Charlie Munger: USC Law Commencement Speech, May 2007

Welcome and thanks

Okay, thank you, Rosemary, and congratulations to all of our global law students.

Introducing the keynote speaker

It's now my honor to introduce our keynote speaker. And I suspect there are, you know, some of you way back there who were here just for this reason.

Munger's Pasadena talk

I had the great privilege of being in Pasadena on Wednesday afternoon of this week at the West Coast board meeting, where Charlie Munger speak — spoke for three hours; a lot of it was Q&A, and there were about 1,000 people there had come from all over the world, from New.

Introducing Charlie Munger

Delhi and Australia and various parts, just to hear Charlie talk, So it's a tremendous honor and a privilege that we're here presenting Charlie right here on the USC campus. Charlie, as many of you may know, is the vice chairman of Berkshire Hathaway.

Berkshire and Wesco role

That is the legendary investment company headed by Warren Buffett. Like Warren, Charlie grew up in Omaha. Charlie's also the chairman of Wesco, which is a subsidiary of Berkshire Hathaway.

Wesco's public meeting

And he holds an annual meeting every year, and it's open to the public. So hopefully I'll see some of you there next year.

Munger's early life and education

It's a lot of fun. Charlie, like Warren, is a native of Omaha. He studied at the University of Michigan and served in the United States Navy before entering Harvard Law School. A little bit of the theme here.

From law to investing

Charlie founded and worked as a real estate attorney, actually did some real estate development as well. But he founded and worked as a real estate attorney at the very prestigious Prominent firm of Munger Tolls and Olson. until 1965, when he left the practice of law and became an investment manager.

Best decision he ever made

Now here's a sentence that's kind of standard in Charlie Munger law. Leaving the law was probably the best decision he ever made. So just repeat: leaving the law was probably the best decision Charlie ever made. He took his legal education, the kind of skills that he learned in law school, and applied it to investing.

Forbes wealth as hope

And today he is listed by Forbes as one of the wealthiest people in the world. So there's hope, if not for you, for your parents and all those people that work so hard to support you for the last three years.

Reading and thinking

Charlie credits much of his success to his favorite pastimes:. Reading and thinking.

Wisdom quote

One of the lines that Charlie developed in dispensing his wisdom at the West Coast meeting was," If it's wisdom you're after— if it's wisdom you're after— you're going to spend a lot of time sitting on your ass and reading."

Reading quote

That's a quote from Charlie. So read, read, read.

Charlie's appeal

Think. Question: This is what Charlie is really about. His observations about wealth, business, and life have inspired a near cult of fans.

Fans and shirts

It's true: they wear Charlie Munger shirts and they come to these meetings.

Poor Charlie's Almanac book plug

It's a spectacular thing to see. Lots of these are gathered up in his book Poor Charlie's Almanac, which was edited by Peter Kaufman, who's over here, the CEO of Planair, another USC Trojan, graduate of our business and accounting schools. And get that book; it's a wonderful thing. You can't get it. I can't get a discount. Nobody can get a discount because it's a Charlie Munger book, but it's called Poor Charlie's Almanac, and it's a collection of speeches and witticisms and thoughts. That's tremendously powerful.

Favorite Mungerism example

Here's just an example of one of my favorite Mungerisms. Quote: all I want to know, the only thing I want to know, is where I'm going to die, so I will never go there. That's just Charlie. Another thing we heard both at West Go Again this morning, we had breakfast with Charlie, which was a lot of fun.

High road saying

But a saying attributed - I think this is from Warren, but - take the high road, you'll find it less crowded. So that's the way Charlie thinks. He's a brilliant man. He's been a friend, a mentor throughout the past year, and I'm delighted that we're going to get him to dispense his wisdom as our keynote speaker.

So, Charlie Munger.

Why an old speaker

Well, no doubt many of you are wondering why the speaker is so old. Well, the answer is obvious: he hasn't died yet. And why was the speaker chosen? Well, I don't know that either. I like to think that the development department had nothing to do with it. Whatever the reason, I think it's very fitting that I'm sitting.

Honoring families

Here, because I see one crowd of faces in the rear not wearing robes. And I know from having educated an army of descendants. Who does really deserves a lot of the honors that are being given to the people up here in front? The sacrifice and the wisdom and the value transfer that come from one generation to the next can never be underrated. And that gave me enormous pleasure as I look at this sea of Asian faces to my left.

