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I first came across poor Charlie's Almanac in my 20s when I was trying to learn everything I could about what made successful businesses tick I found it to be a refreshing rebuttal of conventional Financial wisdom delivered with unusual
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Simplicity and cander never before had I heard a venerated business person Express such trenchant insights about investing finance and the world more broadly and with such hootspa one can't help but read a line like without numerical fluency you were like a
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one-legged man in an ass kicking contest and come away not only chuckling but also a little bit wiser I had the privilege of meeting Charlie at his home in Los Angeles I was delighted to find that he is just as engaging and intellectually curious in person as he
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is on the page he also I discovered had considerably more stamina than I do more than 4 hours into our dinner I was ready for bed while Charlie showed no sign of flagging our conversation that night was wide ranging touching on everything from
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the economics of ski resorts to raising children to the evolution of the news industry witnessing Charlie's prodigious intellectual breath and multi-disciplinary mode of reasoning firsthand only reinforced my admiration both for the man himself and for this
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book poor Charlie's omnac is a testament to the power of thinking across disciplines it's not just a book about investing it's a guide to learning how to think for yourself and to understand the world around you his insatiable
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appetite for learning his uncanny ability to evaluate businesses using simple Frameworks that produce more reliable analysis than complex financial statements and his partnership with Warren Buffett have persisted for decades through boom times and bust
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although Charlie didn't invent the concept of compounding growth his success and that of Berkshire Hathaway is a testament to its existence the practical wisdom of poor Charlie omac this ODed to curiosity generosity and virtue will similarly compound as
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successive generations of entrepreneurial readers extend his lessons to their own circumstances that is my favorite sentence in this forward written by uh John cison the co-founder of stripe I'm going to read it again the practical wisdom of poor Charlie omac
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this Ode to curiosity generosity and virtue will similarly compound as successive generations of entrepreneurial readers extend his lessons to their own circumstances that is a line worth double underlining which I did I encourage you to read Charlie
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speeches and essays with an open Curious mind this is my second favorite line in this entire entire book but this section as well you will be rewarded with insights that stay with you for a lifetime as Charlie once said there is
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no better teacher than history in determining the future there are answers worth billions of dollars in a $30 history book the same might be said of poor Charlie's Almanac it is the ultimate value investment and that was an exer from the book I'm going to talk
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to you about today which is the brand new updated version coming out today of poor Charlie Zac the essential wit in wisdom of Charles tonger edited by Charlie's longtime friend Peter Kaufman and republished and Made Beautiful by
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stripe press so before I jump back into the book I just want to update you on this project that Charlie Monger collaborated with shrip press on uh he's they've been working on it for the last two years sadly as you know Charlie just
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passed away last week I'm going to leave the link down below but you have to check out the the new website that strip press made for this updated and Abridged version of P Charlie zc and for the first time ever first of all I'm going
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to heavily heavily try to convince you to order a book I think it's an indispensable reference for anybody trying to get ahead in life so you can order the hard copy book I think I paid like $22 for mine or something like that it's it's a no-brainer in my opinion but
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also for the very first time ever there's going to be a digital version and that version is going to be available for free there's also going to be they they recorded an interview with John Collison interviewing Charlie Monger the video of that of that
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interview is going to be available for free on their website and in addition to the video the audio of that interview is going to be published it's already available today by the time you listen to this on my friend Patrick runs andest
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like the best podcast which as you already know it's one of my favorite podcasts that audio of the conversation between John cson and Charlie Munger is available right now on the invest like the best podcast feed now I had Early Access to listen to that episode I'm on
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my fourth listen I took extensive notes I will reference them throughout our conversation today in addition to that my friend Tamara winter runs strip press and she actually gave me the very first copy of this book so I've had several
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weeks to go through and reread poor Charlie Almanac as you know as you probably know first time I read the book was all the way back in 2019 it was episode 90 of Founders and in the inter room I've reread my highlights from the book you know dozens of times I'm going
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to start with there's a forward uh written for the book by Warren Buffett and it is titled Buffett on monger and there's just a few uh there's just a few highlights from here a few of them made me laugh but then he just Warren gives
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us some uh great advice so he says from 1733 to 1758 Ben Franklin dispensed useful and Timeless advice through Poor Richard's Almanac among the virtues extolled were Thrift Duty hard work and simplicity subsequently two centuries went by which Ben's thoughts on these
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subjects were regarded as the last word then Charlie Munger stepped forth and then this is a paragraph that made me laugh Charlie consistently practiced what he preached and ohe how he preached Ben in his will created two small Phil
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IC funds that were designed to teach the magic of compound interest early on Charlie decided that this was a subject far too important to be taught through some POS humorous project instead he opted to become a living lesson in compounding a shre frivolous which he
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defined as any expenditures that might sap the power of His example and this is the part that made me laugh consequently the members of Charlie's Family learned the joys of extended bus trips while their wealthy friends imprisoned in
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private jets missed these enriching experiences I'd like to offer some advice on the choice of a business partner look first for someone both smarter and wiser than you are after locating him or her ask him not to flaunt his superiority so that you may
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enjoy a claim for the many accomplishments that sprang from his thoughts and advice seek a partner who will never second guess you nor sulk when you make expensive mistakes it is fascinating John does an excellent job
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in that interview with Charlie that I hope you listen to uh where they talk about this this is towards the end of the conversation he talks about like okay tell me about the disagreement you have and it's so remarkable how amicable
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and how they handled this and Charlie just was very adaptable and unbothered if they had different views on any subjects seek a partner who will never second guess you nor sulk when you make expensive mistakes look also for a generous Soul who will put up his own
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money finally join with someone who will constantly add to the fun as you travel a long road together and again that's the same thing Charlie said over and over again we just had so much fun Warren and I just had so much fun back
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to Warren puffett I set out in 1959 to follow this advice slavishly and there was only one partner who fit my bill of particulars in every way and that was Charlie so they were Partners up until they died that would up until Charlie died so that would be uh 64
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years by my math and so one of the great things about this book is 80% of it is Charlie in his own words it's probably the largest collection of just monger's own words out of any other book that I've ever found it definitely is the
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largest collection of that but what is also uh really valuable I think is in addition to the the forward written by Buffett who knew Charlie very well but it's really short there's this introduction by Peter Kaufman who was essentially like friends with Charlie
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for decades if I'm not mistaken and so he's just going to give us an overview about some of the ideas that he thinks are very important and I think it gives a great overview because 80% of the book is just transcripts edited transcripts
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of these talks these 11 talks that Charlie gave throughout his lifetime so this is going to give a great overview I would read this section before you don't have to read uh you don't have to read this book in Order really I think of it
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more as a reference in fact in the podcast that John Carson and Charlie did together they mention the fact that a bunch of people write into Charlie and say they reread the book every year I think that's a good idea but you could also just reread certain sections that
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speak to every year but this is the the overview so says the quotes talks and speeches presented here are rooted in the oldfashioned midwestern values from which Charlie has become known so these are some some things that Charlie held
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dear lifelong learning intellectual curiosity sobriety avoidance of envy and resentment reliability learning from the mistakes of others perseverance objectivity and willingness to test one's own beliefs and then what he says next I think really gets to why Charlie
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is one of the greatest teachers that has ever has ever lived he's he's taught and inspired millions and millions and millions of people interested in business investing and how to live a good life and it's the fact this reminds
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me of one of the greatest quotes that I've ever heard Steve Jobs uh from from Steve Jobs he says the Storyteller is the most powerful person in the world Charlie employs historical and business case studies to great effect he makes his points with subtl and texture often
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using a story likee context instead of abstract statements of theory he regales his audience with his humorous anecdotes and poignant Tales rather than with a blizzard of facts and figures people only remember they remember individual
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lines and they remember stories we don't remember tables of data he well knows and wisely exploits the traditional role of the Storyteller as a purveyor of complex and detailed information as a result his lessons hang together in a
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coherent lattice work of knowledge available for recall and use when needed that is such an important line and it echoes what I what I believe to be the most important sentence in the forward let me go back to that the practical wisdom of poor Charlie alic this ow to
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curiosity generosity and virtue will similarly compound as successive generations of entrepreneurial readers extend his lessons to their own circumstances okay I've read that that line three times hopefully that's the last time I read it but I really do
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think it's so important and again the the the important fact here is that you're going to remember stories and that's the that's when you're actually teaching somebody something because if they don't remember it they can't apply
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it when needed they're not going to use highly likely you're not going to need these ideas right now maybe not even today maybe not next week it could be years from now and Charlie put his ideas and lessons into these memorable stories
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that you couldn't recall when needed in fact this was very fascinating I was on the phone with a friend the other day and we were talking about some uh like unusual traits that a lot of that a lot of History's Greatest entrepreneurs share and I was like well I really do
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believe there's a positive correlation between the storytelling ability and their overall business per performance and if you go back and this is something that other people have noticed throughout time too in fact Don Valentine the founder of seoa he
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mentioned this and I want to read something uh a quote from him that was fascinating he says The Art of Storytelling is critically important most entrepreneurs can't tell a story learning to tell a story is incredibly important because that's how the money
