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The Game with Alex Hormozi
8 Life Changing Lessons I Learned from Charlie Munger | Spotify Video Exclusive
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Charlie Munger was one of my greatest heroes, and he just recently passed away at the age of 99, a month and a half away from turning 100. He lived one of the most exceptional lives, both in his personal success, but I would say more so in how much he was willing to give back to others to help others along the way. And he embodied all of the traits that he espoused in the many speeches and talks and shareholder meetings that he had over his 99 year career. And I want to share some of my personal biggest takeaways from having Charlie Munger as a hero that don't even come close to the many gems of wisdom he shared, but are some of the ones that I use on a regular basis. So, right off the bat, the first and biggest one is his process of inverted thinking. Now, he purportedly claims that he's not the first person to say this. Einstein always said, invert, always invert. And so Charlie was a huge hit history buff and loved living in the past and reading autobiographies of the smartest people who had ever walked the earth. And a lot of his thinking processes were formulated from seeing how those people thought, and he passed it along to people like you and me. And inverted thinking is simply taking a very hard problem. So if you said, hey, I want to grow my business, trying to grow a business is in some ways more complex and difficult than saying, if I were to destroy my business in as few moves as possible, what would I do? And so then thinking, well, if I wanted to absolutely destroy my business, I would do this first, and then I would do this second, and then I would do this third, and then I would do this fourth. And you create that list. And all of a sudden what's interesting about it is that we have such a stronger ability to find threats and negatives in our environment than we do positives. And so it's like, if I were to ask you, hey, tell me 10 things you're grateful for, you might be like, well, right now, if I said, tell me 10 things, tell me about 10 problems you have in your life. You could probably rattle off 100 without breaking a sweat. It's because we're way more wired to find threats in the environment than find good things. Now, using that engine, we apply it to a business or personal setting or any complex problem and say, okay, I'm going to find all the ways that I'm going to destroy my business. And then you invert it. And so if for me to destroy my business, I would make sure that I Would never let anyone know about my stuff. Okay, well, then what would I do to invert that? I would let as many people as human possible know about my stuff. If I wanted to try my business, I would make sure that we had a terrible product so that anybody who bought it would immediately think it was awful and tell all their friends that it sucked and leave bad reviews. Okay, so what's the opposite of that? I want to have something that's exceptional, that as soon as people get it, they love it, they tell other friends how great it is, and then they leave positive reviews. Right. And you can go down the list and start thinking, okay, if I wanted this negative thing to happen, what would I do? You say that, and then you invert it, and for whatever reason, you get completely different answers than you would trying to think of it in the positive. And I have done this. Einstein did it. Munger did it. They're way more successful than I am in many ways. And so it is a process that I've used in so many different parts of my life. Charlie said, the death of most people is liquor, is the three Ls. Liquor, leverage, and ladies. And so I'm not saying you avoid liquor, ladies, and leverage, but to some degree, that's pretty much what they did. They never took on excessive debt beyond what they could very reasonably cover. They didn't philander. Like, obviously, Warren had two wives. He had his own setup. But they were running through many, many women. And Charlie was pretty adamant about this. He said, I've never seen somebody whose life was better by including drugs and alcohol in them. Next thing I got from Charlie is his absolute obsession with simplicity and his abhorrence of complexity and things that seem too complicated. Charlie's most common response to deals was too hard. And. And I think that that shows so much humility in how he'd approach. He's one of the greatest investors of all time, and still the majority of deals that came in and he was brilliant, he would just say, too hard. And so to me, it's not like, obviously, he could think about it harder and figure it out, or he probably did already know what it was, but it just showed his absolute commitment to simplicity. And I think Warren was quoted by saying, we want to have businesses that are so wonderful that an idiot could run it and then have wonderful people run it instead. And I think about that a lot with the businesses that we want to invest in and even the business models that we choose to pursue, because oftentimes you have strategic decisions you need to make in Your business, you're like, okay, well, there's this slightly more complicated thing or this simple thing. Which one should I do? Well, oftentimes, if it's simpler at scale, it becomes complex and complexity at scale becomes impossible. And so it's. He takes the path of least resistance when it comes to some of these decisions. And so I guess Charlie gave me a lot of permission to just say, too tough, too hard for me. And I think a lot of times letting yourself off, saving all that mental energy of trying to make an