Confucius and filial piety

All my life, I've admired Confucius. I like the idea of filial piety, the idea that there are values that are taught and duties that come naturally, and that all that should be passed on to the next generation. And you people who don't think there's anything in this idea

Q&A transition

please note how fast these Asian faces are rising in American life I think they have something All right, the — I scratched out a few notes. And I'm going to try and just. Give an account of some ideas and attitudes that have worked well for me. I don't claim that they're perfect for everybody. Although I think many of them are pretty close to universal values, and many of them are are can't fail ideas What are the core ideas that have helped me?

Deserve what you want

Well, luckily I got at a very early age. The idea that, the safest way to try and get what you want is to try and deserve what you want. It's such a simple idea. It's the golden rule, so to speak. You want to deliver to the world what you would buy if you were on the other end. There is no ethos, in my opinion, that is better for any. Lawyer or any other person to have. By and large, the people who had this ethos. Win in life. And they don't win just money. Just honors and emoluments. They win the respect, the deserved trust. Of the people they deal with. And there is huge pleasure in life to be obtained. From getting deserved trust. And so, and the way to get it is to deliver. You'd want to buy if the circumstances were reversed. Occasionally use, find a perfect rogue of a person.

Funeral as life's test

Who dies rich and with and widely known. But mostly these people are fully understood by the surrounding civilization. And when the cathedral is full of people at the funeral ceremony, most of them are there to celebrate the fact that the person is dead. And that reminds me of the story of the time when one of these people died, and the minister said, it's now time for someone to say something nice about the deceased. And nobody came forward, and finally one man came up, and he said, well,. His brother was worse. That is not where you want to go. That's not the kind of funeral you want to have; you'll leave entirely the wrong example.

Admiration-based love

A second idea that I got very early

Not Maugham's love

was that there's no love that's so right as admiration based love and that love should include the instructive dead Somehow I got that idea and I've lived with it all my life and it's been very useful to me A love like that celebrated by Somerset Maugham in his book of human bondage That's a sick kind of love; it's a disease. And if you find yourself in a disease like that, my advice to you is turn around and fix it, eliminate it.

Learning as moral duty

Another idea that I got. And this may remind you of Confucius too. Is that wisdom acquisition was a moral duty, it's not something you do just to advance in life. Wisdom acquisition is a moral duty, and there's a corollary to that proposition which is very important.

Lifetime learning's corollary

It means that you're hooked for lifetime learning. And without lifetime learning, you people are not going to do very well. You are not going to get very far in life based on what you already know. You're going to advance in life by what you're going to learn.

Berkshire as proof

After you leave here, if you take Berkshire Hathaway. which is certainly one of the best regarded corporations in the world and may have the best invest long term investment record in the entire history of civilization. The skill that got Berkshire through one decade would not have sufficed to get it through the next decade with the achievements made. Without Warren Buffett being a learning machine, continuous learning machine, the record would have been absolutely impossible.

Learning machines rise in life

The same is true at lower walks of life. I constantly see people rise in life. We're not the smartest, sometimes not even the most diligent, but They are learning machines. They go to bed every night a little wiser than they were when they got up. And boy, does that habit help, particularly when you have a long. Run ahead of you.

Whitehead on invention

Alfred North Whitehead said at one time that the rapid advance of civilization. Came only when man invented the method of invention.

The method of learning

And of course he was referring to the huge growth in GB GDP per capita and. All the other good things that we now take for granted, which happened just, started a few hundred years ago. And when, before that, all was stasis. And so. If civilization can progress only when it invents the method of invention, you can progress only when you learn the method of learning.

Continuous learning served him

I was very lucky. I came to law school having learned the method of learning, and nothing has served me better in my long life than continuous learning.

Buffett's learning habits

And if you take Warren Buffett, if you watched him with a time clock, I would say half of all the time that he spends is just sitting on his ass and reading, and a big chunk of the rest of the time is spent talking one one, either on the telephone or personally, with highly gifted people whom he trusts and who trust him.

