Charlie Munger (the NEW Poor Charlie's Almanack)

1. 0:00 – 5:16

   Foreword Excerpts and the New Poor Charlie's Almanack

   1. DSDavid Senra0:00

      I first came across Poor Charlie's Almanack 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 simplicity and candor. Never before had I heard a venerated businessperson express such trenchant insights about investing, finance, and the world more broadly, and with such chutzpah. One can't help but read a line like, "Without numerical fluency, you are like a 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 is on the page. He also, I discovered, had considerably more stamina than I do. More than four hours into our dinner, I was ready for bed, while Charlie showed no signs of flagging. Our conversation that night was wide-ranging, touching on everything from the economics of ski resorts, to raising children, to the evolution of the news industry. Witnessing Charlie's prodigious intellectual breadth and multidisciplinary mode of reasoning firsthand only reinforced my admiration both for the man himself and for this book. Poor Charlie's Almanack 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 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. 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's Almanack, 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 my favorite sentence in this forward written by, uh, John Collison, the co-founder of Stripe. I'm gonna read it again. "The practical wisdom of Poor Charlie's Almanack, 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's speeches and essays with an open, curious mind. This is my second favorite [chuckles] 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 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 Almanack. It is the ultimate value investment. And that was an excerpt from the book that I'm gonna talk to you about today, which is the brand-new updated version coming out today of Poor Charlie's Almanack: The Essential Wit and Wisdom of Charles T. Munger, edited by Charlie's longtime friend, Peter Kaufman, and republished and made beautiful by Stripe Press. So before I jump back into the book, I just wanna update you on this project that Charlie Munger collaborated with Stripe Press on. Uh, he's-- They've been working on it for the last two years. Sadly, as you know, uh, Charlie just passed away last week. I'm going to leave the link down below, but you have to check out the, the new website that Stripe Press made for this updated and abridged version of Poor Charlie's Almanack. And for the first time ever-- First of all, I'm gonna 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 also, for the very first time ever, there's going to be a digital version, and that version is, uh, going to be available for free. There's also going to be-- They, they recorded an interview with John Collison interviewing Charlie Munger. The video of that s- of that 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 Invest Like the Best podcast, which, as you already know, it's one of my favorite podcasts. That audio of the conversation between John Collison 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 my fourth listen. I took extensive notes. I will reference them throughout our conversation today. In addition to that, my friend Tamara Winter runs Stripe Press, and she actually gave me the very first copy of this book, so I've had several weeks to go through and reread Poor Charlie's Almanack. 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 interim, I've reread my highlights from the book, you know, dozens of times.

2. 5:16 – 8:07

   Buffett on Munger: Advice on Choosing a Business Partner

   1. DSDavid Senra5:16

      I'm gonna start with, there's a forward, uh, written for the book by Warren Buffett, and it is titled Buffett on Munger, 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 us some, uh, great advice. So he says, "From 1733 to 1758, Ben Franklin dispensed useful and timeless advice through Poor Richard's Almanack. Among the virtues extolled were thrift, duty, hard work, and simplicity. Subsequently, two centuries went by which Ben's thoughts on these 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 oh, how he preached. Ben, in his will, created two small philanthropic 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 posthumous project. Instead, he opted to become a living lesson in compounding, eschewing frivolous, which he 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 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 enjoy acclaim 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 Carlson does an excellent job 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 disagreements you have" And it's so remarkable how amicable in 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 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 to Warren Buffett. 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 w- uh, up until Charlie died, so that would be, uh, 64 years by my math. And so one of the great things about this book is i- 80% of it is Charlie in his own words. It's probably the largest collection of just Munger's own

3. 8:07 – 16:45

   Kaufman's Introduction: Stories, Life Decisions and Repetition

   1. DSDavid Senra8:07

      words out of any other book that I've ever found. It definitely is the 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 li- li- essentially like friends with Charlie for decades, if I'm not mistaken. And so he's just gonna 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 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 more as a reference. In fact, in the podcast that John Carlson and, and Charlie did together, they mentioned 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 speak to you every year. But this is the, the overview. So it says, "The quotes, talks, and speeches presented here are rooted in the old-fashioned Midwestern values from which Charlie has become known." So these are some, some things that Charlie held 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 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 in how to live a good life, and it's the fact this reminds 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 subtlety and texture, often using a story-like 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 remem- they, they remember individual 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 coherent latticework of knowledge available for recall and use when needed. That is such an important line, and it echoes what I s- what I believe to be the most important sentence in the forward. Let me go back to that. The practical wisdom of Poor Charlie's Almanack. This ode to 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, [chuckles] that line three times. Uh, hopefully that's the last time I, I read it, but I really do think it's so important. And again, the, the, the important fact here is that you're gonna 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 it when needed. They're not gonna use... Highly likely you're not gonna 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 that you can 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 believe there's a positive correlation between the storytelling ability and their overall business 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 Sequoia, he mentioned this, and I wanna read something, uh, a quote from him that was, 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 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 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 serves for Charlie, not the other way around. I think a lot of entrepreneurs, uh, get that wrong, and they wind up having a lot, a lot more misery in their life, uh, than if they didn't. So when I got to this entire paragraph, those are only... Th- that 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 acquired." It's important not to confuse the two 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 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 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 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 repetition is the heart of instruction. I think that speaks to the 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 maxim that I use for that. It's, it's becomes 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 people, and they say over and over again that repetition is persuasive. 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 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 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 gonna read a few lines here 'cause this really tells you, like, when you see who somebody admires, you can kind of tell, 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 gonna talk about this one paragraph. I think it's really important. So Charlie's immediate family, because of his grandfather, was not as, uh, affected by the Depression, but some members of Charlie's extended family were, and Judge Munger was such a prudent and prosperous person that he could actually help them. This is, 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 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. And it was very fascinating. You're gonna see that happen here, uh, with Judge Munger. So it says the, "This era 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 Tom." So Charlie's uncle had run, 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 Gran-- He calls, Tom calls Grandpa Munger 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? And then Judge Munger also was able to send his daughter's husband to pharmacy school and then helped him buy a well-located pharmacy that had closed because of the Depression. The business prospered and secured the future of Charlie's aunt. Charlie learned that by supporting each other, the Mungers weathered 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 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.

