less than you earned and so like rule zero is spend less than you earn and what's crazy is that so many people are trying to find Advanced and complicated trading and investing tactics when they haven't even mastered balancing their budget and so he had such such an emphasis on doing the fundamentals that I think just his his repeated emphasis of that and just now paired with my own experience having grown relatively large companies I mean over the last three years we've added 100 million in Revenue organically from the companies we have in the portfolio so I feel relatively confident talking about it um we don't do anything complicated ever all we do is continually try and simplify the business and do the fundamentals everywhere all the time that's it because doing the fundamentals everywhere all the time is already as complicated as you can imagine doing anything beyond that doesn't even happen in reality and so if you do the fundamentals everywhere all the time you become an advanced business owner yeah I mean Warren and and and Charlie both talk about learning from the mistakes of others so the next point that I would say I grab from both him and Warren was learning from the mistakes of others you know they say uh a dumb person makes their own mistake and then repeats it a smart person learns from their mistakes a wise person learns from the mistakes of others and so you can live multiple lifetimes of lessons simply by allowing other people to share their lessons and their mistakes with you and then taking the lesson without the scar and so honestly that's why I make the I mean this channel is so that I can transfer as many of the scars rather the lessons that I got without the scars to everyone in mosy nation um but I feel like I've learned so many of those lessons from Uncle Charlie and Uncle Warren um that I've just been able to apply into a modern-day uh business environment uh just in my own life I think one of the one of the most understated things that I learned from Charlie was that despite being one of the best investors of all time I think the thing that made him one of the best isn't necessarily his financial return there are other investors who have achieved higher returns than he and waren have now obviously from absolute returns because they've been doing it for so long uh they have one of the biggest portfolios of all time but Charlie's net worth was only a few billion dollars and I say only as though it's not a lot of money of course it was but he could have made a lot more if he so chose to but he said over and over again that he never wanted to make money he just desperately wanted to be independent he said he just overshot and I think about that a lot when it comes to what things I'm optimizing for because it's so easy to get caught in the race of more of just always wanting more and never having enough and I think probably the single greatest thing that I would say I observe from Charlie was that he knew when enough was enough and that he' accomplished his objective which was to be free and independent and to just do whatever he wanted whenever he wanted with whomever he wanted and I think that in a lot of ways the way he lived was an ideal life he he he spent his time doing the thing that he was exceptional at with the person that he probably cared the most about in the world which is Warren his closest friend they never argued once in their entire relationship per my understanding and what better of a life could you ask for and so I think when I think about his life I see that as such a wonderful model to go after and and I will be eternally grateful for the contribution that he had unknowingly uh to my life