impossible or complex task work, rather than just saying, I'm opting out, I'm going to follow the easier path. Because at the end of the day, we're the ones who choose how hard we want our lives to be. And so he's like, yeah, well, if it's my choice, then I just choose the easy life. If the hard way to make money, Easy way to make money, and you could choose either one, then why would you not choose the easy one? The next thing I learned from Charles, a concept that I remember as unique, expensive, sticky, air managed by an owner. And so basically, that was their breakdown of the perfect business. So unique in that it has a brand or something unique about it that makes it difficult for other people to copy. This is when they talk about a competitive mode. And so brand being one of the most obvious ones that you can use. Unique, expensive. So expensive and air actually are paired together, which is you want something that you can buy for a penny and sell for a dollar, not buy for 90 cents and sell for a dollar. Right. You want to have a lot of margin in whatever it is that you sell so that you can make more gross profit, so that you can reinvest in the business and. Or take distributions as an owner. So the sticky part is getting something that people will buy again and again and again and again. And so that's both recurring and also reoccurring. And so if you look at their portfolio, they have recurring businesses like insurance, but they also have reoccurring businesses like Coca Cola. So you probably have bought Coca Cola products knowingly or unknowingly. And you probably have never thought that you're on a Coca Cola subscription, but every time you buy a Powerade or you get a Sprite or you go to the gas station, you grab a drink, or you go to a restaurant and you ask for a Diet Coke when you're there, all of those, even though they are reoccurring to you, they are recurring to the parent company because. Because that restaurant or that Gas station regularly buys the same amount of coke even though you're not the one who's quote on the subscription. And the farther up the distribution chain you go, the more reliable those purchases become. And so they both wanted unique things that no one else could copy that you could charge a lot of money for that don't cost a lot. And the air piece is also low capital expenditure. Like you don't have to keep pouring money back into the business in order to keep it competitive. Sticky is that you want people to love the product such that they want to keep buying it again and again. And so those are the actual economics of the business. The second part of the business was who's running it. Right. They said they want a business that's so wonderful that an idiot couldn't ruin it and then hire a wonderful person to run it. And so when they talk about wonderful people, they've, I've pieced these pieces together from the talks that both of them have given, but it's that they want someone who acts like an owner. They want them to behave as though 100% of their net worth is in the business that they're invested in and they cannot sell a stock ever. And so when you get someone to think in that, in that way, then you get someone who is going to make ultimately very long term decisions. That's the only thing they're actually indexing for. By setting the incentives in that way, you have to imagine all of your net worth is in the one stock that you're running of the company and you can never sell it. Now what do you do as your decision making and that's the right decision for the business. And so I think one of the other things that Charlie's been so good at is he just knows when enough is enough. He said, I don't need the last dollar. And I'm roughly paraphrasing there. But basically he believed that deals are either good and obvious or bad and obvious. So you shouldn't need an Excel sheet to figure out if you're going to make money. It should be clear that you're going to make money on the deal. And so he didn't need to beg, borrow and steal and negotiate and chisel away the other person's slice of the pie to get a few more percentage points. He said, either I'm going to make a lot of money or I'm not. And so he was willing to leave meat on the bone or some room for other people at the table so that one other people could make money But I think the long term thing is that those people would want to do deals with him again. Because imagine if you have, if you're always known as a super tough negotiator that doesn't leave anything for anybody else. It's like you might get that one deal, but no one's going to call you first. You're always going to be called as a last resort rather than the first person they call. And the amount of benefit you get from being everyone's first call rather than their last call probably can't be accounted for for an entire lifetime compounded with that kind of reputation. So another one, this is a big one that I learned from Charlie was actually the importance of brand and the. And so if you look at their most recent and if you think about them as investors, in my opinion they only got better because your discernment as a decision maker just only improves with time as long as your mental faculties are there. And Charlie has shown, I mean till the day he died, that he had all of his mental faculties. He did. The shareholder meeting was still just smart as a whip. And there for six hours answering questions and putting people on their plate. People don't seem to get that point. You have any idea why Charlie more. And if people weren't so often wrong, we wouldn't be so rich. And if you look at their largest most recent investment, it's been Apple. And so right now, over half of, at least