4. 16:45 – 25:19

   Munger's Life: His Grandfather, Loss, Real Estate and Meeting Buffett

   1. DSDavid Senra16:45

      And so this section gives us, like, this brief overview of Charlie's life, like a, a, basically like a 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 gotta be able to survive and, and not engage in self-pity and pick yourself back up. And what he-- Some of the things he's referencing is, yes, yeah, businesses are gonna have all kinds of unpredictable problems. But there's a lot of problems that are more important than business, and they're outside of your control, and it's the death of his young son that he had to endure. He's only 29 years old when this happens. Uh, he's going through 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 divorced. Charlie learned that his adored son, Teddy, was terminally ill with leukemia. I think he was nine 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 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, "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 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 time back to himself. And use 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 worked out really well. So he had a partner on this deal. 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 he stopped doing real estate in 19- or real estate development in 1964, at least with his partner, he had a nest egg of $1.4 million from real estate alone. During this time, he also started a new law firm. This law firm still exists to this day. I read somewhere that this law firm, I think, like, I think is 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 mid to late 30s, and then the d- and then 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 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 this time, and Charlie is 35 years old. This is one of my 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 many people knew them. But they were, by, even by that time, they're in their 60s, 70s. I think they were in their 80s when I came to, to be introduced to them. And yet I am fascinated about the... You, you know this because you and I talk about this heavily on the podcast. Like, who is the versions of them that actually built the foundation that their financial success and their empire rests upon? And it's this. It's this conversation. It's this, them trying to figure out Warren is, uh, 29 years old, Charlie is 35. They start working together. Ten years from now, they're still only 45 and 39. So let me get to that. It, it... I, I'm, I'm obsessed with thinking about this time. So it says, uh, "Warren had 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 The 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?" He's like, "You-- I thought you weren't even paying attention. Like, why would you dedicate such a large percentage of your net worth to me? I didn't even know what you were... I thought, like, I was gonna get kicked out of here." And Doc- so he asked him, he's like, "Why are you willing to give me $100,000?" And Dr. Davis explained that Warren reminded him of Charlie Munger. [chuckles] 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 realize that they shared many ideas. It 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 had got up and left. Again, this is so important to r- to, to think about and to realize. Warren's just 29. He's just 29 years old, and he's meeting his partner, and he's gonna be partners with 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 quit law practice at the earliest point he could afford to do so. That's an important line. At the earliest point that he could afford to do so. Charlie has got a gang of kids. I think between him and his wife, when they're all said and done, I think 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 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 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 Carlson and Charlie Munger, and towards the end of that, this is the note I left on my pa- uh, 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 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 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 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 Munger. So Charlie eventually winds up leaving the law firm and going into... He starts his own investment partnership. He's, he's essentially investing other people's money. Buffett did this as well. Buffett's gonna close down his partnership, which we'll get to in a minute. Charlie's eventually gonna close down them, and then they're gonna team up and do Berkshire, right? But this was fascinating. Speaks to who he was as a person. So he leaves the law firm that he founded, and he did not take his share of the firm's capital. Why? Instead, he directed that his share go to the estate of his young partner, Fred Warder, 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 1962 to 1975. So it 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 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 affini- affinity for Benjamin Franklin's 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 bi- no- biography nut myself." And I think when you're trying to teach the great concepts that work, it helps to tie them into the lives and personalities of the people who developed 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 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, practiced what he preached. 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 I admire like Charlie Munger, and then he recommends a bunch of books to read, I go and read those books. And I've done a bunch of episodes on, uh, you know, people like Henry Kaiser or Les Schwab that Charlie Munger would speak publicly and he's like, "Hey, you should really read this book." And what's crazy

5. 25:19 – 32:44

   Biography Nut, Focus and Munger's Core Principles

   1. DSDavid Senra25:19

      is, one, it's clear in the three hours I talked to him, like he makes me look like a biography amateur. Like, there's nothing. [laughs] Like, he just knew so much more than I did. His collection 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 people saying, "Hey, you should really read biographies. I'm a biography nut 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 retains everything. It was incredible. And so there's 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 having an unconventional way of looking at things and a strong work ethic, th- those, those two things combined really well together. And he, 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 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 before dawn and home about dinnertime. 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, 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 roughhousing younger, uh, 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 his success." People have said the same thing, uh, about Warren Buffett. It's in one of his biographies. It might be Snowball, it 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 flight's 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 learning, he's essentially walled himself off from any distractions. 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 is that he's gonna tell you, you need, it's, he calls it big ideas from the big disciplines. It says, "Charlie's Big Ideas from the Big Disciplines approach. Charlie combines big ideas from multiple disciplines to build a more accurate understanding of the world." He will explain a business problem, but he'll be using things from mathematics, from physics, from chemistry, from biology, and from psychology. So that's what he means by multidisciplinary. That's his biggest criticism of all for- forms of formal education, is they just stay like siloed in their little domain, and he's like, "Have no respect from that. H- have no respect for that. Go wherever your curiosity takes you, but you need to learn the big ideas in the big disciplines." So he's ... 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've never 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 of how much Charlie and Warren, uh, 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 Munger characteristics, not buying 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's 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 it in the books. This only works if you trust your own judgment. You cannot be successful 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 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 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 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 w- a line I've been repeating over and over again. Genius has the fewest moving parts. 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 ma ... I mean, I'd read the whole thing, but if you only said, if you only had to 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 of human misjudgment some of the most important mental models. 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 revising that talk, uh, just to, to, to publish it in this 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 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 gonna interrupt myself because one of the f- 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's sons said about what his father admires. And I, the way I think about it in my own life is aim for durability. 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 channels, societal trends, 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 on great businesses, and great businesses have moats. It was very fascinating, the conversation between John Collison and Charlie Munger. This is again, I think, towards the end, maybe the middle of the podcast. John asks, like, "Hey, if we came and, uh, if me and my brother Patrick came and, and pitched you on Stripe, what would you wanna know about Stripe?" And he essentially, one sentence. This is again, what is the most important thing? Charlie only focuses on great businesses, and great businesses have moats. And so Charlie's answer to John was, "Is it likely to remain forever as a money generator? In other words, does it have a moat?"

