I finished reading Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger last week. It’s a memoir and collection of famous speeches by Charlie Munger. I’d put off reading it for a while. Looking back, I regret that decision. The book unlocked a different way of evaluating decisions and exposed me to new psychological concepts—some that aren’t even taught in schools. It felt like an introduction to practical psychology for entrepreneurs and investors. I made tons of highlights and notes while reading this book.

I’ll eventually create a blog series on this book, so I won’t go into everything here. But here are a few more takeaways:

• Checklists – Countless times throughout the book, Charlie mentioned using mental checklists as a way to avoid mistakes in your decision process. Checklists are also a central part of David Allen’s Getting Things Done (unrelated) framework. My takeaway is that checklists are simple tools that are available to everyone, but they’re more powerful than people realize when used consistently.
• Multidisciplinary learning – I mentioned this in my post last week (here). If you have a narrow understanding of topics or a small tool set, you increase your risk of the cognitive bias of relying too much on one tool or a limited number of tools. Mark Twain described it well: “To a man with a hammer, everything looks like a nail.” You apply tools to situations for which they’re not appropriate and increase the chances of making subpar decisions. Broad learning about topics that interest you helps prevent this. Often, you discover nonobvious relationships between topics that others have missed, which improves your decision-making and gives you an edge. Charlie mastered this, and it led to a life of curiosity-driven learning and a billion-dollar fortune from shrewd decisions.
• Hard work – Acting and getting things done is one form of hard work. But learning and thinking is another form, one that many people underestimate. Learning and thinking are preparation. Good preparation leads to better decisions and allows you to practice “extreme decisiveness,” which is valuable during extreme uncertainty. From an investing perspective, preparation allows you to identify when something is mispriced and gives you the confidence to bet heavily based on your work, even if everyone else is selling for dear life.
• Incentives – Incentives heavily influence individual decision-making. Getting them right is critical for entrepreneurs and managers. If you want to understand someone’s actions or thought process, think about how they’re being incentivized.
• Lollapalooza effect – When two or more factors work at the same time, they magnify outcomes. This works positively and negatively. This reminded me of twin tailwinds, which I’ve noticed when reading about Henry Singleton (see here), Warren Buffett (see here), and 2021’s IPO explosion (here). These are lollapalooza-effect examples that led to massive wealth creation.
• Mastering wisdom – Mastering the best things others have figured out is a discipline. It’s also a hack. Trying to figure out everything from scratch on your own is hard to do, and most people aren’t smart enough to do it (Charlie’s words, not mine). It’s better to take what others have figured out and build upon their wisdom. Everyone can do it, but many people won’t because it requires a passion for learning and curiosity and is hard work.
• Inversion – If you’re not sure what to do about a problem, think it through backward to figure out what not to do. By knowing what not to do, you’re one step closer to understanding what to do.
• Outsourcing thinking – You can’t outsource your thinking. You must think for yourself and, ideally, in a multidisciplinary manner.

Those are just some of my takeaways from this book. I’m glad I read it and will likely reread it someday.

I began reading a new book that I’d put off reading for a long time: Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger. I bought the 2005 version years ago. It’s a huge book with tons of pictures, so it’s awkward to hold and difficult to read. Stripe Press printed a version without all the pictures in late 2023 that’s the size of a normal book, making it more manageable. I bought the updated version and dug into reading it.

I’m still reading the book, but so far, I like it. A few high-level thoughts:

• Psychology – Robert Hagstrom’s books got me more interested in understanding psychology to understand human decision-making (see this post). Munger writes extensively about psychology and judgment. He reiterates the importance of understanding psychology if you want to do well in life. He shares mental models and stories that make understanding some of the big ideas in psychology easier. His insights on psychology and his views of its importance got me excited to learn more about the topic.
• Education – Munger is critical of higher education institutions, even though he graduated from Harvard Law. He highlights the gaps in how these institutions teach—or don’t teach—certain topics like psychology that make them difficult to apply in everyday life. His big gripe is that they teach these topics in isolation and don’t educate students on how they work in conjunction with other disciplines. They also don’t teach all concepts in a discipline; they selectively choose which ones to cover. He advocates for a multidisciplinary approach to teaching because it better reflects the complexities of the real world. He also advocates for learning all the big ideas in a discipline. He gives the example of how his law classes, such as negotiations, would have been enhanced by psychology concepts. He advocates for people to educate themselves by reading about the big ideas in a discipline such as psychology. The education you can give yourself can be better than what you get at a college or university because it can be multidisciplinary and include all concepts in a discipline.
• Multidisciplinary learning – Munger is a big believer in the idea that understanding lots of different disciplines and how they work together better prepares you to navigate life and, in his case, make better investments. Having mental models from the various disciplines enhances your ability to read situations and make decisions superior to those of others.