the last time I checked, half of Berkshire Hathaway is just Apple. Half huge. Why were they willing to buy a technology company when they normally didn't buy into technology overall? It was because they saw the brand of Apple as the big strategic moat. They saw that Apple could keep creating products and they had such a loyal audience of people who would just buy anything that they put out that they felt the likelihood that this company would be able to charge above average prices for average products for the extended for the foreseeable future was high. And so they were willing to bet a huge amount of money on that company. And they did. And they were right yet again. And so seeing that the companies they buy really are brands, know Ben Bridges jewelers, you look at, think about See's candies, think about Dairy Queen, you think about Geico. These are all companies that are wholly owned by Berkshire Hathaway. And they were willing to buy those companies because they saw that they had a strategic moat. And it wasn't because they had some novel business thing. It was because of the brands that those companies had built. And when I Saw that them as investors and me as a business owner in different hats, both saw the importance of brand to me was very confirming on my investment now in trying to build the brand that I am. So this is a big one. Charlie talked about living within your means a lot. And it's such an obvious thing, but if you had all the rules of money written in order, you could follow just rule number one and never need money ever again, which is if you always spend less than you earn, you will literally never need money. You wouldn't even need your savings because you would always spend less than you earn. So you would never lack for money. It's rule number 1, 2, 3, 4, 5, 6, 7, 8, 9, 10. Because like, you can't even do investing where rule number one is don't lose money. Rule number two is don't forget rule number one. Well, you couldn't do that unless you spent less than you earned. And so like Rule 0 is spend less than you earn. And what's crazy is that so many people are trying to find advanced and complicated trading and investing tactics when they haven't even mastered balancing their budget. And so he had such, such an emphasis on doing the fundamentals that I think just his, his repeated emphasis of that and just now paired with my own experience having grown relatively large companies, I mean, over the last three years, we've added 100 million in revenue organically from the companies we have in the portfolio. So I feel relatively confident talking about it. We don't do anything complicated ever. All we do is continually try and simplify the business and do the fundamentals everywhere, all the time. That's it. Because doing the fundamentals everywhere, all the time is already as complicated as you can imagine. Doing anything beyond that doesn't even happen in reality. And so if you do the fundamentals everywhere, all the time, you. You become an advanced business owner. Yeah, I mean, Warren and Charlie both talk about learning from the mistakes of others. So the next point that I would say I grabbed from both him and Warren was learning from the mistakes of others. You know, they say a dumb person makes their own mistake and then repeats it. A smart person learns from their mistakes. A wise person learns from the mistakes of others. And so you can live multiple lifetimes of lessons simply by allowing other people to share their lessons as and their mistakes with you and then taking the lesson without the scar. And so honestly, that's why I make the. I mean, this channel is so that I can transfer as many of the scars rather the lessons that I got without the Scars to everyone in Mosey Nation. But I feel like I've learned so many of those lessons from Uncle Charlie and Uncle Warren that I've just been able to apply into a modern day business environment just in my own life. I think one of the. One of the most understated things that I learned from Charlie was that despite being one of the best investors of all time, I think the thing that made him one of the best isn't necessarily his financial return. There are other investors who have achieved higher returns than he and Warren have now, obviously from absolute returns, because they've been doing it for so long. They have one of the biggest portfolios of all time. But Charlie's net worth was only a few billion dollars. And I say only as though it's not a lot of money. Of course it was. But he could have made a lot more if he so chose to. But he said over and over again that he never wanted to make money. He just desperately wanted to be independent. He said he just overshot. And I think about that a lot when it comes to what things I'm optimizing for, because it's so easy to get caught in the race of more, of just always wanting more and never having enough. And I think probably the single greatest thing that I would say I observed from Charlie was that he knew what another was enough. And that he'd accomplished his objective, which was to be free and independent and to just do whatever he wanted, whenever he wanted, with whomever he wanted. And I think that in a lot of ways, the way he lived was an ideal life. He spent his time doing the thing that he was exceptional at with the person that he probably cared the most about in the world, which is Warren, his closest friend. They never argued once in their entire relationship, per my understanding. And what better of a life could you ask for? And so I think when I think about his life, I see that as such a wonderful model to go after. And I will be eternally grateful for the contribution that he had unknowingly to my life.