6. 32:44 – 40:13

   Commencement Talk: Inversion and a Prescription for Misery

   1. DSDavid Senra32:44

      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 graduation speakers are gonna say, "Hey, this is what you should do to get a happy life." Charlie does not do that. He uses the inversion principle, and he says, "I'm gonna make the opposite case by setting forth what you should do if 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 Munger did. And Char- and Johnny Carson did the same thing where he's like, "I wanna tell you ... Like, I'm gonna 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 he could tell them from personal experience how to guarantee misery. I read Johnny 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 Carson's, Carson's prescription for sure misery. He had three, and then, then Munger's gonna add four. So the first one is ingesting chemicals in an effort to alter mood or perception. Obviously, drugs and alcohol, once you start relying on them, there's no way you're gonna have a ... Like, you're gonna be, have a miserable life if you rely on them. Uh, number two, envy, and number three, resentment. So envy is something that Munger talks about over and over again. He's like, "You, to live a great life, you have to cure yourself of this inherent part of our human nature, which is we like to be envy- " 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 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 this is avoiding resentment. And so he is going to give us advice. He's like, "You know, you don't wanna be, be, to become a bitter person, uh, 'cause that's all resentment does. It's just gonna make you bitter." He's actually gonna quote, uh, the solution to this that Benjamin Disraeli, which was a, he was a prime minister of the United Kingdom back in the 1800s. [chuckles] And this is what he did. So, uh, it's called the Disraeli Compromise. And so one way Disraeli learned to give up vengeance as a motivation for action was he, he needed some out- some outlet for his resentment, right? He couldn't just quit it 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's describing to us is called the Disraeli Compromise. By putting the names of people who wronged him on pieces of paper in the draw- 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 his assistance. And so if you want a miserable life, make sure you ingest chemicals in 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 onto resentment. The fourth one, this is where Munger starts adding his own thing. You want a miserable life? Be unreliable. If you like being distrusted and excluded from the best human contribution and company, this prescription is for you. Make sure you 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 sure shot producer of misery and second-rate achievement. And this is, this is why I say he's got a great, uh, a bunch of maxims that I absolutely love, but maybe my favorite all-time maxim of Charlie Munger is just three words: wisdom is prevention. Wise people don't solve problems. They avoid them. Wisdom is prevention, and one of the way you do that, you learn vicariously 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 originality there is in 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 that mistake. He's saying there's no even originality in the mistakes that you're making. These are well documented. Why aren't you avoiding them? Drunk driving, reckless driving, incurable venereal diseases, conversion of bright college students 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 yous. Before yours, excuse me. And then he adds this great story here. If you wanna be non-miserable, right, which is the opposite. He's trying to teach you, hey, this is a whole prescription for misery. Obviously, he's, he's teaching us about inversion, but somebody that was able to have a non-miserable result. And so he gives us this historical account. There was once a man who, 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 little farther than other men, it is because I stood on the shoulder of giants." The bones of that man lie buried now under an unusual e- inscription. Here lie the remains of all that was mortal in Sir Isaac Newton. Charlie's third prescription, which is the seventh, the 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 w- we, we are not persevering. We are quitting. Something that I use to remind myself on the importance of not giving up, and that f- I f- really do believe what Paul Graham 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 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, de- decreasing the amount of intelligence, but keeping their determination at 100. That person's still gonna wind up rich, I think he said, but they'll own, like, a buncha... 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 that, but they're super determined. Meanwhile, uh, if in, if you run that, uh, if you run the same experiment and you keep intelligence at 100 out of 100 but take away determination, you have a brilliant but ineffectual person. And, and Paul Graham has said he's seen a bunch of people that their lives wind up just like that, a brilliant but ineffectual person. And I think that's related to what Charlie Munger is saying here. It's like, "Oh, yeah, you wanna be miserable? Like, you're gonna get knocked down. Everybody's gonna 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, frostbitten, exhausted face of Ernest Shackleton, the famous polar explorer, as my lock screen on my phone, 'cause 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 gonna stop until we're dead. By endurance, we 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 Jacobi had exactly the same approach as 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 wanna be miserable, you should approach problems in a standard way and only believe information that agrees with your previous conclusions.

7. 40:13 – 53:48

   Carl Braun's Five Ws and the Economics of Scale

   1. DSDavid Senra40:13

      So I mentioned earlier that when I find somebody I admire, and if they say, "Hey, I admire this person," I will then read, like, I'll read the book that they recommend. And so there's this, there's this entrepreneur and engineer named Carl Braun, and he starts this company called CF Braun Engineering Company. Munger repeats stories about this guy over and over again. In fact, I didn't find any books on him. I found, 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 anyw- anywhere. Uh, so I 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 Munger repeats that's one of the most important ideas that you learn from Carl Braun is, uh, some, th- really speaks to, like, this 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 Braun that if you di- if you were inside 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 Braun designed and built oil refineries. That's 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 Braun company communications was called the five Ws. You had to tell who, what was going, what was going to do what, where, when, and why. And if you wrote a letter in the Braun 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, 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 want to include why, why, why. Even if it is obvious, it is wise to stick in the why. And so then 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 flourish in niches, people who specialize 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 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 a few variables. And so the example 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 gonna wrap this up in how you special- you f- you initially start specializing and 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. W- if you get your own copy, 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 only three networks, and three networks had something like 90% of the entire audience. So if you were Procter & Gamble, you had ungodly scale, and you were one of the few people that could actually afford to use this new method of advertising, and your smaller competitor obviously couldn't. And then this is the first time he goes into detail 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 factor, with another factor, and it creates these, he calls them Lollapalooza effects, but essentially they just, you're stacking unfair advantage after on top of one unfair advantage after t- on top of one unfair advantage, and they all greatly increase the efficacy of each one. So he's talking about television advertising, right? Which is essentially an advantage of scale that Procter & Gamble had. Now, there's more advantages to that scale that start with, hey, being big to begin with, and this new technology's 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 Procter & Gamble, uh, own. That leads to another psychological effect, 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 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 gonna pull out a couple things. That is the, the, the basic overview. So he's talking about the fact that you're, you have access to this unbelievable distribution channel. It's un- unbelievable way to advertise your products, and you're, as a result, you're becoming so much more well-known. 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 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 those huge advantages to scale continue to give you another benefit that other competitor... Essentially expands your moat. 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 to Coca-Cola? 'Cause 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 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 uncover great investment opportunities not available to anybody else, 'cause 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 be, like, in a small city or whatever. I'll go and s- 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. And I'm like, "How the hell is it possible that these people are just everywhere?" Every single tiny 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, uh, I think Coca-Cola was able to, to invest, uh, I think they had, like, a opportunity to get... I can't remember the percentage. I wanna 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, e- everywhere. And if I'm not mistaken, Monster's one of the, the highest performing stocks, you know, in the past, like, decade or two, whatever the, the, the, the case is. So anyways, go back to this idea. Once you get enough advantages of this type, it's g- be very hard for p- anybody to dislodge you. There's 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, 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 I get most of the advertising and the circulation, why would anybody want a thinner paper with less information in it? So it tends to cascade to a winner-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 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 is kinda weird. Like, think about a free market economy. Looks really, looks a lot to Charlie Munger like an ecosystem, and there's j- there's a bunch of animals flouri- flourishing in these weird niches. Uh, seems to be a lot of people and businesses that do that too. So then he flips it. He's like, well, how, what, what does that do to, like, new startups or, or new entrants 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 Munger's, one of their favorite managers, uh, this guy named Tom Murphy, who was running Capital Cities, who winds up buying ABC. Berkshire Ha- Hathaway was their largest shareholder. And so Munger had a front row seat to a disadvantage of scale. So he says, uh, "We had trade publications at Capital Cities and ABC 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, then it expands. That inevitable expansion opens up for somebody else to niche back down, right? And this is exactly what happens. Uh, the way they beat us was to go to a narrower 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 Motocross, and this is hilarious. This is why Munger is so... He's such a great teacher 'cause 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 somersaults 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 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 focusing on what the incentives are. The incentives in 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 says, "So you get big, fat, dumb, unmotivated bureaucracies. You get layers of management and associated costs 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 on one side and avoid bureaucracies who do very little work on another side. And so he's gonna give you an example of Sam Walton, which is fascinating, 'cause if you read Sam Walton's autobiography, which I've done, I think I've done two or three 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 alway- It doesn't matter. Like, every year you have to be- like, bureaucratic creep is inevitable, and you have to beat it across, beat it back across the line. And it usually comes from, like, the leader or 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 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 gonna hire a bunch of people, and they have, like, these scanners, and then after 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 a- another layer of y- uh, bureaucracy. And so he's like, "Why don't we just do it right the first time?" And 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 ta- his, the, the main thing, it's one of my favorite things he's ever said. Uh, 'cause Sam Walton's one of my favorite entrepreneurs. But he said Sam Walton, uh, this is my sum- summation about what I'm about to read to you. Sam Walton's an interesting example of how scale and fanaticism combine to be very, very powerful. It's quite interesting to think 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 was already pretty old by the time he started out with his one little store. So he'd had a bunch of experience in, like, retailing and, and, uh, discount retailing, let's say, I think he was 44, if my memory serves me correct, when he started his first Walmart, but he'd been working in retail for, like, 20 o- 20-plus years by that time. But h- 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 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 prizefighter who wanted a great record so he could be in the finals. So what did he do? He went out and fought 42 Palookas, so, like, you know, 42, like, mediocre operators, essentially. And the result was knockout after knockout after knockout 42 times. Walton, being as shrewd as he was, basically broke other small town merchants in the early days. With his more efficient system, he might not have been able to tackle some titan head-on at that time. But with his better system, he could sure as hell destroy 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 powerful. His competitors weren't as lean and mean and shrewd and effective as Sam Walton was.

