8 More Mungerisms: Optimism, Ideologies, Discipline, Incentives and Intellectual Honesty

This is the second and final part of our mini-series about Charlie Munger and his worldly wisdom. If you haven’t read part one be sure to check it out; it features the first seven of fifteen Mungerisms. Here are the final eight.

Be a good person

‘Occasionally you find a rogue person who dies rich, wealthy, powerful; but mostly these people are fully understood by the surrounding civilisation, and when the cathedral is full of people, at the funeral, most of those people are there to celebrate the fact the person is dead.’

The last thing you want at your funeral is one attendee. In other words, you want kick the bucket having first left a good impression on the people you came into contact with—before you kick it. Of course, being a good person is not the easiest thing in the world; life gives us many a reason to fall into bouts of frustration, sadness, self-pity, misery, you name the emotion. But almost all of these reasons, are inadequate, are poor attempts to make lack of effort, kindness, and goodness, okay—it is almost never okay. Trust makes the world go around; hence, the principle question one should use to guide their actions in life is the following: How can I earn—not buy, fiddle, force or beg, but earn—the respect and trust of others?

Be ready when trouble comes

‘All my life I’ve been anticipating trouble, and yet here I am. … I’ve had a very favoured life.’

Optimism is good as long as it doesn’t blind. Once it starts to distorts your already distorted view of reality, no longer is it optimism; it is foolish ignorance. This can happen both intentionally, and not: for example, one can be by nature an overly optimistic person, which, whilst it may keep them happier than Larry when everything is going right, does very little to prepare them for when nothing is going right; on the other hand, an individual can consciously adopt an optimistic mindset as a way of distracting themselves from potholes, quicksand, and the odd grim-reaper, which obviously, is a terrible idea. There is one fact about life for which you can be certain: over the course of your existence, you will be presented with many challenges, problems, idiots, con artists, traumas and the occasional catastrophe.

How you respond to these events is important; but, how you prepare, is far far more important. La-di-da philosophies are good only until shit hits the fan, and you bet, shit will hit the fan, many times; they don’t prepare you for trouble, so, when it does come along, you’re like the frozen deer in headlights. The alternative philosophy is to go through life anticipating trouble. Of course, you can never be fully prepared for anything in life, but by expecting trouble, as you walk along the path, you’re far more equipped to respond…

Remember what Cicero said

‘Know your history; learn the big ideas. If you don’t prepare for a life in the shallows.’

If you want to get ahead in life, learn. Marcus Cicero once said ‘He who does learn about history goes through his life living like a child’. Charlie uses this quote in the following clip, in which he is explaining the importance of knowing how and why things work—today, and have in the past. But knowing, in this sense, doesn’t mean just not being ignorant of say, History, or how the economy works, or any other crux of culture or science or politics; it means confident, deep, and true understanding of these, what Charlie calls, ‘big ideas’. Being not only broad but diligent and far-reaching in your learning will give you real-life superpowers; be ignorant, shallow and superficial in your approach, and you’re like the incredible hulk trying to save the world after someone secretly slipped an E tablet in your glass of orange juice: everything is going wrong, but you don’t know why…

Intellectual honesty

‘In this world there are two types of knowledge. One is [Max] Planck knowledge: the people who really know, who’ve paid the dues, who have the aptitude; the other is chauffeur Knowledge: that of those who have leaned to prattle the talk.’

Merely being aware of something does not qualify as understanding; and understanding, is not by definition deep understanding. To use an analogy, if you’re going to play ball in a field, for the first time, with other, more experienced ballplayers, then you want to know the rules of the game before the whistle blows—unless, of course, you’re interested in getting seriously hurt; in that case, it’s a great idea. Essentially, you want to avoid shallow understanding of the key aspects of your life: if you’re in the market game, for example, then you ought to know everything there is to know about it; likewise if you’re going for full-time professor in Quantum Theory at Stanford, you better know Quantum Theory inside and out. You can fake it for a while—you may even get very lucky and experience some notable success—but sooner or later, you’ll be exposed; this, is intellectual dishonesty.

Both of the examples given are not only dangerous on the personal level, neither; the fake trader could take down the business he works for, and therefore all the employees and their families with it; and the fake professor, once exposed, could tarnish the uni’s and his own colleagues reputation, whilst also forcing his students to rethink everything he had taught them. The upshot is, avoid surface knowledge; doing this with all of your interests is impossible, but in the most important ones, it is crucial.

Be cautiously aware of the role of incentives

‘You don’t want to be in a perverse incentive system that is causing you behave more and more foolishly or worse and worse. Incentives are too powerful a controller of human behaviour.’