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Works money flows as a function of stories okay so back to Charlie it is clear throughout these talks and speeches that Charlie places a premium on life decisions over investment decisions this is really important and there's actually something from Socrates
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that popped to my mind when I got to this section so Charlie places a premium of life decisions over investment decisions Charlie once said I wanted to be rich so I could be independent Independence is the end that wealth
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serves for Charlie not the other way around I think a lot of entrepreneurs uh get that wrong and they wind up having a a lot more misery in their life uh than if they didn't so when I got to this entire paragraph those are only that
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paragraph goes on longer but those are the the two lines I wanted to bring to your attention so there's a quote from the biography of Socrates that I read for episode 252 that was fascinating and it says education is the process whereby the ability to lead a good life is
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acquired it's important not to confuse the to because I really do believe that building a great business is in service of building a great life the mistake that is made that you see in a lot of these biographies is the fact that you
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have that inner drive right that you probably had since you were really young and yet you sacrifice everything in service to that one goal not realizing that a great business is just part of a great life but the whole point of building a great
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business is so you can have a great life too so I think Charlie would tell you that building a great business should be in service of building a great life and then there's a special note to end this section this is something I've talked
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about I think on all the other six podcasts I've made about Charlie Charlie's redundancy in expressions and examples is purposeful for the kind of deep fluency he Advocates he knows that rep repetition is the heart of instruction I think that speaks to the
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wisdom of picking up uh this book and rereading it or at least rereading sections every year that repetition is the heart of instruction me and you have talked about this over and over again repetition is persuasive is the maximum that I use for that it's it's becomes
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very very obvious if you study any of the great advertising agency Founders they talk about this over and over again they were in the business of figuring out what makes people buy products what makes what how you can influence other
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people and they say over and over again that repetition is pers Ive you see the same thing with Charlie Munger he'll repeat a lot of the same ideas in usually in different stories sometimes in the very same story throughout the talks even though the talks are given
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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 uh inspired not only
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Charlie's personal conduct but it's the role that he wanted to play for his uh kids and grandkids as well so I'm just going to read a few lines here cuz this really tells you like when you see who somebody admires you can kind of tell
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like what's important to them and I think Charlie would tell you that you should strive to be dependable and reliable for your tribe of loved ones so Charlie's grandfather was a respected federal judge this is during the Depression this is I'm only going to
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talk about this one paragraph but I think it's really important so Charlie's immediate family because of his grandfather was not as affected by the depression but some members of Charlie's extended family were and judge merer was such a prudent and prosperous person
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that he could actually help them this this is something they mentioned earlier that I did not understand so I I reread my I I went through read this book did all my highlights did all my notes then I reread the highlights and notes
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multiple times and I didn't not understand this when I when I got to this part but he says something later on that the higher your net worth the more you can be of service to other people it was very fascinating you're going to see that happen here uh with judge Monger so
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it says the this eror 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
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Tom so Charlie's uncle had R running this Bank he wind up loaning out a bunch of money uh there was a bunch of uncollectible notes and obviously a ton of banks failed during the Depression and so Grant he calls Tom calls Grandpa
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Monger 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
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and then judge Monger also was able to send his daughter's husband to pharmacy school and then helped him by a well-located pharmacy that had closed because of the depression the business prospered and secured the future of Charlie's ant Charlie learned that by
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supporting each other the mongers weather the worst economic collapse in the nation's history and again that line he learned that by supporting each other really that support came from a single formidable individual and you can
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clearly see the way that Charlie lived his life he was trying to emulate a lot of traits that he respected and admired in his grandfather and so this section gives us like this brief overview of Charlie's life like a basically like a
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biographical outline and something that Charlie repeats uh later in life he talks about you know no matter what life will have terrible unfair blows and you've got to be able to survive and not engage in self-pity and pick yourself back up and what he some of the things
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he's referencing is yes yeah businesses are going to have all kinds of unpredictable problems but there's a lot of problems that are more important than business and they're outside your control and it's the death of his young
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son that he had to endure he's only 29 years old when this happens uh he's going to a divorce and his son is dying at the same time despite outward appearances all was not sunny in Charlie's World his marriage was in trouble and he and his wife were getting
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divorced Charlie learn that his adored son Teddy was terminally ill with leukemia I think he was 9 years old if I'm not mistaken in that era before bone marrow transplants there was no hope a friend remembers that Charlie would visit his dying son in the hospital and
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then walk the streets of Pasadena crying Charlie had to endure the worst possible thing that can happen to somebody he's also remarried they've got four kids he's got to support an entire family this is when he's a lawyer so it says
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with many new responsibilities Charlie worked hard at his law practice even so his earnings were unsatisfactory to him he wanted more than what a senior law partner would be able to earn he sought to be like his firm's leading capitalist
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clients it's not mentioned in this book but it's mentioned in other biographies that I've read about him so he does something really smart when he's a young lawyer I think now he's in his 30s at this point he sold an hour of his own
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time back to himself and used that hour to learn things like investing in stocks and developing and investing real estate projects so in his mid to late 30s he starts doing a property development project for the first time this actually
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worked out really well so he had a partner on the steale the partners earned a profit of $300,000 on a $100,000 investment this is in 1961 uh he left all of his profits in his real estate Ventures so that bigger and bigger projects became possible when
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he stopped doing real estate in 19 or real estate development in 1964 at least with his partner he had a nest egg of .4 million from Real Estate alone during this time he also started a new law firm this Law Firm still exists to this day I
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read somewhere that this Law Firm I think I think it's doing like 500 million a year in Revenue right now I didn't verify that but that's what I read so he he makes the $1.4 million from the real estate projects starts this new law firm remember he's in his
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mid to late 30s and then the another important thing happens probably the most important one of the most the most important thing that happens I would say actually around this time is Charlie's father dies he had a good relationship
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with his father but it required him to go back to Omaha he's living in Los Angeles this time to administer his estate this is when he's going to meet Warren Buffett Warren is going to be 29 years old at this time and Charlie is 35 years old this is one of my
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favorite things to just do and think sit and think because you to you and I Warren Buffett and Charlie Munger are these elderly really rich guys whether you discover them today 10 years ago maybe you discover them 30 years ago not
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many people knew them but they were but even by that time they're in their 60s 70s I think they were in their 80s when I came to to introduced to them and yet I am fascinated about the you know this because you and I talk about this heavily on the podcast like who is the
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versions of them that actually built the foundation that their financial success and their empire rest upon and it's this it's this conversation it's this them trying to figure out Warren is 29 years old Charlie is 35 they start working
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together 10 years from now they're still only 45 and 39 so let me guess that I I'm obsessed with thinking about this time so it says Warren heard of Charlie a few years earlier when he was Raising investment capital in Omaha this is hilarious I think it was in the book
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snowball Warren was pitching this guy named Dr Davis and his wife and he was explaining his investment philosophy and at the end he's like okay I'll give you $100,000 and Warren's like what the hell it's like you I thought you weren't even
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paying attention like why would you dedicate such a large percentage of net worth to me I didn't even know you were I thought like I was going to get kicked out of here and do so he asked him like why are you willing to give me $100,000 and Dr Davis explained that Warren
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remind Ed him of Charlie Munger they they didn't know each other yet Warren didn't know Charlie but already had at least one good reason to like him so they have this dinner Charlie and Warren realized that they shared many ideas it
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also became evident to the others at the table that this was going to be a two-way conversation so they talked for hours everybody else got up and left again this is so important to to to think about and to realize Warren's just 29 he's just 29 years old and he's
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meeting his partner he's going to be partners with it for 60 years Charlie's 35 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
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quit law practice at the earliest point he could afford to do so that's an important line the earliest point that he could afford to do so Charlie is got a gang of kids I think between him and his wife when they're all s done I think
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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
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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
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read it to you there was no formal partnership or contractual relationship the bond was created by a handshake then I'm listening to the preview of the invest like the best episode that's coming out with John cson and Charlie Munger and towards the end of that this
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is the note I left on my P on this page when I was reviewing my notes this morning before I wanted to talk to you he said trust is one of the greatest economic forces on Earth pay attention to that part of the conversation at the
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end that comes by it's probably like a minute long but I sat there and rewound it a few times and trust is one of the greatest economic forces on Earth he's talking about the trust inside of the company with your partners and all the
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people that work with you and then the trust outside all your partners your customers everybody else but he summarized that it was very fascinating and it really tied nicely to this what they're saying there's no formal partnership at the beginning there was