8. 53:48 – 1:01:18

   Surfing, Having an Edge, and Betting Heavily

   1. DSDavid Senra53:48

      Another one of Charlie's ideas that I really love is he has this, uh, surfing model. I'll just, uh, read this to you. There are huge advantages for the early birds. 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 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 the example of Microsoft or Intel and then this company that he loves, he talks about over and over again, 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 IBM. So the reason he thinks, uh, he, he gives an illustration of why surfing is, is so very powerful and how, uh, the actual founder of National Cash Register, which is a guy named Patterson, did something very smart. And this is fascinating. He says, "I have in my files an early National Cash Register company report in which Patterson describes his methods and objectives, and a well-educated orangutan 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% cinch. Surfing is a very powerful model." And so what he's talking about is Patterson was running, like, a small s- store, right? And before the invention of the cash register- It's really hard to make money because it's so easy for, first for your employees to steal from you, right? You just don't know where the, the, the money's coming in. And so the cash register, the s- the p- s- 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 it w- this was 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 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 Munger uses Patterson and National Cash Register as a, a illustration of this very important model to Charlie Munger, 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 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 to figure out where you get, where you've got an edge." And, uh, there's ano- there's this guy named Ed Thorp who I talk about ad nauseam. Ed Thorp is really my blueprint for life. He's one of maybe a handful of people I feel mastered life out of all the people we've studied on the podcast together. It's episode 222, if you don't know what I'm talking about. He's the inventor of the first quantitative hedge fund. He was the first LP in The Citadel. He invented the first, uh, handheld, uh, computer with Claude Shannon. The guy was just, uh, flat out 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 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 us. "I also believed then, as I do n- now, after more than 50 years as a money manager, that the surest way to get rich is to on- 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, Charlie Munger and Ed Thorp. No doubt, if you talk to Charlie Munger or you read, read his... You heard him speak, you'd think he's a genius. I think if you study Ed Thorp, you would arrive at the same conclusion. In fact, the first time I did Ed Thorp, it was, like, a long time ago, episode maybe 80 or 90 or something like that, and I got this, uh, [laughs] I got this email or message from somebody who listened to the podcast and then bought the book after and read it. And they're like, "Hey, you left out the fact on the podcast that this guy's a genius." [laughs] I was like, "Well, I think it's pretty obvious the way that he lived his life that he's a genius," but that's fine. From now on, that, that, that message stuck in my mind, so every time I bring up Ed Thorp, I have to bring up the fact that he's obviously a genius. And so let's go back to this n- 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 can trust your own judgment and you know it's a good opportunity, go all in. Bet heavily. You're not gonna 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 ware- welfare by giving you 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 punched through the card, you couldn't make any more investments at all. Under those rules..." This is still Warren speaking the whole 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'd do much better." Again, this is now Charlie speaking. "This is a concept that seems 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 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 look at Berkshire 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, 'cause people are like, you know, I think the main lesson that you and I are 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 o- only focus on founders. I really don't, you know, uh, don't do any investing. I don't really care about it. I just care about what I'm doing. I wanna be completely obsessed with it. So that's not a new idea. And I just stole that idea. Like, if w- um, you can read a bunch on Rockefeller, right? Rockefeller made all his money in Standard Oil, and then he would make some really weird investment decisions and lost a bunch of money outside of Standard Oil, for the most part. But the way I look at it is like, okay, if, if, if Rockefeller only had Standard O- Oil, never made another investment in anything, fabulously wealthy. Carnegie, Andrew Carnegie, same thing. If he just had Carnegie Steel... In fact, he, I think he's the one that really put this idea, implanted this idea in the first part, in my mind, 'cause if you look at Carnegie's early life, he's doing all kinds of stuff. You know, he's making investments. He's br- building bridges. He's looking for, like, the best opportunity. He's already a, you know, pretty rich, not nearly as wealthy as he's going to be. But once... He did something fascinating. Once he realized, "Oh, shit, steel is by far the highest, like the best opportunity I'm ever gonna have," not only did he sells off all his other businesses, he sells off all his stock because he didn't wanna be distracted. He didn't wanna wake up in the morning and read the newspaper and wanna 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 J.P. Morgan at the time, and he does it for cash, straight cash. At the time that he gets... He sells it, after he sells it to J.P. Morgan, he has the largest liquid fortune in the world at that time. So again, only needed one business. Sam Walton in his autobiography says, "I n- didn't do much investing outside of Walmart." Again, if he only owned Walmart, he's t- that's all he needs. So I, I... You just see this over and over and over and over again. It's obvious in the history of entrepreneurship, but it's not, uh, to Charlie's point, w- it's not, definitely not conventional wisdom, and it's definitely not practiced