I’m glad I got around to reading this book. I’ve made lots of highlights and notes already. I’m looking forward to finishing it.

If you’re interested in the book, you can learn more about it and download a free PDF copy at Stripe Press here.

Last year, I added Amazon affiliate links to my blog and podcast for books I shared (see here). Affiliate programs are commission programs. For every person I refer to Amazon who purchases the item I recommended, I get a commission on the sale. These programs didn’t interest me initially. For books, the effort exceeds the reward. Affiliates earn roughly $0.50 on a book sale. But then I realized the true value is in the data. Amazon’s affiliate program is robust, and I can track which books people click on and which books they purchase. I was very interested in the data, so I signed up for the program and started using affiliate links in mid-June 2024.

I have roughly six months of data. Here are the high-level stats:

• Items purchased: 14
• Total revenue generated (for Amazon): $226.05
• Average revenue per item (for Amazon): $16.14
• Total affiliate earnings (for me): $6.17
• Average earnings per purchase (for me): $0.44

I earned about $1 a month from affiliate commissions. My time to implement and execute this was worth more than $6, lol.

But I dug into the data and had some interesting insights:

• No book had more than one affiliate purchase.
• The books purchased were mostly about investors who became entrepreneurs when they founded investment firms: Jim Simons, Ed Thorpe, etc. This was interesting and unexpected.
• I had three international sales in Germany and the United Kingdom. I didn’t expect to have international reach.
• The majority of purchases were of Kindle or audiobook versions. I’m a physical-book person, so this surprised me.

Absent this affiliate experiment, I wouldn’t have known any of these things. So, from an insights perspective, the experiment was valuable. The sample size is small, of course, so I can’t draw definitive conclusions, but it’s still helpful.

So, what’s the verdict on my Amazon affiliate experiment? I’m glad I did the experiment because of the data it provides. I won’t get rich off affiliate commissions on book sales, but the insights are valuable. Now that I’ve got this, stopping the experiment doesn’t make sense. I’ll keep adding the affiliate links to content I share about books.

This week, an entrepreneur friend gave me feedback on a blog and podcast series I did on a biography. He said the posts resonated with him because of the insights I shared. Connecting the dots between different people and periods was helpful and would be hard for him to do himself. And because the insights derive from the experiences of people who did what he’s attempting to do, but on a massive scale, they’re more valuable because the people’s outcomes make them more credible.

I appreciate my friend giving me his candid feedback. The books I read are available to everyone, so it surprises me when people value the connections I make between ideas in different books. Because I discovered those connections, I assume others have also done so, or could have. But I’m learning that’s not common. I suppose this is because of the effort required to find important ideas in the sea of unstructured text that is books. And because of the dispersed nature of books.

My takeaway is to lean more into sharing the connections between ideas in various books. It’s tremendously valuable to entrepreneurs.

A few days ago, I shared the stats around my reading for 2024 and what I learned from the process. I included the total number of books I read and the number of books by month. A few people have asked me for the list of book titles. I can see the value in this and want to share my reading list in an easy-to-consume way.

In a perfect world, I’d have a list I can update weekly as a dedicated page on the blog after I finish each book. That way people could easily see the current list anytime. I did some digging, and the available tools for this aren’t great. Goodreads has a few widgets that can be added to a blog, but I don’t like them.

I’m going to keep searching to see if I can find a tool that allows me to update and share my reading on my blog. I might ask some developers how involved it would be to build a custom widget. Hopefully, I’ll find a solution to this problem.

In the meantime, I’ll manually share my reading list from last year via a blog post. It’s not ideal, but it checks the box for now. Hopefully, I can get that list published in the next week or so.

The last book I read in 2024 was The Money Masters: Nine Great Investors: Their Winning Strategies and How You Can Apply Them by John Train. It’s an older book, first published in 1980, but I read it because the author was referenced in a book about Warren Buffett. The book is a biography but not about one person. Each chapter is a profile of an investor who achieved outsize returns. The book introduced nine investors, most of whom I’d never heard of.