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no contract they shook hands in other words they trusted each other trust is one of the greatest economic forces on earth that is a direct quote from Charlie merer so Charlie eventually winds up leaving the law firm and going into he starts his own investment
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partnership he's 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
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Burkshire right but this was fascinating speaks to who he was as a person so he leaves the law firm that he found founded and he did not take his share of the firm's Capital why instead he directed that his share go to the estate
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of his young partner Fred wer 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 19622 to
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1975 so 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
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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 AFF affinity for Benjamin Franklin's
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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 b phography not myself and I think when you're trying to teach the great Concepts that work it helps to tie them
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into the lives and personalities of the people who develop them I think you learn economics better if you make Adam Smith your friend that sounds funny making friends among the eminent dead but if you go through life making
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friends with eminent Dead who had the right ideas I think it will work better for you in life and work and education it is way better than just giving the basic concepts again that is something that I learned through experience uh that he again practice what he preached
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I got to see his library and I asked him a ton of questions about books so I you I think you already know this but when I find somebody admire like Charlie merer and then he recommends a bunch of books to read I go and read those books and
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I've done a bunch of episodes on uh you know people like Henry Kaiser or Les Schwab that Charlie Monger would speak publicly and it's like hey you should really read this book and what's crazy is one it's clear in the three hours I
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talk to him like he makes me look like a biography amateur like there's nothing like he just knew so much more than I did his colle ction was incredible and then his recall from those books was incredible so I think that's another again he's giving this advice to other
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people saying hey you should really read biographies I'm a biography not myself and it's clear when you when you see his library and then you ask him questions about this it's like oh this guy really reads these books and he reads and
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retains everything was incredible and so this is a section where there's a bunch of anecdotes and quotes from his children about who he was and what was important to him and something that that that he talks about is the fact that
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having an unconventional way of looking at things and the strong work ethic those those two things combined really well together and it's something that he lived because it talks about when they were children like how this is his schedule when he's trying he's not yet
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successful right he's TR desperately desperately trying to get that Financial Independence that he craved and so one of his sons is actually describing this in those days Charlie worked so hard and so long during the work weeks he was off
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before Dawn and home about dinner time then he studied and later would spend a couple hours on the phone with Warren and so Charlie's famous for saying that he succeeded because he has a long attention span which he definitely does
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but he also has this insane ability to focus and so they're again they're describing this is another one of his sons describing what it was like at their house at night father night after night would sit in his favorite chair reading something all but deaf to the
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rough housing younger 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
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his success people have said the same thing uh about Warren Buffett it's in one of his biographies it might be snowball might be making of the American capitalist but it talks about they're all going on like a family vacation they get on uh the private jet I think the
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flights 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 what he's
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learning he's essentially walled himself off from any distraction 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
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is that he's going to tell you you need it's he calls it big ideas from the big disciplines says Charlie's big ideas from the big disciplines approach Charlie combines big ideas from multiple disciplines to build a more accurate
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understanding of the world he will explain a business problem but he'll be using things from mathematics from physics physics from chemistry from biology and from psychology so that's what he means by multidisciplinary that's his biggest criticism of all for
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forms of formal education is they just stay like siloed in their little domain and he's like have no respect from that have no respect for that go wherever your curiosity takes you but you need to learn the Big Ideas in the big
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disciplines so 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 never
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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
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Charlie and Warren talk about this Charlie will not deviate from these principles regardless of group dynamics emotional itches or popular wisdom and these traits result in one of the best known Monger characteristics not buying
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or selling very often Munger believes a successful investment career boils down to only a handful of decisions when Charlie likes a business he makes a very large bet and typically holds that position for a long period Charlie is
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willing to commit uncommonly high percentage of his investment Capital to individual opportunities number four this is something you and I talk about over and over again you see in the books this only works if you trust your own judgment you cannot be successful
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entrepreneur cannot be a successful investor if you cannot trust your own judgment Charlie is content to swim against the tide of popular opinion indefinitely Charlie is simply content to trust his own judgment when it runs counter to the wisdom of the herd this
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Lone Wolf aspect of Charlie's temperament is a rarely appreciated reason why he count consistently outperforms and number five inversion get what you want by avoiding what you do not want Charlie generally focuses first on what to avoid that is what not
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to do he says that he's gotten a long-term Advantage just by being consistently not stupid instead of trying to be a genius trying to be very intelligent I would actually reduce that down even further that avoiding stupidity over a long period of time is
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genius another thing that's genius so I guess there's six Charlie strives to reduce complex situations to their most basic unemotional fundamentals that's a line I've been repeating over and over again genius has the fewest moving Parts
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genius has the fewest moving Parts another thing that Charlie does that's very different is he spends an unbelievable amount of time in fact if you me I mean I'd read the whole thing but if you only said if you only had to
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read one thing it would be the very last talk the 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
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of human misjudgment some of the most important mental model 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 Revis ing that talk uh just to to publish it in this
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book my friend um 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
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attempts to assess and understand competitive advantage in every respect products Market trademarks employees distribution channels societal Trends and so on and the durability of that Advantage hold on I'm going to interrupt myself
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because one of the my favorite things that I read the first time uh one of the favorite lines the first time I read this book was something that one of Charlie Sons said about what his father admires and I the way I think about in my own life is aim for durability
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durability has always been a First Rate virtue In My Father's Eyes so let's go back to this so he uh attempts to assess and understand competitive advantage in every respect uh products markets trademarks employees distribution
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channels societal and so on and 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
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on great businesses and great businesses have Moes it was very fascinating the conversation between John Carson and Charlie Munger this is again I think towards the end maybe the middle of the podcast John ask like hey if we came and
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if me and my brother Patrick came and pitched you on stripe what would you want to know about stripe and he essentially one sentence this again what is the most important thing Charlie only focuses on great businesses and great businesses have Moes and so Charlie's
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answer to John was is it likely to remain forever as a money generator in other words does it have a moat okay so we get to the first talk which is a commencement address that he gave in 1986 and right away we see Charlie's love of inversion because most
32:52
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 is the inversion principal and he says I'm going to make the opposite Case by setting forth what you should do if
33:03
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 merer did and and Johnny Carson did the same thing where he's like I want to tell you
33:19
like I'm going to give you a speech on 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 could tell them for personal experience how to guarantee misery I read Johnny
33:31
Carson's autobiography or excuse me biography it's episode 183 I'm pretty sure that based on the reading of that book I don't think Carson ever attained happiness and I do think he was more miserable than he needed to so this is fascinating so the three things that
33:47
Carson's Carson's prescription for sure misery he had three and then then Monger is going to add four so the first one is ingesting chemicals in an effort to alter mood or percep obviously drugs and alcohol once you start relying on them there's no way
34:01
you're going to have a like you're going to be have a miserable life if you rely on them number two envy and number three resentment so Envy is something that Monger talks about over and over again he's like you to live a good life you
34:14
have to cure yourself of this inherent part of our human nature which is we like to be EnV 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
34:26
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
34:39
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 uh because that's all resentment does it's just going to make you bitter he's actually going to quote
34:50
uh the solution to this that Benjamin Disraeli which was a he was a prime minister of the United Kingdom back 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
35:06
Vengeance as a motivation for Action was but he needed some some outlet for his resentment right he couldn't just quit to cold turkey so he would put the names of people who wronged him on pieces of paper in a drawer so what he what Charlie is describing to us is called a
35:19
Disraeli compromise by putting the names of people who wronged him on pieces of paper in the drawer 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
35:33
his assistance and so if you want a miserable life make sure you injust chemicals and an effort to alter your mood or perception and become addicted to that two be envious of people all the people around you people doing better than you and three hold on to resentment
35:46
the fourth one this is where Monger starts adding his own thing you want a miserable life be unreliable if you like being distrusted and excluded from the best human contribution in company this prescription is for you make sure you
35:58
are unreliable the next prescription for a miserable miserable life is to learn everything you possibly can from your own experience minimize what you learn vicariously from the good and bad experiences of others living and dead this prescription is a sharot producer
36:16
of misery and second rate achievement and this is this is why I say he's got a great a bunch of maximums that I absolutely love but maybe my favorite alltime maximum of Charlie Monger is just three words wisdom is prevention wise people don't solve problems they
36:32
avoid them wisdom is prevention one of the way you do that you learn viy through the experiences of other people living and dead you can see the results of not learning from others Mistakes by simply looking about you how little
36:42
originality there is and common disasters of mankind he's saying hey pay attention to human nature and human history it's just one dumb person after another making the same dumb mistakes that if they just learned through other people's experience they would avoid