9. 1:01:18 – 1:07:47

   Autocatalysis and Learning to Teach: The Father's Lesson

   1. DSDavid Senra1:01:18

      and taught. And then I love this observation about Disney from Charlie Munger. And so he, he's constantly, again, thinking about, hey, you have to have a multidisciplinary, uh, view and approach to the world. And so he talks about this, this term from chemistry that I had to look up. So it's pronounced autocatalysis. And so what that means is it, 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 example after example in biography, and, and the way I've described it in the 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 this question on Disney. And he says they had all these movies in the can, so movies they owned 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 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, autocatalytic, I, I don't know how to pronounce that, autocatalytic reaction with Coca-Cola, too, that Coca-Cola greatly prospered because Coca-Cola was invented, and they could prosper even, uh, to a greater degree when refrigeration became widespread. In Disney's case, they had all these videos in the, uh, these movies in the can, and 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 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 tailwind." In other words, they stayed in the game long enough to 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 gonna continue on many decades in the future 'cause m- highly likely that 20 years from now, 30 years from now, people are still gonna be watching movies like The Lion King. "The Lion King alone is gonna 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 billions from one movie." So that idea of autocatalysis. There's another example in the conversation that Charlie and, and John Collison have, where John asks him about why for many, many decades the railroads were terrible, terrible investments. I'm talking about, uh, when they first were created. It was really hard to make a profitable, like, uh... There's a lot of people, like, stealing money from railroads if you go back and, and study that time period. But it was very hard to invest into them and, and have a reliable source of, 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 McLean, and it was invented in the 1950s. So 100 years after the invention of this transcontinental railroad that was taking place 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 it on a railroad, 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 autocatalytic, uh, reaction, 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 of a lesson that his father was trying to, uh, teach him. But he, he, I think he would argue aga- against being... I think Charlie Munger 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, 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, uh, his f- have these conversations with his father, learn a lot from his father. And so this is something he learned, and again, meta lesson is how to teach a lesson and why you wanna go for great. "Here's another model from my father's law practice. When I was very young, uh, one of his best friends was this guy named Grant McFadden. Uh, he owned a bunch of Ford 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 charm and integrity, just a wonderful, wonderful man. In contrast, my father had another client who was a blowhard, 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 blowhard, instead of working more for a wonderful man like your friend Grant McFadden?' My father said, 'Grant McFadden 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 as fast as he can. Therefore, Grant McFadden 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 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 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 about the two clients was totally correct. He taught me the right lesson. The lesson, run your own life like Grant McFadden. 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 mental reach. I had to make the reach myself in order to get the idea that I should behave like Grant McFadden. 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 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 fact that him and Warren have enjoyed the public likes that they had, they've enjoyed the edu- he called it an educational sideshow, the educational

10. 1:07:47 – 1:14:13

    Teaching as a Duty and Removing Bad Ideas

    1. DSDavid Senra1:07:47

       sideshow that, that we do. He says it's constructive, and he feels that learning all this stuff and then turning around and immediately teaching other people is a win-win, and I love the advice that he gives 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 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 know more. And so he's asked the question, like, are you fulfilling 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, uh, like a positive for the world. It's like a moral duty to, to 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 Berkshire Hathaway. I call it the ultimate didactic enterprise. Warren's never gonna spend any of his money. He's gonna give it all back to society. He's just building a platform so people will listen to his notions. Needless to say, they're very good notions, and the platform's not so bad either. You could argue that Warren and I are academics in our own way." He continues this theme. "I'm passionate about wisdom. Perhaps I have some streak of generosity in my nature and desire, and desire to serve values that transcend my brief life." That sentence hits even harder 'cause he just passed away. "But maybe I'm here just to show off. Who knows? I believe in the 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 l- that engaged in lifetime learning and then cataloged what they learned and sent 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 these long dead predecessors, and if you like Poor Charlie's Almanack, so do you. And I wanna 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 is good, but also the importance of removing what you feel is an erroneous or a 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 Warren Buffett created a billion dollars of value for The Washington Post shareholders. And it was this spreading that Warren Buffett and Charlie Munger, if you read the shareholder letters, you hear them talk, they rail against this 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 have, if you adopted, uh, the hard form of efficient market theory, then you logically derived... He's saying you got a 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 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 sh- share buybacks are the stupidest thing ever, okay? So I'm gonna 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 efficient. There could never be an advantage. And they taught this theory to some partner at McKinsey 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 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 orangutan could figure out was the plain value per share by just counting up the values and dividing. But he so believed what he had been taught in graduate school that he advised The Washington Post, who was paying him for this advice, this is crazy, that it shouldn't buy its own stock. Well, fortunately, they put Warren Buffett on the board, and he convinced them to buy back more than half of the outstanding stock, which enriched the remaining shareholders by much more than a billion dollars. And that's one of the great things about what you and I are doing. This isn't, yeah, 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 can be fun and enrich your, yourself and your loved ones and your partners and your friends. 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 multidisciplinary education and training, and that if you just focus on business, you're just gonna, it's like the ev- with the person with the hammer, everything, uh, looks like a nail. And so you're only gonna use business, stuff you learn in business school to solve business problems. He's like, "Then you're gonna lose to people that are more multidisciplinary." And this is a great illustration of how mastering the big ideas in other domains can actually benefit the way you think about these business opportunities. So this professor from Harvard Business School, this happened a couple decades before, he's telling a 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 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 just inherited the shoe factory. They did not build it. They did not manage it. They were unworldly, and they'd inherited it. The professor then gave the students ample time to answer with written advice to the old ladies. In response to the answers, the profe- 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 and this 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 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 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.