I went into this book with no expectations. It didn’t have a lot of reviews, and I’ve never heard anyone talk about it or seen anything written about it. But when I read it, it reminded of The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success, which I read in April. Outsiders was slightly different because it was highly rated, and many people suggested it. But it, too, was a series of mini-biographies with a slightly different focus—CEOs, not investors.

When I read Outsiders, I discovered people I didn’t know about and read another roughly twenty books. Each book mentioned another person or book, and I read it. This went on for a few months. And I still have a few more books I discovered because of Outsiders that I haven’t read yet. Something similar began playing out when I read Money Masters. I learned about investors who built their own investment firms and got really interested in them. I ended up buying a few books, and I’m starting one of them now.

I didn’t know what to call books in this category, but someone pointed out to me that they're biographical anthologies. These books are great discovery mechanisms. They don’t go as deep as a biography about one person would, but they go deep enough on each person for me to understand if I want to learn more about them. If I do, these books usually have a list of sources that I can read.

This type of book is helpful to me because it provides more connections to more people and companies than a normal biography. The exposure to many people and ideas in a single book is helpful. I’m excited and curious to learn more about those people, and I know exactly what books to read.

My big takeaway is that when I’m starting to learn about something new (industry, time period, etc.), I’ll likely start with a biographical anthology. It’s a great way to learn about multiple players in a space at once and find good books about them.

This weekend, I shared with a friend what I learned about psychology from rereading The Warren Buffett Way by Robert Hagstrom. One of the things he found interesting was the concept of impetuosity and how it negatively impacts investors.

Impetuosity is the tendency to act quickly, without thinking about the consequences. It can be considered a casino mentality—an itch to go into action. You get caught up in what other people are doing and place a bet or make an investment without taking time to think it through.

Impetuosity can result in investors making bets when the probabilities are against them, upsides are low, and downside risks are high.

This section of the book reminded me of 2020 and 2021. ZIRP made investors comfortable paying high valuations for a growth company. Early-stage venture capital deals were getting done in a few days with limited diligence. In 2022 and 2023, companies that raised at these high valuations and didn’t grow into them struggled to raise capital. Some raised down rounds with brutal terms. Some didn’t make it.

Looking back, it was a period of impetuosity. Investors were doing deals they otherwise wouldn’t have because of what other investors were doing. Founders were raising at sky-high valuations because other founders were. Many didn’t think about the long-term consequences. They were caught up in the hype, doing what seemed normal.

Some founders and investors were aware of impetuosity and recognized what was happening. They took note and acted differently. The shrewd investors were selling assets at peak prices, not buying. And the shrewd founders were raising reasonable sums at valuations that wouldn’t hinder future fundraising, or they were selling their companies outright at peak multiples.

Hagstrom details how Warren Buffett and Charlie Munger avoided impetuosity. The most important thing they did before making an investment was calculate the probability that it would be favorable for them. If it wasn’t favorable, they continually took in more information and monitored the situation. They had the patience to wait until the odds were in their favor, which reduced their risk of losing money. And if the odds tilted in their favor, their research and calculated probability gave them the confidence to bet big even when others were doing the opposite.

Their use of facts and probabilities helped them act counter to the crowd and overcome impetuosity.

I’m wrapping up The Warren Buffett Way by Robert Hagstrom for the second time. The first time I read it last year, I got a ton of information about the mechanics of how Warren Buffett invests. This time, I’ve gotten just as much, but more around psychology and mindset. It’s interesting how the book hasn’t changed, but what I got from it changed because what I’m interested in has changed.

The book helped me understand how a rational temperament is Buffett’s main competitive advantage. Here’s a passage that stuck with me:

The cornerstone of rationality is the ability to see past the present and analyze several possible scenarios, eventually making a deliberate choice. That, in a nutshell, is Warren Buffett.

Speaking to students at the University of Seattle, Buffett was asked how he got where he is and how he amassed such a large fortune. His response was thought provoking:

Buffett took a deep breath and began:

How I got here is pretty simple in my case. It is not IQ, I’m sure you will be glad to hear. The big thing is rationality. I always look at IQ and talent as representing the horsepower of the motor, but that the output—the efficiency with which the motor works—depends on rationality. A lot of people start out with 400-horsepower motors but only get 100 horsepower of output. It’s way better to have a 200-horsepower motor and get it all into output.

So why do smart people do things that interfere with getting the output they’re entitled to? It gets into the habits and character and temperament, and behaving in a rational manner. Not getting in your own way. As I have said, everybody here has the ability absolutely to do anything I do and much beyond. Some of you will, and some of you won’t. For those who won’t, it will be because you get in your own way, not because the world doesn’t allow you.