Quite simply, avoid perverse incentives. Incentives are quite important—they are why we work; they influence our tastes, our goals, the way we dress; they control our thoughts, habits, behaviours; they are sources of motivation, fear; they control criminals; they make governments possible—they are important, and they are powerful. But what if this power was to be misused, corrupted, manipulated? Alas, like everything good, incentives can also be used perversely, and for evil. There are many subconscious incentives that influence how we live, but the conscious—and most relevant here—are money, power and authority, and fear. For example: most people go to work not because they enjoy it, but because they get paid (this is money incentive); a handyman might work his way up the ladder because the concept of power excites him; a driver will drive more carefully when there is police car behind him; and a potential evildoer may not carry out his plans through fear of jail time—these, you could say, are good uses of incentives.

An example of perverse use would be a manipulated boss who keeps you quite by either threatening you, or by giving you a raise; another example would be marriage in the name of finance only. The thing about perverse incentives is that they play on a multiple of different systems; in other words, perverse incentivisation is typically a series of singular perverse incentives, which each play of each other. You mingle with them at your peril

Don’t play games with yourself

‘If Mozart can’t get by with a standard asinine conduct, I don’t think you should try it.’

Save your money. Yes, it’s a cliché, but clichés are often true; and no, it may not be easy to save your money, but excuse making does nothing. If your struggle to save money is harming you—or will harm you or your close ones in the future—then you and only you can do something about it, right now. If you have a tendency to spend—which, because today’s culture constantly forces it upon us, includes literally everyone but the odd recluse—then you have to take responsibility. How? First, contact yourself to paying into a monthly no-transaction no-withdrawal savings account; once you accept this, then you work on your spending. Reverse engineering this method is futile; if you’re trying to reduce your spending without immediate punishment (which you get in the form of a penalty with such a savings account) or some other powerful incentive, then you’re walking along a very slippery slope, and will most likely fall over so many times that you give up—it’s much easier to carry on spending.

Setting up a savings account that you can’t withdraw from forces you to save—because if you try to withdraw, you lose money. This fundamental lesson here, is of course not just about saving money; there is an underlying principle that pertains to most of what is important in life: namely, that incentives are everywhere, and in no place are they more prevalent than in ourselves; hence, we must work not only to identify them—in the world, in others, and in ourselves—we must also work against them, and use them to our advantage. Arguing against your own opinions is an example of working against them; contracting yourself to a savings account is using them to your advantage. Perhaps the fundamental lesson even simpler: just don’t be a donkey.

Avoid ideologies—unless you want a mind made of cabbage

‘A big whirlpool is not something you want to go into: the think the same is true about a really deep ideology.’

”I have what I call an “iron prescription”: I am not entitled to have an opinion on this subject, unless I can state the arguments against my position better than the people who are in favour of it.’

Strong opinions and beliefs are the ultimate influencers of behaviour; they are the puppeteers to the puppets—and we are the puppets. Take belief in God; the idea that there is a superior, all-knowing and all-powerful and sacred being watching over humanity has served, in large part, as tamer of the lion side of human nature—or rather, as an invisible syringe, drawing out whatever good that exists in the human spirit. Likewise with religion, which has transformed criminals, built civilisations, and been the foundation of morality for thousands and thousands of years. But remember, everything good has the potential to create as much bad; beliefs in God and religious fundamentalism have been the foundations of such disgusting things as homophobia, female oppression, terrorism and slavery. But let’s not get caught up in theological discussions.

The point is, the highest and/or strongest ideas you hold are what control and drive you the most; you could say, I suppose, they are your own version of God. It goes, therefore, that being extremely careful of what you believe period—not just what you strongly believe, for all beliefs are influential to some degree or another—can serve you very well in life; in fact, it is hard to argue, I would say, that there is anything more important that knowing what your beliefs are. Seen as we act out most of our beliefs unconsciously, identifying them—and if necessary, tearing them apart— isn’t as simple or easy as it sounds; but the importance becomes obvious when you realise that it is they that control how you act, think, live, exist, and not you, that is, not the conscious you; when you consider the fact that it is your very life that you are talking about. No, there is nothing more important.

A seamless web a deserved trust

‘This is not the highest form a civilization can reach. The highest form a civilization can reach is a seamless web of deserved trust.’

It is easy—and in fact, normal—to think otherwise, but we are not living in the highest state civilisation can reach; no, we are in a unique age, but we have by no means created the best possible world. The word ‘possible’, here, is everything; as opposed to world built on trust, love, ethics and rationale, a utopian (or completely balanced) world is not possible—not to mention both implausible and dull. I call this the Golden Age Fallacy; this is our tendency to think we are living in a, or the, golden age—which may be indeed be true in the specific sense, with such things as WI-FI, universal connection, AI and space travel; but in the broader sense, is most likely delusional.

Even if we are in the golden age, there can be no denying that we still have much room for improvement, that society can function better, that life today can be more meaningful and rich, that we can take civilisation even higher. Charlie calls such a world, a world built upon a seamless web of deserved trust. What this means is rather simple: each person rightfully earns the trust and respect that they need, want, and will be able to thrive upon; it is a world heightened by the fruits of hard work, care, diligence, love, compassion, by moral values, by trust….

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