11. 1:14:13 – 1:19:37

    USC Commencement: Wisdom, Learning Machines, and Trust

    1. DSDavid Senra1:14:13

       One of my favorite quotes I've ever heard comes from the founder of 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. And Charlie gave this commencement address at USC back in 2007, I think. Uh, the full talk, it's, like, almost 40 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 Edwin Land, uh, in the sense of what else is a moral duty, and he believes that the acquisition of wisdom 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 tell you something on the day of your graduation?" And he says, "The sacrifices and the wisdom and the value transfer that come from one generation to the next should always be appreciated." He's constantly quoting and crediting Confucius with teaching him that because it was a very, uh, central tenet to Confucius' teachings. So there's a bunch of ideas in this talk that he wants to pass on to the next generation. I just wanna 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 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 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, so that's why he goes into the acquisition of m- 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 gonna get very far in life based on what you already know. And he uses Warren Buffett as an example. He's like, "Listen, Berkshire put up the greatest long-term investment record in the history of civilization," right? The skill that got Berkshire through one decade would not have sufficed to get it 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, like, that go to bed every night a little wiser than they were that morning, they 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 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 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 wanna do this practice as much as you can for as long a 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... What he does is he calls this maximizing non-egality, [chuckles] which is, I don't even know if that's a really 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 did was there's 12 people on a basketball team. He says to the bottom five players, "Hey, you're not gonna play in games. You're practice partners." Uh, that, and he did this because he wanted to maximize the, the amount of game, playing time and practice for his top 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, Wooden won more games than he'd won before. This is the takeaway. I think the 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 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 they could do it for a long period of time. They've aligned their, what they're doing professionally and what they're doing for work with their natural, intense interests. Uh, one of my favorite things, uh, the way I think about Charlie, what he taught me, is that ask yourself, "What are you intensely interested in?" And then just do that for a living. Another thing that I've 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 wanna combine that with working only, working only with people that you like, admire, and trust, people that you wanna be like, uh, that you trust, that you admire. Do not... He says do not people, do not... Just quit. Quit your job. Maneuver yourself, especially in the 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 wanna be like. Hopefully, your partners are like that too. And if they 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 gonna apply this to what, uh, inside of the partnership that he had, uh, with 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 another. In your own life, you want to, what you wanna maximize is a seamless web of deserved trust.

12. 1:19:37 – 1:28:24

    Persian Messenger Syndrome, Incentives and Social Proof

    1. DSDavid Senra1:19:37

       Charlie also has this great story, uh, that I think actually i- embedded in the story is really great advice, and he calls the story The Persian Messenger Syndrome, and it's very common. He's observed it multiple times, that leaders of companies, as they get more successful, they tend to dislike hearing bad news, and you should actually do the opposite. And he talks about at Berkshire that, "Hey, uh, tell us the bad news because the good news takes care of itself." And this is, uh, again, a, a well-known, like, psychological tendency that you see in human nature throughout history. The Persinger... P- Persian Messenger Syndrome. Ancient Persians actually killed some messengers whose sole fault was that they brought home truthful bad news, like a bat- 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've wanted it done. Persian 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 Paley, and over time, Bill Paley became hostile to people who brought him bad news. And so Charlie was like, "Well, o- 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 Berkshire, the way they counteract this is they have a habit of welcoming bad news. There is a common injunction at Berkshire HQ, "Always tell us the bad news promptly. It is only the good news that can wait." I noticed, um, when I got to this section, I, I thought of something that I learned when I was reading, uh, the biography of the 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 noticed this as well as, like, well, he's running the company. He's got all these executives, but these executives, the only people that have 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 Casey's like, "How do I in... How do I counteract this?" And so what Jim would do is any time he's, 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 un- many times what they would, what he would learn from drivers would be very different from what his executives, 'cause his exec- would tell him, 'cause his executives were, 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 wanna avoid the Persian Messenger Syndrome. And then 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 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 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 disincentves- disincentives are for changing behavior, but this is not often so. I've been in the top 5% of my age cohort my entire life in understanding the power of incentives, yet I've always underestimated that power. Never a year pa- this is an insane sentence. Never a year passes that I don't get some surprise that pushes a little further my appreciation of incentive superpowers. So 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 av- the other people that are in, in the n- the bottom 95% are doing? One of my favorite cases about the power of incentives is that happened at 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 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 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 the hour when what the employer wanted was not maximized billable hours of employee servitude, but 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, they could never hit the ta- the com- su- 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 it way faster and wind up... 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 Wilson, he, uh, had a similar experience. He couldn't understand why its new machine was selling so poorly in relation to its older and inferior machine. So then he goes and looks, and he finds out that the commission arrangement with the salespeople at Xerox gave a large and perverse incentive to push the inferior machine on customers. So of course, if 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... 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 you listen to Charlie talk or if you read a bunch of books about him, uh, Buffett does this in his shareholders' letters as well. Actually, let me read this from, uh, Buffett's shareholder letter. Buffett says, "The behavior of peer companies, whether they're expanding, acquiring, setting executive competation, compos- composition, whatever, will be mindlessly imitated." So he's saying the behavior of peer companies will be mindlessly imitated, and what they're both shocked at, Buffett also says that 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 brand, uh, advertising and marketing. But w- a form of social proof where it's actually neg- so that, 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 highest reaches of business, it's not uncommon to find leaders who display followership akin to that of teenagers." That is Charlie Munger's own line. They are acting like teenagers, just following anybody around them. And he talks about that this psychological tendency is very observable, and you see it, uh, usually start in, like, an industry. If one idea starts with one company in an industry, whether it's a good idea or a bad idea, it'll be spread to other industries. So he uses an example in the oil industry. If one oil company foolishly buys a mine, 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 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 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 remembered this story more than anything. And so Munger says, "One of my favorite stories is about the little boy in Texas. The teacher asked 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 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 failed to practice for a single day, he could notice his performance deterioration, and that after a week's 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. The public praises people for what they practice in private. Keep reading, keep learning. It's what Charlie would've 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 good for the world.