Academic values worth having

Other words, it looks quite academic. All this worldly success academia has many wonderful values in it. I came across

A bone-tumor pathologist's value

such a value not too long ago. That was several years ago, when my capacity as a hospital board chairman, I was dealing with a medical school academic, and this man over years of hard work and made himself know more about bone tumor pathology than almost anybody else in the world. And he wanted to pass this knowledge on to the rest of us. and and particularly the people that treat cancer bone cancer And how is he going to do it? Well, he decided to write a textbook that would be very useful to other people. And I don't think a textbook like this sells 2,000 copies. But those 2,000 copies are in all the major cancer centers of the world.

The sabbatical textbook

He took a year's sabbatical, and he sat down at his computer, and he had all the slides because he'd saved them and organized them and filed them. He worked 17 hours a day, seven days a week, for a year. That was his sabbatical. At the end of the year, he had one of the great bone tumor pathology textbooks of the world.

Absorb such values

When you're around values like that, you want to pick up as much as you can.

Law school lesson

The other another idea that was hugely useful to me was that I listened in law school when some wag said a legal mind is a mind that when two things are all twisted up together and interacting, it's feasible to think responsibly about one thing and not the other. Well I Could see from that one sentence that was perfectly ridiculous and it pushed me further into my natural drift which was into learning all the big ideas and all the big disciplines so I wouldn't be a perfect damn fool who was trying to think about one aspect of something that couldn't be removed from the totality of the situation In a constructive fashion

Big ideas routine

And what I noted, since the really big ideas carry 95% of the freight, it wasn't at all hard for me to pick up all the big ideas in all the disciplines and make them a standard part of my mental routines. Once you have the ideas, of course, they're no good'. If you don't practice, you lose it. So I went through life constantly practicing this multidisciplinary approach— well, I can't tell you what that's done for me.

Benefits of the approach

It's made life more fun, it's made me more constructive, it's made me more helpful to others, it's made me enormously rich. You name it.

Danger of being right

That attitude really helps. Now there are dangers in it, because it works so well. That if you do it, you will frequently find you're sitting. In the presence of some other expert, maybe even an expert that's superior to you, supervising you. And you will know more than he does about his own specialty. A lot more. You'll see the correct answer when he's missed. That is a very dangerous position to be in. You can cause enormous offense.

Offense from being right

By helpfully being right in a way that causes somebody else to lose face. And I never found a perfect way. To solve that problem. I was a great poker player when I was young, but I wasn't a good enough poker player. So the people— failed to sense that I thought I knew more than they did about their subjects, and it gave a lot of offense.

Advice: hide your light

Now I'm just regarded as eccentric. But there was a difficult period to go through. And my advice to you is to learn sometimes to keep your light under a bushel.

Chuck's senior partner advice

One of my colleagues, also a No. 1 his class in law school, a great success in life, clerk for the Supreme Court, et cetera. But he knew a lot, and he tended to show it as a very young lawyer. And one day the senior partner he was working under called him in and said, "Listen, Chuck," says, "I want to explain something to you. Your duty under any circumstances is to behave in such a way that the client thinks he's the smartest person in the world. And you've got a little any little energy or insight available after that. Use it to make your senior partner look like the smartest person in the world. And only after you've Satisfied those two obligations, do you want your light to shine at all?

Rejecting the firm advice

Well, that may have been very good advice for rising in a large firm. It wasn't what I did I always obeyed the drift of my nature and of other people didn't like it Well, I didn't need to be adored by everybody. Another idea.

Cicero and multidisciplinary learning

And by the way, when I talk about this multidisciplinary attitude, I'm really following a very key idea of the greatest lawyer of antiquity, Marcus Tullius Cicero. And Cicero is famous for saying. A man who doesn't know what happened before he's born goes through life like a child. That is a very correct idea of Cicero's And he's right to ridicule somebody so foolish as not to know what happened before he was born But if you generalize Cicero as I think one should there are all these other things that you should know in addition to history and those other things are the big ideas in all the other disciplines And it doesn't help you just to know them enough so you could prattle them back on an exam and get an A You have to learn these things in such a way that they're in a mental lattice, work in your head, and you automatically use them for the rest of your life.

Payoff of the lattice

If you do that, I solemnly promise you that one day you'll be walking down the street and you look to your right and left, and you'll think, my heavenly days. I'm now one of the few most competent people of my whole age cohort. If you don't do it, many of the brightest of you will live in the middle ranks or in the shallows.