36:53
that mistake he's saying there's no even originality in the mistakes that making these are well documented why aren't you avoiding them drunk driving reckless driving incurable veneral diseases conversion of bright college students
37:07
into brainwashed zombies as members of destructive Cults the other aspect of avoiding vicarious wisdom is the rule of not absolutely under no circumstances learn from the best work done before you before yours excuse me and then he adds
37:23
this great story here if you want to be non-m 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-m miserable result and so he
37:35
gives us his 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
37:46
little farther than other man it is because I stood on the C 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
38:04
final one in this talk 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
38:19
something that I use to remind myself on the importance of not giving up and that I really do believe what Paul Graham said said he he was asked one time what what plays a more important role in the success of entrepreneurs uh determination or intelligence and he
38:33
said determination by far and he tells this fantastic story where he's like let's say you take uh two people they both start out 100 with 100 in both determination and intelligence you start taking away decreasing the amount of
38:46
intelligence but keeping their determination at 100 that person's still going to wind up rich I think he said but they own like a bunch of they'll figure out a way to make money and they'll they'll own like a bunch of trash hauling services or something like
38:55
that but they're super determined meanwhile while uh if in if you run that uh if you run the same experiment and you keep intelligence at 100 out of 100 but takeway determination you have a brilliant but ineffectual person and Paul grma said he seen a bunch of people
39:09
that their lives wind up just like that a brilliant but ineffectual person and I think that's related to what Charlie Monger is saying here it's like oh yeah you want to be miserable like you're going to get knocked down everybody's
39:18
going to get knocked down just lay there just don't get up don't try again and so I've told you this over and over again I have the face the the the Frozen cross bitten exhausted face of Ernest Shackleton the famous polar Explorer as
39:32
my lock screen on my phone could you probably look at your phone what 150 times a day or something like that and every time I see his face staring back at me and it reminds me of his Motto by endurance we conquer we're not going to stop until we're dead by endurance we
39:45
conquer let's go back to this which is Charlie's advice to invert always invert what Carson did was to approach the study of how to create X by turning the question backward the great algebraist jacobe had exactly the same approach as
39:56
Carson and was known for his constant repetition of one phrase invert always invert it is the nature of things that many hard problems are best solved only when they're addressed backwards so therefore if you want to be miserable you should approach problems in a
40:08
standard way and only believe information that agrees with your previous conclusions so I mentioned earlier that when I find somebody admire and if they say hey I admire this person I will then read like I'll read the book
40:20
that they recommend and so there's this there's this entrepreneur and engineer named Carl Brun and he starts this company called CF Brun engineering company Monger repeats stories about this guy over and over again in fact I didn't find any books on him I found
40:34
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 any anywhere uh so I
40:47
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 that Monger repeats that's one of the most important ideas that you learn from Carl brwn is uh some really speaks to like this
41:01
psychological tendency in human nature that you will get more compliance and more pers 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
41:14
Brun that if you did if you were inside of 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 Brun designed and built oil refineries that's
41:25
what the business did he had a rule from psychology which if you're interested in wisdom ought to be part of your repertoire his rule for all Brawn company Communications was called the 5 WS you had to tell who what was going what was going to do what where when and
41:39
why and if you wrote a letter in Lebron company telling somebody to do something and you didn't tell him why you would get fired in fact you would get fired if you did it twice that is a rule of psychology if you always tell people why
41:53
they'll understand it better they'll consider it more important and they'll be more likely to comply even if they don't understand your reason they'll be more likely to comply in communicating with other people about everything you
42:07
want to include why why why even if it is obvious it is wise to stick in the why and so the another idea that Charlie will repeat is that he thinks it's useful to think of a free market economy as sort of the equivalent to an ecosystem and so he says just as animals
42:25
flourish in niches people who in the business world and get very good because they specialize frequently find good economics that they wouldn't get any other way and so he's talking about one one way to describe this I've heard him
42:38
say that really stuck in my head is he has this great line about the importance of going to extremes and he says in business we often find that the winning system goes almost ridiculously ridiculously far in maximizing and or minimizing one or few
42:56
variables and so the examp he uses for that is like the discount warehouses of Costco and then immediately after he starts talking about the advantages of scale which seems almost like a contradiction but he's going to wrap this up in how you special you you
43:11
initially start specializing in dominating one Niche and that can lead to more scale and then he says the advantages of scale are ungodly important these next five or six pages are some of my favorite parts of the entire book if you get your own copies
43:24
it's I'm on page I'm starting on page 90 so the first example about the advantages of scale being ungodly important he talks about the the invention of TV advertising and just how powerful he says it was an unbelievably powerful thing why because there was
43:39
only three networks and three networks had something like 90% of the entire audience so if you were Proctor and Gamble you had ungodly scale and you were one of the few people that could actually afford to use this new method
43:52
of advertising and your smaller competitor obviously couldn't and then this is the first time he goes into about something he talks about over and over again about he never looks at anything in isolation he thinks about how one factor can combine with another
44:02
factor with another factor and it creates these he calls him La paloa effects but essentially just you're stacking unfair Advantage after on top of one unfair Advantage after top of one unfair advantage and they all greatly
44:13
increase the efficacy of each one so he's talking about television advertising right which is essentially an advantage of scale that Proctor gam will had now there's more advantages to that scale that start with hey being big
44:26
to begin with than this new technolog is invented then I can partake in that technology and my smaller competitors can't then what happens is more people know about the the products and the brands that Proctor gamble own that leads to another psychological effect
44:40
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 proof leads to more sales more sales then lead to more distribution more distribution leads to
44:53
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 specialization it's incredible how he ties this all together so I'm just going
45:05
to pull out a couple things that is the the basic overview so he's talking about the fact that you're you have access to this unbelievable distribution channel it's unbelievable way to advertise your products and you're as a result you're
45:18
becoming so much more wellknown why is that important because being so well known has advantages of scale this is what you might call an informational advantage it increases social proof we are all influenced subconsciously and to some extent consciously by what we see others
45:34
do and approve therefore if everybody's buying something we think it's better we don't like to be the one guy who's out of Step the social proof phenomenon which comes right out of psychology gives huge advantages to scale and then
45:50
those huge advantages to scale continue to give you another benefit that other competitor essentially expand your Moe 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
46:02
to Coca-Cola cuz one advantage that Coca-Cola has is that it's available almost everywhere in the world that worldwide distribution right one takes a long time to develop is really expensive is only something that they possess and
46:15
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 o uncover great investment opportunities not available
46:29
to anybody else cuz 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
46:39
be like in a small City or whatever I'll go and like go into this like tiny shop and you'll see monster energy drinks I don't drink them but you see monster energy drinks everywhere I'm like how the hell was it possible these people are just everywhere every single tiny
46:51
spot even if they don't have other energy drinks they'll usually have monster and I found out I heard on this podcast that I think Coca-Cola was able to to invest uh I think they had like an opportunity to get I can't remember the
47:03
percentage I want to say 20% of the company and the reason monster did that is because it gave them access to Coca-Cola's worldwide distribution Network so that is why I'm seeing Monster Energy Drink anywhere everywhere and if I'm not mistaken monster is one
47:18
of the the highest performing stocks you know in the past like decade or two whatever the the the case is so anyway go back to this idea once you get enough advantage of this type could be very hard for anybody to dislodge you there's
47:30
another kind of advantage to scale in some businesses the very nature of things is to sort of cascade towards the overwhelming dominance of one firm which is what we're just talking about here with Coca-Cola right and then he gives another example that daily newspapers
47:42
which him and Buffett made a bunch of money on in their Heyday the most obvious one is the daily newspapers this is a scale thing once I get most of the circulation I get most of the advertising and once again most of the advertising and the circulation why
47:53
would anybody want a thinner paper with less information in it so it tends to Cascade to a win or take all situation and that is a separate form of the advantages of scale phenomenon did you see what he just did there he's talking
48:07
about all these different factors that interact with each other and make this phenomenon even more powerful and then he ties it back together where this conversation started with hey this kind of weird like think about a free market
48:18
economy looks really looks a lot to Charlie Monger like an ecosystem and there there's a bunch of animals FL flourishing in these weird niches uh seems to be lot of people and businesses that do that too so then he flips he's like well how what what does that do to
48:32
like new startups or or new entrance into a market right well there's disadvantages of scale as well so I just did I think two weeks ago um I just did uh this episode on on uh Warren Buffett and Charlie MERS one of their favorite
48:43
managers uh this guy named Tom Murphy who was running Capital Cities who ends up buying ABC birkshire hathway 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
48:59
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 exactly
49:13
what happens uh the way they beat us was to go to a narrow specialization like an ecosystem you're getting narrower and narrower specialization so he uses this example of this magazine that was kicking their ass called motorcross and
49:25
this is hilarious this is why Monger 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 somersault
49:36
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
49:55
intensifying gives you the big Advantage bigger is not always better the great defect of scale another great defect of scale is of course you as you get big you get bureaucratic again this is grounded in human nature so he talks about uh always
50:11
focusing on what the incentives are the incentives and a bureaucracy are perverse incentives are no longer the company's Mission it's hey how do I protect this territory that I have and so he say so you get big fat dumb
50:23
unmotivated bureaucracies you get layers of manag and Associated cost that nobody needs and they're too slow to make decisions and the nimbler people run circles around them so life is an everlasting battle between those two forces to get these advantages of scale
50:39
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 which fascinating as if you read Sam Walton's autobiography which I've done I think I've done two or three
50:50
podcasts on Sam in in that book it was fascinating uh you know he starts out this Nimble guy then builds this giant company and he says like you always doesn't matter like every year you have to beat like bureaucratic creep is inevitable and you have to beat it
51:03
across beat it back across the line and it usually comes from like the leader the founder really paying attention to stuff where they were he he talks about one thing that he hated that his company was doing uh in the book was that new
51:16
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
51:28
it's been priced they scan it to make sure it's the right price and Sam's like what the hell why don't we just do it right like this is another layer of you bureaucracy and so it's like why don't we just do it right the first time and
51:39
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 he's he's his the the main thing it's one of my favorite things he's ever said uh Sam
51:51
Walton's one of my favorite entrepreneurs but he said Sam Walton this is my Su summation about what I'm about to read to Sam Walton's an interesting example of how scale and fanaticism combined to be very very powerful it's quite interesting to think
52:04
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