13. 1:28:24 – 1:34:07

    Closing the Almanack Discussion and Hiring Mini-Episode: Why Hiring Matters

    1. DSDavid Senra1:28:24

       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 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 link down below for the conversation, the incredible conversation, uh, you do not wanna miss, with John Collison and Charlie Munger. It's one of the last, uh, gonna be one of the last, uh, unheard, uh, interviews that is released. That w- is available. If you're, if you're hearing 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 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?" Uh, all the answers. People think I have a better memory than I, than I actually do. You know, if people say, "Oh, you, David, you have a great memory," my wife would laugh at that [chuckles] 'cause I forget things all the time. It's not that I have a good memory. It's I reread things over 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 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 can go to foundersnotes.com and sign up. I wanna start out first with why this is so important. There's actually this book that came out in, like, 1997. It's, uh, called "In the Company of Giants." I think it's episode 208 of Founders. It's two Stanford MBA students, if I remember correctly, and they're interviewing a bunch of technology company founders. And in there, Steve Jobs is one of them. This is, you know, right b- 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 typical startup, a manager or a founder may not always have time to spend recruiting other people. And St- I, I first read this, uh, Steve's answer to this, you know, I don't know, two years ago, and I never forgot it. I think it's excellent, and I think it sets up why, uh, this question's so important, and you should really be spending, especially in the early days, like, basically all your time doing this. Uh, in a typical startup, a manager may not always have the time to spend 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 gonna pause there. This idea of looking at each new hire as a percentage of the company is genius. [chuckles] "Why should you take any less time finding a third or a fourth of your company or a fifth of your company? When you're in a startup, the first 10 people will 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 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 in making Founders and that you have as, as a byproduct of listening to Founders- Is not only that I've read, you know, 300 and 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 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 gonna do next, and then think about it for a few days. I don't put any... I just literally that, that I 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 of 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 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 f- to hire is just find great work and find the people that did that and then try to hire them. When you're Steve Jobs, [laughs] that's a lot easier, right, than if you're just somebody that doesn't have a reputation, maybe you don't have resources, maybe your company's rather, uh, new or not as well known. David Ogilvy, I just did "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 Ogilvy at that point, so he would find... He'd go through magazines, find great advertising, great copywriting, and he'd write the person a letter and then set up a phone call. And he says he wouldn't... He was so well-known, 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, the... He'd wanna hire the 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 it's straightforward. F- who... Find for somebody who does great work. Usually, you can do this. I actually have a friend that, I can't say who it is. He's doing this right now, actually. [laughs] 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 DM-ing them and then getting, convincing them to work on things, and that usually works, especially with people, like, younger people early in their career. There's a bunch of different ways to think about this and a bunch of different ways to prioritize.

14. 1:34:07 – 1:43:41

    How Great Founders Hire: Methods and Standards

    1. DSDavid Senra1:34:07

       So the first thing that, that c- that came to mind that I found surprising is you read any biography on Rockefeller, and he had a couple ideas where he felt the optimization, uh, 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 listening to this, you already know that. But he 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." There's a two-- the second part to this, though, and this is also works well if you have access to more resources. He, he-- Rockefeller would hire people as he found, as he found talented people, not as he needed them. It's not like, okay, Standard Oil has six open spots. Let's go find six candidates, right? He'd come across what he considered a talented person. It didn't even matter if he didn't know what they were gonna do. He's like, "I'm just gonna stack his team." And if you really think about the, the-- his partners at Standard Oil, he essentially built a company, an executive team of founders of c- [laughs] 'cause he was buying up all their companies, so it's very rare. But, um, there's a line from Titan I wanna read to you. "Taking for granted the growth of his empire, he hired talented people as found, not as needed." And then I found another idea in the hiring, like, the actual interview process. So there's this guy named Vannevar Bush. I did two episodes on him. I think it's 270 and 271. He is the most 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 Vannevar Bush. Vannevar Bush, uh, is like the Forrest Gump of this historical period. He is involved in everything from the Manhattan Project to discovering, like, a young Claude Shannon to building, uh, a mechanical computer. Like, this guy literally has done... He, he's just, uh... He pops up in these books over and over 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 Vannevar Bush over and over again. Uh, I read his fantastic autobiography called Pieces of the Action, and I came across this weird 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 C.G. Smith. The way I hired him is interesting. An interview of that sort is 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- uh, with a neat solution, and I hired him at once." Here's another idea. This is from Nolan Bushnell. Nolan Bushnell's 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 best ways c- his whole thing was he wanted to build, uh, all of his companies w- 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 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 they read at all. I've 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 indifferent don't. I remember one... That, that's such a great line, and I obviously agree with it. [laughs] I remember one... I'm gonna read it again. A blatant but often accurate generalization. People who are curious and passionate read. People who are apathetic and indifferent don't. 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 ti- 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 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 you, your role as the leader of the company and the founder to do, right? And you are... And 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 be like, "Hey, I should really organize my thoughts and notes," 'cause there's no way I would've 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." Now you have Nolan Bushnell 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, Bezos, uh, Peter Thiel, 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 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 player- they had 400 team members. He's like, "At the time, Apple had 3,000." It's like it's impossible to have 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 gonna have thousands of A players. In my argument, I don't even know if you could have 400. I guess you, I mean, I'll take Steve's word for it on there, and Pixar definitely produced great products, but it's probably a lot lo- lower than that as well. So Warren Buffett would tell you to use David Ogilvy's hiring philosophy. And so Warren said, "Charlie and I know that the right players will make almost any team manager look good." Again, that is why it's the most important function of the founder, maybe directly next to the product or right above the product actually, 'cause those are the people building your product. "We subscribe to the philosophy of Ogilvy & Mather's founding genius, David Ogilvy." This is what Ogilvy said. "If each of us hires people who are small- smaller than we are, we shall become a company of dwarves. But if each of us hires people who are bigger than we are, we shall become a company of giants." David, or Jeff Bezos rather, used a variation of Ogilvy'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." And they talk about this 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 with hiring. There's this great book on the history of PayPal. It's written... Actually, I've, I've recently become friends with the author. His name is Jimmy Soni, um, and this is in his book. The, the most fascinating thing that I found was that PayPal prioritized speed. So from the 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, [chuckles] than for-- He spent six years researching the book. And I always tease him 'cause like, "You took longer on a book than they took to start and sell their company." [laughs] It just speaks to, like, the quality he's trying to do. But the, as a byproduct of that, like obviously they move fast, but they prioritize speed over everything else except in one area, recruiting. Max Levchin kept the bar for talent exceedingly high, even if that came at the expense of speedy sa- staffing. Max kept repeating, "A's hire A's. B's hire C's. So the first B you hire takes the whole company down." Let's read that again. "A players hire A players. B players hire C players. So the first B player you hire takes the whole company down." Uh, 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 bizarre. [laughs] 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 'cause the, the podcast is like 50 times bigger than, than when I, uh, published those episodes, and he's just, [laughs] he's just crazy. So he would hire based on the confidence, the self-confidence level [laughs] of, of the candidate. Listen to this. I have tears in my eyes. I don't know why I'm laughing. Okay. [laughs] This is just so... 'Cause this is-- You read about Larry Ellison, and he's one of these people that's, like, really easy to interface with 'cause he just, you just know exactly who he is [laughs] 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 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 smartest people that way, but you definitely got the most arrogant. Ellison's, and this is why, w- the personality of the founder is largely the culture of the company. Apple is Steve Jobs. Apple is just Steve Jobs with 10,000 lives, right? I was just te- 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 that are really successful, but he's like, "I think I'm more of this type of founder than the other type of founder." And that's good that he's 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 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.