Inversion from the rustic story

Another idea that I got And it was encapsulated by that story. The dean recounted about the man who wanted to know where he was going to die, and he wouldn't go that way, go there. That rustic who had that idea had a profound truth in his hand. The way complex adaptive systems work, and the way mental constructs work.

Solve by inversion

Problems frequently get easy — I'd even say usually are easier to solve if you turn them around in reverse. In other words, if you want to help India, the question you should ask is now, how can I help India? You think, what's doing the worst damage in India? What will automatically do the worst damage, and how do I avoid? You'd think they logically the same thing — they're not. Those of you who have mastered algebra know that inversion frequently will solve problems which nothing else will solve. And in life, unless you're more gifted than Einstein, inversion will help you solve problems that you can't solve another way.

Inversion applied: what fails

Let me use a little inversion now. What will really fail in life? What do we want to avoid? Such an easy answer: sloth and unreliability. If you're unreliable, it doesn't matter what your virtues are — you're going to crater immediately. So doing what you have faithfully engaged to do should be an automatic part of your conduct. You want to avoid sloth and unreliability.

Avoid intense ideology

Another thing I think should be avoided is extremely intense ideology, because it cabbages up one's mind. You've seen that, and you see a lot of it, you know, in TV Preachers, for instance. You know, they've all got different ideas about theology, and a lot of them have minds that are made of cabbage, and. And but that can happen with political ideology. And if you're young, it's easy to drift into loyalties. And when you announce that you're a loyal member, and you start shouting the orthodox ideology out, what you're doing is pounding it in, and you're gradually ruining your mind. So you want to be very careful with this ideology.

Scandinavian canoeist example

I've had you — it's a big danger. In my mind, I've got a little example I use. Whenever I think about ideology, and that's the Scandinavian canoeists who succeeded in taming all the rapids of Scandinavia, and they thought they would tackle the whirlpools of the Aaron Rapids here in the United States. The death rate was 100%. A big whirlpool is not something you want to go into. And I think the same is true about a really deep ideology.

Iron prescription for opinion

I have what I call an iron prescription that helps me keep sane when I naturally drift toward preferring one ideology over another. And that is, I say I'm not entitled to have an opinion on this subject. Unless I can state the arguments against my position better than the people do who are supporting. I think only when I've reached that state am I qualified to speak.

The iron prescription isn't too hard

Now you can say that's a too much of an iron discipline. It's not too much of an iron discipline. Isn't even that hard to do. It sounds a lot like the iron prescription of Ferdinand the Great. It's not necessary to hope in order to persevere.

Avoid heavy ideology

That probably is too tough for most people. I don't think it's too tough for me, but it's too tough for most people. But this business of not drifting into the extreme ideology is a very important thing in life. If you want to have more correct knowledge and be wiser than other people, the heavy ideology is very likely to do you in.

Self-serving bias

Another thing of course that does one in is the self serving bias to which we're all subject. You think the true little me.

Mozart overspent

Is entitled to do what it wants to do. And for instance, why shouldn't the true little me overspend my income? Well, there once was a man who became the most famous composer in the world but he was utterly miserable most of the time. And one of the reasons was he always overspent his income. That was Mozart. If Mozart can't get by with this kind of asinine conduct, I don't think you should try.

Disastrous modes of thought

Generally speaking, envy, resentment, revenge, and self-pity are disastrous modes of thoughts. Self-pity gets pretty close to paranoia, and paranoia is one of the very hardest things to reverse. You do not want to drift into self-pity.

The self-pity card

I have a friend who carried a big stack of linen cards, about this thick. And when somebody would make a comment that reflected self-pity, he would take out one of the cards. Take the top one off the stack and hand it to the person, and the card said, "Your story has touched my heart." "Never have I heard of anyone with as many misfortunes as you."

Self-pity card

Well, you can say that's waggary. But I suggest that every time you find you're drifting into self pity, and I don't care what the cause, your child can be dying of cancer, self pity is not going to improve the situation. Just give yourself one of those cards. It's a ridiculous way to behave.

Escaping self-pity

And when you avoid it you get a great advantage over everybody else almost everybody else because self pity is a standard condition and yet you can train yourself out of it