52:18
was already pretty old by the time he started out with his one little store so he' had a bunch of experience in like retailing and and uh discount retailing let's say I think it was 44 if my memory serves me correct when he started his
52:29
first Walmart but he hadd been working in retail for like 20 20 plus years by the time but Charlie is right that it's 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
52:39
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 blew right by them all he also had a very interesting competitive strategy in the early days he was like a prize
52:53
fighter who wanted a great record so he could be in the finals so what did he do he went out and fought 42 pcas so like you know 42 like mediocre operators essentially and the result was knockout after knockout after knockout 42 times Walton being as shrewd
53:09
as he was basically broke other smalltown merchants in the early days with his more efficient system he might not have been able to tackle some Titan headon at that time but with his better system he could sure as hell destroy
53:22
those small town merchants and he ran around doing it Time After Time After Time then as he got bigger he started destroying the big boys well that was a very very shrewd strategy Walton is an interesting model of how the scale of things and fanaticism combine to be very
53:40
powerful his competitors weren't as lean and mean and shrewd and effective as Sam Walton was another one of Charlie's ideas that I really love is he has this uh surfing model I'll just read this to you there are huge advantages for the
53:55
early birds when when you're an early bird there's a model that I call surfing when a surfer gets up and catches the wave and just stays there that's the most important phrase of this entire uh paragraph and just stays there he can go
54:06
for a long long time but if he gets off the wave he becomes mired in the shallows people get long runs when they're right on the edge of the wave and so he uses example of Microsoft or Intel and then this company that he loves he talks about over and over again
54:21
National Cash Register which kind of relates to Microsoft and Intel too because the founder of IBM Thomas Watson actually worked for National cash register and obviously Microsoft and Intel were very important Partners uh to
54:34
IBM so the reason he thinks uh he gives an illustration of why surfing is so very powerful and how uh the actual founder of National Cash Register which is guy named Patterson did something very smart and this is fascinating he says I have in my files an early
54:48
National Cash Register company report in which Patterson describes his methods and objectives and a well-educated orangutang could see that buying into a partnership with Patterson in those early days given his Notions about the cash register business was a total 100%
55:04
cinch surfing is a very powerful model so what he's talking about is Patterson was running like a small store right and before the invention of the cash register is really hard to make money because it's so easy for first for your
55:16
employees to steal from you right you just don't know where the the money's coming in and so the cash register this 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
55:27
so powerful because he buys this new piece of equipment the cash register for his store immediately starts making money then he immediately closes his store and decides forget this the bigger opportunity is to do provide the service
55:38
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 a Mugger uses Patterson and National cash register as a
55:50
illustration of this very important model to Charlie Monger that surfing is a very powerful model and I think that is related to his next idea because if you don't stay there you're giving away your Edge and that's not smart most
56:02
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
56:11
to figure out where you get where you've got an edge and uh there's there's this guy named ed Thorp who I talk about ad nauseum Ed Thorp is really my blue print for Life he's one of maybe a handful of people I feel mastered life out of all
56:24
the people we've studied on the podcast together it's episode 22 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 uh handheld uh
56:35
computer with Claude Shannon the guy was just Flatout 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 um episode 222 again he says
56:50
something you know he's writing that book I think he's in his 70s or 80s I think he's in his 80s when he's writing that book and so let me read a quote from that book that sounds a lot like the advice that Charlie Munger just gave
57:00
us I also believe then as I do not now after more than 50 years as a money manager that the shest way to get rich is to 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
57:17
Charlie Munger and Ed Dorp no doubt if you talk to Charlie Munger you read his you heard him speak you think he's a genius I think if you study at Dorp you would arrive at the same conclus ution in fact the first time I did Ed Thorp it
57:29
was like a long time ago episode maybe 80 or 90 or something like that and I got this uh I got this email or message from somebody 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
57:44
genius I was like well think it's pretty obvious the way he lived his life he's a genius but that's fine from now on that that message stuck in my mind so every time I bring up at Dorp I have to bring up the fact that he's obviously a genius
57:56
and so let's go back to this great story that uh he tells about Warren Buffett and this is a great illustration that it's really stop praying at the altar of diversification if you could trust your own judgment and you know it's a good
58:07
opportunity to go all in bet heavily you're not going to have many such cases many such examples in your life when Warren Buffett lectures at Business Schools he says I could improve your ultimate Financial Welfare by giving you
58:18
a ticket with only 20 slots in it so you had only 20 punches representing all the Investments that you got to make in a Lifetime and 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
58:33
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' do much better again this is not Charlie speaking this is a concept that seems
58:45
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
59:00
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 that way how many insights do you need well I'd argue that you don't need many in a lifetime if you
59:13
look at birkshire 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 think about this cuz people are like you know I think the
59:24
main lesson that you and I 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 a element of focus it's why I only focus on
59:36
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
59:50
made all his money in standard oil and then he would make some really weird investment decisions and lost a bunch of money outside out of Standard Oil for the most part but the way I look at is like okay if if if Rockefeller only had
1:00:00
Standard Oil never made another investment in anything fabulously wealthy Carnegie Andrew Carnegie same thing if he just had Carnegie steal in fact I think he's the one that really put this idea and planted this idea in the first part in my mind because if you
1:00:14
look at Carnegie's early life he's doing all kinds of stuff you know he's making Investments he's building bridges he's looking for like the best opportunity he's already you know pretty rich not nearly as wealthy as he's going to be
1:00:25
but once he did something fascinating once he realized oh steel is by far the highest like the best opportunity I'm ever going to have now he sells off all his other businesses he sells off all his stock because he didn't want to be distracted he didn't want to wake up
1:00:40
in the morning and read the newspaper and want to know what his stocks were doing that day so he sold it all off and only uh focused on Carnegie steel and what happens he sells Carnegie steel to to JP Morgan at the time and he does it
1:00:51
for cash Straight Cash at the time that he gets he sells it after sells it to JB Morgan he has the largest liquid fortune in the world at that time so again only needed one business Sam Walton in his autobiography he says I didn't do much
1:01:05
investing outside of Walmart again if he only owned Walmart he's that's all he needs so I I you just see this over and over and over and over again it's obvious in history of Entrepreneurship but it's not to Charlie's point it's not definitely not conventional wisdom and
1:01:17
it's definitely not practice and taught and then I love this observation about Disney from Charlie monger and so he he's constantly again thinking about hey you have to have a multi-disciplinary uh View and approach to the world and so he talks about this
1:01:31
this term from chemistry that I had to look up so it's pronounced autocatalysis and so what that means is it is a reaction where a product itself acts as a catalyst for the reaction so this is something you and I have talked about over and over again you see
1:01:47
example after example biography and the way I've described in 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 he's giving this talk and he's asked
1:01:59
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
1:02:13
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 there was another uh Auto iic I I don't know how to pronounce that autoc catalytic
1:02:28
reaction with Coca-Cola too that Coca-Cola greatly prospered because Coca-Cola was invented and they could Prosper even to a greater Dee when Refrigeration became widespread in Disney's case they had all these videos in the uh these movies in the can and
1:02:43
then the video cassette was invented and then obviously then you have the DVD and then you have streaming so it's just this keeps happening so it says when the video cassette was invented Disney didn't have to invent anything or do
1:02:55
anything except take the thing out of the can and stick it on the cassette so Disney got this enormous Tailwind from life and it was billions and billions of dollars worth of tailman in other words they stayed in the game long enough to
1:03:09
get lucky all you have to do is sit there while the world carries you forward and so he uses the example of the movie The Lion King the lion king alone meaning this this reaction is going to continue on many decades in the future cuz highly likely that 20 years
1:03:23
from now 30 years from now people are still going to be watching movies like the L King The Lion King alone is going to do plural billions and by the way when I say when it's done meaning when The Lion King is done I mean 50 years from now or something but plural
1:03:35
billions from one movie so that idea of autocatalysis there's another example in the conversation that Charlie and and John cson have where John asked them about why for many many decades the rail roads were terrible terrible Investments
1:03:52
I'm talking about uh when they first were created it was really hard to make a profitable like the there's a lot of people like stealing money from roads if you go back and and study that time period but it was very hard to invest into them and have a reliable source of
1:04:07
you know profits for a long period of time and yet that all changed with the invention of the shipping container and the shipping container was invented by Malcolm mccan and it was invented in the 1950s so a 100 years after the invention
1:04:23
of this Transcontinental Railroad that was taking place in in America and now all of a sudden Charlie talks about it in this conversation where it's like well once you could stack two shipping containers on top of each other and put
1:04:34
on a rail raid it makes it way more efficient than anybody else or than anything else rather than any way to move goods and and supplies across the country the combination of the railroads and the shipping containers is another example of this autoc calic uh reaction
1:04:48
just like the invention of the video cassette and the DVD and streaming has been for Disney and then there's a meta lesson from Charlie and it's really how to teach a lesson and then he learned this lesson by reading between the lines
1:04:58
of a lesson that his father was trying to uh teach him but he I think he would argue against being I think Charlie Monger would argue against being overly prescriptive and this also ties together with another thing which is Charlie's clear predilection to going for great to
1:05:15
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 his have these
1:05:30
conversations with his father learn a lot from his father and so this is something he learn and again metal 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
1:05:40
I was very young uh one of his best friends was this guy named Grant mcfaden uh he owned a bunch of four 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
1:05:52
charm and integrity just a wonderful wonderful man in contrast my father had another client who was a blo hard an overreaching unfair pompous difficult man and I must have been 14 years old when I asked my dad why do you do so much work for Mr X this overreaching
1:06:07
blowhard instead of working more for a wonderful man like your friend Grant mcfaden my father said Grant mcfaden 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
1:06:21
as fast as he can therefore gr MC fattic 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
1:06:34
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
1:06:46
when your own client is a paragon of virtue you'll often be dealing with gross defectives on the other side like Ben Franklin observed it's hard for an empty sack to stand upright I'd argue that my father's model when I asked him
1:06:58
about the two clients was totally correct he taught me the right lesson the lesson run your own life like Grant mcfaden that was a great lesson and he taught it in a very clever way because instead of just pounding it in he told it to me in a way that required a slight
1:07:15
mental reach I had to make the reach myself in order to get the idea that I should behave like Grant mcfaden and because I had to reach for it I held it better and indeed I've held it all the way through until today through all of
1:07:29
these decades that is a very very clever teaching method Warren and Charlie they talk about over and over again that they're teachers in the conversation with John Carlson he talks about the benefit of their teaching he says the
1:07:41