15. 1:43:41 – 1:53:05

    Hiring as Distribution, Recruiting Obstacles, and Building the Environment

    1. DSDavid Senra1:43:41

       Izzy Sharp, the founder of Four Seasons, actually could- figured out that in his business, which was hotels, right? That hiring could a- hiring the right p- person could actually be a form of distribution for his hotel. He gave me the idea because of what? What do we know? What do you and I know in our bones? That history's greatest founders all read biographies. [laughs] They all read biographies of people that came before them and took ideas from them. Izzy Sharp was trying to build Four Seasons. What do you think he did? He picked up a biography of César Ritz, the guy that, uh, Ritz Carlton is named after, the great, arguably the greatest hotelier of all time. And when he realized that, "Oh, shit, Ritz..." He, he says, uh, "Remembering that César Ritz made his hotels world-famous by hiring some of the foremost chefs, we decided to do something similar." So what is he talking about? César Ritz went out and partnered with Auguste Escoffier. What Cesar Ritz was ho- to hotel-- to building hotels, Auguste Escoffier was to French cooking. And so what happened is you partner with world-famous chefs, people come into your restaurant that's in the hotel because of the world-famous chef, and now they know about your hotel. That leads to more gu- that me- leads to more activity in your restaurant that you own, but also leads to m- more brand recognition of your hotel, and then by... as a byproduct of 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 a problem. You can identify great people, right? Maybe they even want to come work. Like, you've identified them, you've sold them, "Hey, uh, 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 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 founders are not gonna 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 Musk did. They had ant- anticipated his friend's issue. Having convinced Musk they needed 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? 'Cause that's where SpaceX is at the time. They... These were solvable problems, and Elon's better at solving problems than almost anyone else. Musk therefore came into his job interview prepared. About halfway through, Musk told the guy that he wants to hire, "So I heard you don't wanna move to LA, and one of the reasons is that your wife works for Google. Well, I just talked to Larry, and they're gonna transfer your wife down to LA. So what are you gonna do now?" To solve this problem, Musk had called his friend Larry Page, the co-founder of Google. The engineer sat in 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 gonna promote from within or from without? You know, that's dependent on you, depending on what, 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, t- like, tire companies in the Pacific Northwest. I actually found out about him 'cause Charlie Munger's like, "Hey, you should read this biography." He said it in, um, [clears throat] he didn't say it to me personally. He said it to, uh, in, like, one of the Berkshire meetings, that to study-- Les Schwab had one of the most m- uh, one of the smartest, uh, financial incentive structures of any company that, that Charlie Munger had come across. So this is what Les Schwab did. He did not want to hire from... He didn't wanna hire other people from other companies 'cause they might come with bad habits. He liked to 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 all earned their management job by working up." And then another thing, if you're gonna hire the best of the best and 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 companies all throughout Utah, car dealerships, movie theaters, all kinds of crazy stuff, but he also owned the, the, the NBA team, the Utah Jazz. And what was fascinating is he's trying to recruit Jerry Sloan as the coach at the po- at, at the point, and Jerry Sloan would only take the job on one condition, and I really like it. I really like this idea. "If you hire me, let me run the team and 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 time, he said, "I am only gonna 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/business." Here's another idea from Thomas El- uh, Edison that I think is fascinating. Really, I-- the way I think about a founder is, like, you're developing skills that you can't hire for. You, you're gonna hire for everything else, but you shouldn't be hireable, and Edison wasn't. Edison, expressing his views on the preeminent role of applied scientists, which, that's what he considered himself, coined 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 both rare and valuable. Uh, Estée Lauder would give you advice that you need to hire people aligned 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 are t- 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 you are as a 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 in, like, a hoity-toity, you know, pretentious manner. That's not me at all. I don't even care about [chuckles] I don't... art 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, uh, decision A, but decision A is, 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, hire people who think as you, you do. And what, for whatever reason, when I read Estée Lauder say that, I was like, okay, that, there's, like, this art to what she's doing. One thing that's gonna be helpful in recruiting, uh, this comes from Peter Thiel. I think this is the book Zero to One. Understand that most companies don't even differentiate their pitches to potential recruits into hiring, so therefore, like, they're just gonna by... as a byproduct of that, you're gonna wind up with a lower overall talent base. And so he says, "What's wrong with valuable stock, smart people, or pressing problems? Nothing. But 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." So that idea of, like, your pitch, your actual... Your-- He would tell you your, you shouldn't be building an undifferentiated commodity business. But even above and beyond that, like, your, the, the, the mission that you're trying to engage everybody to join you in, that pitch, that sale, sale you're trying to make to potential recruits 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 able to compare it to anything else. Uh, another quote from Nolan Bushnell, "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 separates Steve Jobs from the mass of 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. 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 brilliant. They had to be hardworking, and there could be no nonsense. "There are a ton of phonies out there and not many who are the real deal," Musk said of his approach to interviewing engineers. "I can usually tell within 15 minutes, and I can 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 the company hired through the first 3,000 employees. It required late nights and weekends, but he 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 it should be a large part of how you spend your time, and now we'll close with what you do after. What do you do after you hire the person? This is 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. The feeling that their work will have a tremendous influence and is part of a strong, clear vision." So that is the end to that 20-minute mini episode. I just re-listened to the whole thing, and it, it really does, I think it's a perfect explanation and illustration of why I think Founders Notes is so valuable 'cause 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 history's greatest entrepreneurs to reference and then contextually apply to our own businesses, it's nothing short of, like, it's magic. Uh, that's really the way I think about it. I think it's a massive superpower. It gives me a massive superpower. I couldn't have made the podcast without it. I also think if you have access to it, it'll make your business better. And so if you're already running a successful business, I highly recommend that you invest in a subscription, and you can do that by going to foundersnotes.com.

Episode duration: 1:53:06