Poor Charlie's Almanack by Charlie Munger | with guest Eric Jorgenson

0:01Welcome to Business Book Club, where top entrepreneurs break down the most powerful insights from the world's best business books. I'm your host, Sam Brown, and today we're cracking open a true Bible for brilliant thinkers, Paul Charlie's Almanac. The author? The late, great Charlie Munger. He was Warren Buffett's right-hand man and the architect behind the Berkshire Hathaway empire. But let me be clear, this is not an investing book. It's a masterclass in human psychology, decision-making, and avoiding stupidity. These are the exact mental tools every founder needs to survive and scale. And to unpack it, I'm joined by Eric Jorgensen.

0:39Eric is the CEO of Scribe Media. Scribe help entrepreneurs, executives, and experts write, publish, and market their books. He's also the mastermind behind The Almanac of Naval Ravikant, covered in the first ever episode of this podcast, and his greatly anticipated new title, The Book of Elon, which if you have not pre-ordered, you should go and do it now. He's also a deep tech investor through Rolling Fun and the host of the Smart Friends podcast. If anyone knows how to distill complex genius into actionable advice, it's Eric. In this episode, we're covering how and why you should build better mental models, why Eric and Charlie think that the acquisition of wisdom is a moral duty, and why trust is the most valuable economic force.

1:24Eric, why did you choose Paul Charlie's Almanac as the most impactful book that you've ever read? I love this book so much. It is impactful for a bunch of reasons. One, I think it found me at the right time. So I pulled this book off my dad's bookshelf when I was maybe 20 years old. Every page I turned, I just felt like I was experiencing this sort of clarity of thought and universality of mind. There's not that many people that you read or encounter that you're like, oh my God, I think this guy's right about everything. His hit rate is just so high and he was funny, which I liked. His life story is proof of these principles, right?

2:03I've read a lot of books. I love many of them. I've learned from so many, but when you forced me to pick one that is formative, this book really found me at the right time. It informed a lot of my reading throughout my 20s. It informed a lot of my interests, my friendships, my career. So it was just super formative. It's very broad. It's very deep. It's very interesting. It was an easy pick for me as the most formative. You've chosen three main lessons, three big takeaways. What have you got for lesson number one? Build a latticework of worldly wisdom. I think he is the most broad thinker, and that sums it up.

2:38One of his famous kind of idioms or sayings was, to the man with only a hammer, every problem looks like a nail. It's like if you only know marketing, then you're trying to market your way out of a broken product. Point here is that if you have this latticework and Munger talks about it as a load of different mental models that you need from psychology and maths and engineering and like every discipline, they kind of interlock and you're able to solve these problems in a more holistic and much better way. Eric, one of the great things about investing through Rolling Fund is that you see so many different companies and you see different types of people.

3:10You must be able to pick up a ton of different mental models from these people. I do, but I think this is more than just an investing framework. The thing that I love about Munger and about the latticework of worldly wisdom as a sort of an operating principle, he says there's nothing common about common sense. If you could just pick one thing that is like the most enduring trait that helps you in good times are bad, helps you in any environment. It's this universal ability. The latticework and the worldly wisdom comes from having a basic fluency across a whole different set of topics. And as you point out, if you know marketing, you know psychology, but you know nothing about finance, you're going to get your face ripped off by somebody who understands finance and tricks you, or a legal problem, or the macro environment, or you're going to marry the wrong person.

3:51Even if you're a genius at all things work, you're going to mess something up in your personal life and end up miserable. And so I think common sense or the pursuit of worldly wisdom is just this art of sort of being general enough to have a good bullshit detector, to have basic gut checks. You don't have to be an expert in everything. It's not possible you'd be an expert in everything, but you need to know enough to vet things, enough to distinguish who's a true expert in that field versus who's blown air. You need to know enough to not have a deadly trap set on you in a particular area. Peter Kaufman talks about this.

4:20He's a friend of Charlie Munger, and he's actually the guy who curated and edited this book. All the words are Charlie's for the most part, but Peter Kaufman is the one who really put it all together and sort of drug Charlie into the spotlight almost against his will. And Peter talks about problems don't show up with a label on them for finance or marketing or psychology or legal, right? Problems exist in the real world and there's always a huge variety of ways to solve them. There's all these different things where you never know, as you point out, what tool from the toolkit is actually the right one for the job.