fact that him and Warren have enjoyed the public likes that they had they've enjoyed the Ed he called it an educational Sideshow the educational sow that that we do he says it's constructive and he feels that learning all this stuff and then turning around
1:07:52
and immediately teaching other people is a win-win and I love the advice that gets in that conversation it's very simple make yourself very useful Charlie and Warren have made themselves unbelievably useful to generations of entrepreneurs and investors he talks
1:08:03
about why this is important first of all Charlie said one of the best things Charlie ever said is that the best thing a human being can do is help another human being no more and so he's asked the question like are you fulfilling
1:08:12
your responsibility to share the wisdom that you've acquired over the years and if you pay attention to what he's about to say it's like oh this this desire to do this is one it's it's like a positive for the world it's like a moral duty to
1:08:24
do this it's good for other people but it's like built in to the foundation of their business he goes sure look at look at Brar hathway I call it the ultimate didactic Enterprise Warren's never going to spend any of his money he's going to give it all back to society he's just
1:08:37
building a platform so people will listen to his Notions needless to say they're very good Notions and the platform is not so bad either you could argue that Warren and I are academics in our own way he continues this theme I'm
1:08:50
passionate about wisdom perhaps I have some streak of generosity in my nature and deser and desire to serve values that transcend my brief life that sentence hits even harder cuz he just passed away but maybe I'm here just to show off who knows I believe in the
1:09:03
discipline of mastering the best that other people have figured out I don't believe in just sitting down and trying to dream it up all yourself nobody's that smart I owe a lot to these long dead predecessors what is he saying I benefited so much that somebody that
1:09:17
engage in lifetime learning and then catalog what they learned and send 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
1:09:27
these long dead predecessors and if you like poor Charlie's omx 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
1:09:37
is good but also the importance of removing which you feel is an erroneous or bad idea from the heads of other people and in some cases in in business cases like you can create a ton of real Financial value for other people this story he's about to tell us is how
1:09:52
Warren Buffett created a billion dollars of value for the Washington Post shareholders and it was this spreading that Warren buffin and Charlie Monger if you read the shareholder letters you hear them talk they rail against this
1:10:03
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 if you adopted uh the hard form of efficient market theory then you logically derived he's saying you got a
1:10:16
bad idea in your head and then if that 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 that you don't think it's true and then logically
1:10:27
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 theory then you would think that share BuyBacks are the stupidest thing ever okay so I'm
1:10:38
going to get into that so you would logically derive consequences from this wrong Theory you would get conclusions such as it can never be correct for any Corporation to buy its own stock because the stock price by definition is totally
1:10:49
efficient there could never be an advantage and they taught this Theory to some partner at McKenzie when he was at some school of business and he adopted this crazy line of reasoning this is a real story by the way and he adopted this crazy line of reasoning from
1:11:01
economics and the partner this guy became a paid consultant for the Washington Post and the Washington Post stock was selling at a fifth of what an orangutang could figure out was the plain value per share by just counting up the values and dividing but he so
1:11:17
believed what he had been taught in graduate school that he advised The Washington Post who was paying him for this advice this is czy that it should buy its own stock well fortunately they put Warren Buffett on the board and he
1:11:29
convinced them to buy back more than half of the outstanding stock which enriched the remaining shareholders by much more than a billion dollar and that's one of the great things about what you and I are doing this isn't yeah
1:11:41
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 like this it's unbelievable it could be fun and enrich your yourself and your loved ones and your partners and your friends
1:11:54
another another story that I love that Charlie has is about something a Harvard Business School Professor did many many decades ago and he tells us this story to illustrate the need for more multi-disciplinary Education and Training and that if you just focus on
1:12:08
business you're just going to it's like the every with the person with the hammer everything uh looks like a nail and so you're only going to use business stuff you learn in business school to solve business problems he's like then
1:12:18
you're going to lose to people that are more multi-disciplinary and this is a great illustration of how mastering the big idea and other domains can actually benefit the way you think about these business opportunities so this professor
1:12:30
from Harvard Business School this happened a couple decades before he's telling 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
1:12:44
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 important is they're unworldly and they
1:13:00
just inherited the shoe factory they did not build it they did not manage it they were unworldly and they inherited it the professor then gave the students ample time to answer with written advice to the old ladies in response to the
1:13:13
answers the Prof professor gave every student an undesirable grade except for one student who was graded at the top by a wide margin what was the winning answer it was very short and roughly as follows this business field in this
1:13:29
particular business in its particular location present crucial problems that are so difficult that unworldly old ladies cannot wisely try to solve them through hired help given the difficulties and unavoidable agency costs the old ladies should promptly
1:13:46
sell the shoe factory probably to the competitor who would enjoy the greatest marginal utility 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
1:14:00
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
1:14:16
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 in Charlie gave this commencement address at USC back in 2007 I think uh the full talk it's like almost 40
1:14:33
minutes long it's on YouTube obviously the edited transcript uh 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
1:14:47
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 or trying to to tell you something on the day of your graduation he says the sacrifices and the wisdom and the value
1:15:00
transfer that come from one generation to the next should always be appreciated he's constantly quoting and crediting confucious with teaching him that because it was very uh Central tenant to confucius's teachings so there's a bunch
1:15:14
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 young and he says it's a very simple but powerful idea that the safest
1:15:26
way to try to get what you want is to be deserving of what you want in his personal life he's like well do you want a good spouse then be the kind of person that could attract a good spouse be worthy of a good spouse and then you will get a good spouse spouse he says
1:15:39
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
1:15:52
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
1:16:02
based on what you already know and he uses Warren Buffett as an example he's like listen birkshire put up the greatest long-term investment record in the history of civilization right the skill that got birkshire through one decade would not have sufficed to get it
1:16:13
through the next decade with comparable levels of achievement Warren Buffett had to be a continuous learning machine and the people that are learning machines that go to bed every night a little wiser than they were that morning they
1:16:24
are the ones that rise in life and especially he's talking to you know maybe let's say these people are I think graduate level students probably maybe 24 years old somewhere 25 maybe and his point is like if you do this habit of just accumulating a little bit more
1:16:37
knowledge and adjusting your behavior accordingly tiny bit every day uh that makes a big difference because you have a long road ahead of you consider Warren Buffett again if you watched him with a Time Clock you'd find that about half of
1:16:49
his waking time is spent reading then a big chunk of the rest of his time is spent talking one-on-one either on the telephone or in person with highly gifted people whom he trusts and who trust him and you want to do this practice as much as you can for as long
1:17:02
period of time and so he gives the example that he learned from actually uh the famous basketball coach John Wooden uh when John Wooden was the coach of UCLA uh he was probably the number one basketball coach in the world and so he
1:17:14
what he does is he calls us maximizing non-gal which is I don't even know if that's really a memorable way to put it but I like I remember the story I didn't remember that that line but the story I think will be memorable and so what he
1:17:28
did was there's 12 people on the basketball team he says to the bottom five players hey you're not going to play in games you're practice Partners uh that and he did this because he wanted to maximize the amount of game playing time and practice for his top
1:17:39
seven players the top seven players did almost all of the playing well the top seven learned more because they were doing all the playing and when he adopted this non-egalitarian system wouldn't won more games than he had won before this is a takeaway I think the
1:17:52
game of competitive life often requires maximizing the experience of the people who have the most aptitude and the most determination as learning machines if you want the very highest reaches of human achievement that is where you have
1:18:05
to go you want to provide a lot of playing time for your best players and something that your best players and you will have in common is that they're usually doing something someone with that kind of drive and I could do it for
1:18:16
a long period of time they've aligned their what they're doing professionally what they're doing for work with their natural intense interests I one of My Favorite Things way I think about Charlie what he taught me is that ask yourself what are you intensely
1:18:30
interested in and then just do that for a living another thing that I 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
1:18:43
that with working only working only with people that you like admire and trust people that you want to be like uh that you trust that you admire do not he says do not people do not just quit quit your job maneuver your s especially in the
1:18:55
beginning of your career try to work underneath now he's talking about Partners but also this applies to Career advice so 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
1:19:05
are and you have this trust it just again what did he say that was such a surprising statement trust is one of the greatest economic forces on Earth he's going to apply this to what uh inside of the partnership that he had uh with
1:19:17
Warren and so he talks about the highest one of the highest forms of civilization that one can reach uh is a seamless non-bureaucratic web of deserved trust not much fancy procedure just totally reliable people correctly trusting one
1:19:30
another in your own life you want to what you want to maximize is a seamless web of deserved trust Charlie also has this great story uh 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
1:19:48
common he's observed it multiple times that leaders of companies as they get more successful they tend to dis likee hearing bad news and you should actually do the opposite and he talks about at birkshire that hey uh tell us the bad
1:20:01
news because the good news takes care of itself and this is a again a well-known like psychological tendency that you see in human nature throughout history the perser Persian messenger syndrome ancient Persians actually killed some
1:20:16
Messengers whose sole fall was that they brought home truthful bad news like a b like they just lost a battle or something like that it was actually safer for The Messengers to run away and hide instead of doing his job as a wiser boss would have wanted it done Persian
1:20:34
messenger syndrome is Alive and Well in Modern Life and he talks about when Capital cities/abc was competing against CBS CBS was run by the founder Bill py and over time Bill paly became hostile to people who brought him bad news and
1:20:50
so Charlie was like well over time if you do that you wind up living in a cocoon and you're in a cocoon of unreality is what he called it a cocoon of unreality and so he says at birkshire the way they counteract this is they have a habit of welcoming bad news there
1:21:04
is a common injunction at burshire HQ always tell us the bad news promptly it is only the good news that can wait I noticed a when I got to this section I thought of something that I learned when I was reading uh the biography of the
1:21:16
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 notic this as well is like well he's running the company he's got all these Executives but these Executives the only people that have
1:21:30
contact with him um they they tend to give like a distortion of like a more favorable Distortion of the reality on the ground he's like well Jim case like how do I in how do I counteract this and so what Jim would do is anytime he's
1:21:44
he's driving his car he would see a UPS truck he would stop pull over and talk to the driver he knew the drivers would tell them what they were experiencing and many times what they would what he would learn from drivers would be very
1:21:57
different from what his Executives because his exe would tell him because his Executives were were likely were more likely to tell him more positive but less accurate news and so Charlie's advice to you and I is you want to avoid the Persian messenger syndrome and then
1:22:12
when you analyze why does this syndrome appear over and over again it's like well what is the incentive the Persian Messengers that ran away instead of delivering bad news because they saw previous Messengers deliver bad news and and get killed or their hands chopped