I’ve always thought high IQ is an edge. High mental acuity is genetic—you were either born with it or weren’t. But Buffett makes a great point about the efficiency with which someone uses their mental acuity materially impacting their output. You don’t have to be the smartest to win; you just need to avoid acting illogically.

You can’t change your IQ, but you can learn to think and act more rationally. This is a superpower hiding in plain sight. It’s something that everyone can do, but as with many superpowers hiding in plain sight, many people won’t.

Buffett built a fortune buying and overseeing businesses by being rational (he’s also pretty sharp). Entrepreneurs of all IQ levels should take note of his simple, but not easy, strategy and borrow a page from the Buffett playbook. Being rational and not shooting yourself in the foot is something everyone can do. It trumps intelligence in the long run and can lead to outsize success.

I’m finishing up The Warren Buffett Way by Robert Hagstrom. I’m interested in learning more about psychology to improve my decision-making. Hagstrom addresses the psychology of Warren Buffett throughout the book but also dives into broader psychological concepts. One that resonated with me was rationality. Here are a few passages I highlighted:

Rationalism, according to the Oxford American Dictionary, is a belief that one’s opinions or actions should be based on reason and knowledge rather than emotions. A rational person thinks clearly, sensibly, and logically.

The first thing to understand is that rationality is not the same as intelligence. Smart people can do dumb things.

In Keith Stanovich’s book What Intelligence Tests Miss: The Psychology of Rational Thought, Stanovich coined the term dysrationalia: the inability to think and behave rationally despite high intelligence. Research in cognitive psychology suggests there are two principal causes of dysrationalia. The first is a processing problem. The second is a content problem. Let’s look at them closely, one at a time.

Stanovich believes we humans process poorly. When solving a problem, he says, people have different cognitive mechanisms to choose from. At one end of the thinking spectrum are mechanisms that have great computational power. But they come with a cost. They require slower thinking and a great deal of concentration. At the opposite end of the thinking spectrum are mechanisms with very little computational power; they require very little concentration and permit quick decisions. “Humans are cognitive misers,” wrote Stanovich, “because our basic tendency is to default to the processing mechanisms that require less computational effort, even if they are less accurate.” In a word, humans are lazy thinkers. They take the easy way out when solving problems; as a result, their solutions are often illogical.

I’ve never considered the processing power it takes to think rationally, but this framing makes sense. When solving a complex problem, I’ve found that quick decisions usually aren’t the right decisions. I must sit back and focus on the problem. Think a few layers deep. When I’ve done this, I’ve often come up with some of my best ideas.

I like this framing of rational thinking: It’s the result of concentration and deep thought. If you try to solve a hard problem without them, you aren’t being rational; you’re being a lazy thinker and increasing your odds of making illogical decisions.

Some passages in The Warren Buffett Way by Robert Hagstrom reminded me of this post from a few months ago. I shared that taxes are a successful entrepreneur’s biggest expense. Allocating appropriate time to optimizing that expense, just as entrepreneurs do with all other major expenses, can have a material impact on a company’s ability to reinvest in growth opportunities. Here are the passages:

Except in the case of nontaxable accounts, taxes are the biggest expense that investors face—higher than brokerage commissions and often higher than the expense ratio of running a fund.

In a nutshell, the key strategy involves another of those commonsense notions that is often underappreciated: the enormous value of the unrealized gain. When a stock appreciates in price but is not sold, the increase in value is an unrealized gain. No capital gains tax is owed until the stock is sold. If you leave the gain in place, your money compounds more forcefully.

Overall, investors have too often underestimated the enormous value of this unrealized gain—what Buffett calls an “interest-free loan from the Treasury.” To make his point, Buffett asks us to imagine what happens if you buy a $1 investment that doubles in price each year. If you sell the investment at the end of the first year, you would have a net gain of $0.66 (assuming you’re in the 34 percent tax bracket). Let’s say you reinvest the $1.66 and it doubles in value by the second year-end. If the investment continues to double each year, and you continue to sell, pay the tax, and reinvest the proceeds, at the end of 20 years you have a net gain of $25,200 after paying taxes of $13,000. If, instead, you purchase a $1 investment that doubles each year and is not sold until the end of 20 years, you would gain $692,000 after paying taxes of approximately $356,000.

This is a great mathematical example demonstrating the power of compounding and the impact taxes can have on investment returns over a long period. It reminded me that playing the long game in investing gives you twin tailwinds, which can lead to explosive results.