1:22:27
off they were responding to incentives and so uh one of the main things that Charlie repeats over and over again is he calls it the reward and Punishment super response tendency and I think it could be summarized in one sentence the
1:22:41
most important rule in management is get the incentives right and this is why uh this is what he says almost everyone thinks that they fully recognize how important incentives and disin disincentives are for changing Behavior
1:22:54
but this is not often so I've been in the top 5% of my age Cort my entire life and understanding the power of incentives yet I've always underestimated that power never a year P this is insane sentence never a year passes that I don't get some surprise
1:23:07
that pushes a little further my appreciation of incentive superpowers he's saying I'm in the top 5% of my age cohort and every year I'm still underestimating this thing what do you think the a the other people there in in the the bottom 95% are doing one of my
1:23:21
favorite cases about the power of incentives is the happen Federal Express Federal Express system requires that all packages be shifted rapidly among airplanes in one Central Airport each night I go into more detail on this on
1:23:33
the the episode that I did on the founder of FedEx Fred Smith on I think it's episode 151 the system has no Integrity for the customers if the night work shift cannot accomplish this assignment fast Federal Express had one hell of a time getting the night shift
1:23:46
to do the right thing they tried everything in the world without luck and finally somebody had the happy thought that it was foolish to pay the night shift by by the hour when what the employer wanted was not maximize billable hours of employee servitude but
1:24:00
fault-free rapid performance of a particular task if they paid the employees per shift this is what they decided to do they wind 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
1:24:13
they could never hit the T 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 wind up doing a way
1:24:24
fter one 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 this guy named Joe
1:24:36
Wilson he uh had a similar experience he couldn't understand why it's new machine was selling so poorly in relation to its older and inferior machine so he goes and looks and he finds out that the commission arrangement with the sales
1:24:48
people at Xerox gave a large and perverse incentive to push the inferior machine on customers so of course you're the salesperson say hey I get $100 if I sell the the old machine or I get $50 if I sell the new machine you're just gonna
1:25:01
what you're doing is logical it's the the person at fault is the person that's designing the incentive structure and so this is Charlie's solution never ever think about something else when you should be thinking about the power of incentives one thing you'll notice if
1:25:16
you listen to Charlie talk or if you read a bunch of books about him uh Buffett does this in shareholders letters as well actually let me read this from uh Buffett shareholder letter buff it says the behavior of peer companies whether they're expanding
1:25:28
acquiring setting executive competation compos composition whatever will be mindlessly imitated so he's saying the behavior of pure companies will be mindlessly imitated and what they're both shocked at Buffett also says that
1:25:41
it always amazes him how high IQ people mindlessly imitate so they talked about the benefit of social proof especially usually social proof uh being enhanced by larger scale and then a lot of of brand uh advertising marketing but a
1:25:57
form of social proof where it's actually negtive so that's obviously positive to a company the negative part is that the social proof also leads to Executives and CEOs and founders of companies mindlessly imitating other people around them and so he talks about in the
1:26:11
highest reaches of business it's not uncommon to find leaders who display followership akin to that of teenagers that is Charlie mongers online they are acting like teenagers just following anybody around them and he talks about that this psychological tendency is very
1:26:27
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 industry so use an example in the oil industry if one Oil Company
1:26:37
foolishly buys a mind other oil companies often quickly join in buying mines 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
1:26:52
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
1:27:10
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 remember this story more than anything and so Monger says one of my favorite stories is about the
1:27:22
little boy in Texas the teacher asks 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
1:27:39
arithmetic and he said no teacher you don't understand sheep and I'll close here with a great anecdote about the importance of practice skills of a very high order can be maintained only with daily practice a famous pianist once said that if he
1:27:56
failed to practice for a single day he could notice his performance deterioration and that after a weeks Gap in practice the audience could notice it as well that is a great way of illustrating that the public Praises people for what they practice in private
1:28:13
the public Praises people for what they practice in private keep reading keep learning it's what Charlie would have wanted it's good for you it's good for your family it's good for your customers it's good for your business and it is
1:28:23
good for the world that is where I will leave it there is a million more ideas in this book I believe it to be an indispensable part of your library I think it's an absolute no-brainer to buy it if you buy the book using the link that's in the show notes on your podcast
1:28:36
player you'll be supporting the podcast at the same time I will also leave a link down below for the book but also for the website that straight press did you can get a copy of the digital version for free I will also leave a
1:28:49
link down below for the conversation the incredible conversation that you do not want to miss with John cson and Charlie Monger it's one of the last uh going to be one of the last uh unheard uh interviews that is released that is available if you're if you're hearing
1:29:03
these words now it is already available I will leave a link down below but you can just go and search in your podcast player for invest like the best and you will see the conversation with Charlie Munger and John Collison that is 329
1:29:15
books down 1,000 to go and I'll talk to you again soon okay so what you're about to hear is this question I was asked a few months ago I actually recorded this a few months ago they asked how did History's Greatest entrepreneurs think about hiring all the answers people
1:29:28
think I have a better memory than I than I actually do you know if people say David you have a great memory my wife would laugh at that because I forget things all the time it's not I have a good memory it's I reread things over
1:29:40
and over and over again every single answer every single reference you're about to hear in this 20 minute mini episode came from me searching all of my notes and highlights that option is now available to you if you like what you hear if you think it's valuable if
1:29:54
you're already running a successful company and you want an easy way to reference the ideas of History's Greatest entrepreneurs in a searchable database that you can go through at your convenience anytime you want then you go
1:30:05
to Founders notes.com and sign up I want to start out first with why this is so important there's actually this book that came out in like 1997 it's a called in the company of giants I think it's episode 208 of Founders it's two Stanford MBA students if I remember
1:30:21
correctly and they're interviewing a bunch of tech technology company Founders and in there Steve Jobs is one of them this is you know right I think even before he came back to Apple and they were talking about well yeah we know it's important to hire but in a
1:30:35
typical startup a manager or a Founder may not always have time to spend recruiting other people and I I first read this this Steve's answer to this you know I don't know two years ago and I never forgot it I think it's excellent
1:30:47
I think it sets up why uh this question is so important and you should really be spending especially in the the early days like basically all your time doing this uh in a typical startup manager may not always have the time to spend
1:30:59
recruiting other people then Steve jumps in I disagree totally I think it's the most important job assume you're by yourself in a startup and you want a partner you take a lot of time finding a partner right he would be half of your company I'm going to pause there this
1:31:11
idea of looking at each new hire as a percentage of the company is genius why should you take any less time finding a third or fourth of your company or a fifth of your company when you're in a startup the first 10 people will
1:31:27
determine whether the company succeeds or not each is 10% of the company so why wouldn't you take as much time as necessary to find all a players if three three of the 10 uh were not so great why would you start a company where 30% of
1:31:44
your people are not so great a small company depends on great people much more than a big company does okay so to answer this question the advantage that um that I have making Founders and that you have as as a byproduct of listening
1:31:59
to Founders is not only that I've read you know 300 something biographies of entrepreneurs now but I have all of my notes and highlights stored in my readwise app and that means I can search for any topic I can look at the past highlights of books or I could search
1:32:12
for keywords so what I did is first of all like what I've started to do with these AMA um questions is I read them decide which ones I'm going to do next and then think about it for a few days I don't put any just literally that that I
1:32:24
know that's the next question just let my brain work on it in the background for a few days and then I'll go through and 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
1:32:37
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 great way to to hire is just find great work and find the
1:32:52
people that did that and and then try to hire them when you're Steve Jobs that's a lot easier right than if you're just somebody doesn't have reputation maybe don't have resources maybe your company's rather new or not as well known David ogy I just did
1:33:06
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 olvy at that point so he would find he'd go through magazines find great advertising great copywriting and
1:33:19
he'd write the personal letter and then set up a phone call and he says he wouldn't he was so wellknown and you know he's one of the best in his field that he wouldn't even have to offer a job just the conversation then the person would the he'd want to hire the
1:33:35
person never mention it and the person would apply to him um and so again I think if you can do that then of course that's straightforward who find for somebody does great work usually you can do this I actually have a friend that I
1:33:48
can't say who it is he's doing this right now actually um 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
1:34:01
works especially with people like younger people earlier 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 that that came to mind that I found surprising is you read any
1:34:12
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 you're listening to this you already know that but he
1:34:26
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 for I pay more for that ability than any other Under the Sun
1:34:41
there's the two the second part to this though and this is also works well if you have access to more resources you rockerfeller would hire people as he found as he found talented people not as he needed them it's not like okay standard has six open spots let's go
1:34:56
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 the
1:35:06
his partners of sard orial he essentially built a company an executive team of founders of because he was buying up all their companies so it's very rare but um there's a line from Titan I want to read to taking for granted the growth of his Empire he
1:35:20
hired talented people as found not as needed did and then I found another idea in the hiring like the actual interview process so there's this guy named Van ever Bush I did two episodes on him I think it's 270 and 271 he is the most
1:35:35
important American ever uh in history uh in terms of connecting the scientific field private Enterprise and the government the most important person to keep alive for the American war effort was FDR the second one was Van ever Bush van bush is like the Forest Gump of this
1:35:51
historical period he is involved in everything from the Manhattan Project to discovering like a young Claude Shannon to building a mechanical computer like this guy literally has done he's just he pops up in these books over and over
1:36:02
again if you were reading about American Business history during World War II and post World War II you are going to come across the name vanever Bush over and over again uh I read his fantastic autobiography called pieces of the action and I came across this weird
1:36:16
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 CG Smith the way I hired him is interesting an interview of that sort is
1:36:31
always likely to be on 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 Sol with a neat solution and I hired him at once
1:36:45
here's another idea this is from Nolan Bushell noan bushel 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 uh one of the
1:37:01
best ways his whole thing was he wanted to build a 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
1:37:11
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
1:37:22
they read it all I have known many talented Engineers who hated science fiction but loved say books on bird watching a blatant but often accurate generalization people who are curious and passionate read people who are apathetic and a different don't I
1:37:35
remember that's such a great line and I obviously agree with it I remember one I'm going to read it again a blatant but often accurate generalization people who are curious and passionate read people who are apathetic and indifferent don't
1:37:49
I remember one particular woman who during an interview told me that she had read every book that I had read so I started mentioning books I hadn't read and she had read those too I didn't know how someone in her late 20s found that
1:38:00
time this much time to read so much but I was impressed I was so impressed that I hired her right there and assigned her to International marketing which was having problems this is why this is why I'm reading this whole section to you a
1:38:11
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
1:38:26
you your role as the leader the company the founder to do right and you are in 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
1:38:37
like hey I should really organize my thoughts and notes because there's no way I would have remembered all this without being being able to search my readwise right but you have Rockefeller saying this is what's important to me you have Bush saying this is how I hire
1:38:49
now you have Nolan Bush now saying well here's another weird thing that I learned um let me go through uh what Warren Buffett says about this so this is about the quality one thing that is consistent whether it's jobs Buffett basos uh Peter
1:39:03
teal this just pops up over and over again they talk about the importance of trying to find people that that are better than you the the hiring bar constantly has to increase now obviously the larger the company gets that's impossible uh Steve Jobs has this great
1:39:16
quote where he's like you know Pixar was the first time I see I saw an entire team entire company of a players but they had 400 players they had 400 team members he's like at the time Apple had 3,000 it's like it's impossible to have
1:39:28
3,000 a players so there is some number that your company May grow to where it's just you're just not you're not going to have thousands of a players in my argument I don't even know if you get a 400 I guess you I mean I'll take Steve's
1:39:40
word for it on there and Pixar definitely produce great products but it's probably a lot lower than that as well so Warren Buffett would tell you to use David olgy's hiring philosophy and so Warren said Charlie and I know that the right players will make almost any
1:39:54
team manager look good again that is why it's the most important function of the founder maybe directly next to the product right above the product actually because those are people building your product we subscribe to the philosophy
1:40:05
of Oggy and Ma's founding genius David ogy this is what Oggy said if each of us hires people who are small smaller than we are we should become a company of dwarfs but if each of us hires people who are bigger than we are we should
1:40:16
become a company of giants David or Jeff Bezos rather used A variation of AG's idea too Jeff used to say in Amazon every time we hire someone he or she should raise the bar for the next hire so that the overall talent pool is always improving they talk about this
1:40:34
idea on Amazon where the the 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
1:40:47
with hiring there's this great book on the history of PayPal it's written by actually I've recently become friends with the author his name is Jimmy Sony um and this is in his book The the most fascinating thing that I found was that PayPal prioritized speed so from the
1:41:04
time they're they're founded to the time they sell to eBay it's like four years Jimmy spent more time researching the book than for he spent six years researching the book I always tease him because like you took longer on a book
1:41:15
than they took to start and sell their company it just speaks to like the quality he's trying to do but that as a byproduct of that like obviously they move fast but they PRI speed over everything else except in one area recruiting Max lechin kept the bar for
1:41:28
talent exceedingly High even if that came at the expense of Speedy sa Staffing Max kept repeating A's higher A's B's higher C's so the first B you hire takes the whole company down let's read that again a players hire a players
1:41:43
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
1:41:58
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 than when I uh publish those episodes
1:42:10
and he's just he's just crazy so he would hire based on the confidence the self-confidence level of of the candidate listen to this I have tears in my eyes I don't know why I'm laugh okay this just so because this is you read about Larry Ellison and he's one of
1:42:29
these people's like really easy to interface with because he 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 graduates when they
1:42:44
were recruiting from universities they'd ask people are you the 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
1:42:55
smartest people that way but you definitely got the most arrogant Ellison and this is why the personality of the founder is largely the culture of the company Apple is Steve Jobs Apple's just Steve Jobs with 10,000 lives right I was
1:43:07
just texting a a Founder friend of mine uh he listens to the podcast I actually met him through the podcast and he's going through this like uh process of self-discovery like he's already started a bunch of companies are really successful but he's like I think I'm
1:43:19
more of this type of founder than the other type of founder and that's good that he's doing doing that because he's he's hopefully his next mission is like his life's Mission you know and you can't get to your life's mission unless
1:43:28
you 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
1:43:43
actually could figure it out that in his business which was hotels right that hiring could hiring the right person could actually be a form of distribution for his hotel gave me the idea because of what what do we know what do you and
1:43:56
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
1:44:08
guy that Ritz Carlton is named after the great arguably the greatest hotelier of all time and when he realized oh Ritz he he says uh remembering that Caesar Ritz made his hotels World Famous by hiring some of the foremost chefs we
1:44:22
decided to something similar so what is he talking about Caesar Ritz went out and partnered with August escoffier what Caesar Ritz was to hotel to building hotels August es scaf was to French cooking and so what happen is you partner with world famous chefs people
1:44:35
come into your restaurant that's in the hotel because the world famous chef and now they know about your hotel that leads to more G that mean leads to more activity in your restaurant that you own but also leads to more brand recognition
1:44:46
of your hotel and then by as a byproduct that more people staying at the hotel so hiring as a form of distribution this is fascinating that is a fascinating idea okay here's the problem you can identify great people right maybe they even want
1:45:01
to come work like you've identified them you've sold them hey this is what this is our mission this is what we're we're doing and yet humans have complicated lives they have spouses they have kids they have a reason maybe they can't move
1:45:14
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
1:45:29
Founders are not going to take no for an answer I read in um in this book called liftoff which is about the first six years of SpaceX this is what Elon mus did they had an anticipated his friend's issue having convinced mus they needed
1:45:41
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 Angeles right because that's where SpaceX is at the time there these
1:45:53
were solvable problems and elon's better at solving problems than almost anyone else mus therefore came into his job interview prepared about halfway through mus told the guy that he wants to hire so I heard you don't want to move to LA
1:46:05
and one of the reasons is that your wife works for Google well I just talked to Larry and they're going to transfer your wife down to La so what are you going to do now to solve this problem musk had called his friend Larry Page the co-founder of Google the engineer sat
1:46:17
and stunned silence for a moment but then he replied given all that he would come to work at SpaceX that's really smart there is another idea when you're promoting are you going to promote from within or from without you know that's
1:46:32
dependent on you depending on what's going on I do think this is interesting though there's this guy named Les Schwab who built this this really uh valuable chain of uh like tire companies in the Pacific Northwest I actually found out
1:46:43
about him because Charlie Munger is like hey you should read this biography he said it in um he didn't say it to me personally he said it to uh in like one of the Burk meetings that to study lesw had one of the most uh one of the smartest uh Financial incentive
1:46:58
structures of any company that that Charlie muger 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
1:47:09
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
1:47:22
all earn their management job by working up and then another thing if you're going to hire the best of the best in a players they're a players don't like to be micromanaged um and so this came in Larry Miller's autobiography called driven he owns like he owned like 93
1:47:37
companies all throughout Utah car dealerships movie theaters all kinds of crazy stuff but he also owned the the the NBA team Utah Jazz and what was fascinating is he's trying to recruit Jerry Sloan as the coach at the at the point and Jerry Sloan would only take
1:47:49
the job on one condition and I really like it I really like this idea if you hire me let me run the team in 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
1:47:59
time he said I'm only going to ask you for one thing if I get fired let me get fired for my own decisions if you hire me let me run the team SL business here's another idea from Thomas ell Edison that I think is fascinating
1:48:15
really I the way I think about a Founder is like you're developing skills that you can't hire for you you're going to hire for everything else but you shouldn't be hirable and Edison wasn't Edison expressing his views on the preeminent role of Applied scientists
1:48:29
which that's what he considered himself coin the expression I can hire mathematicians but they can't hire me and 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
1:48:42
both rare and valuable uh Estee Lauder would give you advice that you need to hire people align 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
1:48:54
are top 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 who are as a
1:49:07
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 art I don't mean like a hoyy toyy you know pretentious manner that's not me at all I don't even care about I don't art
1:49:21
at all really I mean that you're making decisions not just based on economics like there are non-economic important decisions based on how you're building your business like you could probably make more money doing a decision a but decision a is
1:49:36
goes against who you are as a person or you just don't like it or it's just not as elegant or beautiful and so therefore you don't do it so that's what I mean about you know higher people who think as you you do and what for whatever reason when I read essay Lauder say that
1:49:48
I was like okay that there's like this art to what she's doing one thing that's going to help when recruiting uh this comes from Peter teal I think this is the book 0 to one understand that most companies don't even differentiate their
1:50:00
pitches to potential recruits and to hiring so therefore like they're just going to by as a byproduct of that you're going to wind up with a lower overall Talent base and so he says what's wrong with valuable stock smart people are pressing problems nothing but
1:50:13
every company makes this 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 money instead of many others
1:50:25
so that idea of like your pitch your actual he would tell you you're you shouldn't be building undifferentiated commodity business but even above and beyond that like you're the the the mission that you're trying to engage everybody to join you in that pitch that
1:50:39
sale sale you're trying to make to potential recruit should be differentiated should not if that person's applying to five other jobs there should not be like it's like they may not like your mission they may not like your pitch but they shouldn't be
1:50:49
able to compare it to anything else uh another quote from no Bushell hire for passion and intensity that's what he would do or that's what he did when he found Steve Jobs if there was a single characteristic that separate Steve Jobs from the mass of
1:51:02
employees it was his passionate enthusiasm Steve had one full one speed full 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
1:51:17
this is again Elon Musk on hiring he interviewed the first 3,000 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
1:51:29
brilliant they had to be hardw workking and there could be No Nonsense there are a ton of phonies out there and not many who are the real deal must said of his approach to interviewing Engineers I can usually tell within 15 minutes and I can
1:51:39
sure 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 in the company hired through the first 3,000 employees it required late nights and weekends but he
1:51:51
felt it was important to get the right people for his company and then the close on this we started with Steve Jobs telling us why it was so important and why should be a large part of how you spend your time and now we'll close with
1:52:02
what you do after what do you do after you hire the person this what he says it's not just recruiting after recruiting it's building an environment that makes people feel they are surrounded by equally talented people and their work is bigger than they are
1:52:15
the feeling that their work will have a tremendous influence and is part of a strong Clear Vision so so that is the end to that 20 minute mini episode I just relistened to the whole thing and it it really does I think it's a perfect
1:52:29
explanation and illustration of why I think Founders notes is so valuable because that some of those books I haven't read in five six years and just the ability to have a searchable database of all this these ideas like this collected knowledge of some of
1:52:44
History's Greatest entrepreneurs to reference and then contextually apply to our own businesses it's nothing short of like it's magic that's really the way I think about it I think gets a massive superpower gives me a massive superpower
1:52:54
I couldn't have make the podcast without it I also think if you have access to it it would make your business better and so if you're already running a successful business I highly recommend that you invest in the subscription and you can do that by going to Founders notes.com