4:49and once you sort of embrace that, you live in fear of like, oh God, if I just had this tool in my tool belt and I knew to use it at this particular time, I could have saved a life, saved a business or had this crazy inflection point. And once you sort of see the world that way, you're like, all right, I got to collect all the tools that I possibly can and try to keep them sharp, keep them in order and get some practice in knowing how to use them. And I find leading a company that being able to understand a little bit about a lot of different fields is critically important. I think psychology is one of those that is just applicable to so many of the decisions that we have to make.

5:22The FedEx example that he has in the book is great, where FedEx needed the workers to work faster and be very accurate. But what they were doing was paying them by the hour, not by the shift. If they're being paid by the hour, they just have longer shifts and they get paid more. But if they get paid by the shift, they get paid the same amount. So they get to go home earlier when their job's done. This is the power of incentives. They just switch that around and really quickly things became a lot better, got done faster and got done to a higher standard. On the incentive note in particular, Charlie, I think he's been in the top 1 % of his age cohort his entire life in understanding the power of incentives and all his life he's underestimated them.

5:59What does that say about the absolute dominant power of incentives? And I think there's another line that's never be thinking about anything else when you can be thinking about improving incentives. One of the things that Charlie says, the point of having all these mental models is trying to make fewer dumb decisions. in trying to avoid these dumb decisions. What are one or two of the mental models that you've either picked up from the book or have thought about yourself that you put into practice? Probably the biggest model that is for failure avoidance is just the concept of multiplying by zero.

6:31He says no matter how long the equation is and no matter how big the other numbers are, if there's a zero anywhere in there, you're dead. The whole equation goes to zero. So as you're looking at either a series of decisions or a comprehensive system or anything like that. And I say all the time, we got to avoid multiplying by zero. Let's just take a scribe example. We work with an author to help them write and publish a book over the course of an entire year. And we always strive to under promise and over deliver. But there are times when we fall short of an author's expectations. And the difference between falling 10 % short and having like a truly abhorrent experience, a really deep negative emotional experience is the difference between multiplying by zero, right?

7:09If you give them a truly terrible day, even brief, horrible experience, that's what they're going to remember. That's the really poignant piece of the experience. And so throughout a year of interaction, we have to always manage the work and the expectations and the process and the relationship such that we never deliver something like a really stinky set of bad news and in the worst way. So never multiplying by zero in that sense. You know, there's a bunch of ways that you can apply this to just personal risk too. People do all kinds of things with minimal upside, but a reasonable risk of 100 % downside, right?

7:42Like, what is smoking going to get you? What is jumping out of a plane going to get you? There's a lot of things that if you really do the math on it, you're like, man, my odds of multiplying by zero here in this situation are pretty high. And the penalty for failure is so high. What am I even doing here? So I've always found that to be a useful model. I was with you all along until you started talking about the going and jumping out of an airplane. there are a lot of risks that I have taken before that I'm happy I've taken. I used to go skiing a lot and going like off piste and that sort of thing.

8:08Lots of people die every year in avalanches, but I'm so happy I did it because it was such a great experience and a lot of fun. I have those too. I have close shades that I'm like, man, I felt really alive, but I also risk death. I certainly do less of those as I get older. I think some of those are like born of ignorance, not calculus. And now that I have a kid, I do even less of them. And you hear these stories about Richard Branson and how upset his family is when he goes off till he set a new balloon world record and risks his life with multiple kids and a business empire and real responsibilities left behind.

8:39On the one hand, that's part of like what makes him an awesome, adventurous soul. But I think, you know, Charlie would look at that and be like, perhaps not the wisest move, not the most conservative path one could take. Private aviation is safer than it used to be, but it's still a high risk thing. Like riding in a helicopter. Somebody broke down all the different ways that billionaires die and some large percent was actually helicopters. and you're like, huh, that's interesting data. Probably one to avoid then when I become a billionaire. I don't think the helicopters discriminate. I asked you to fill in a little bit of information in the doc before we started recording.

9:13One of the things that you said was that you try and optimize for better models, not hacks. Can you tell me a little bit more about that? I mean, hack, depending on who you are, has like either a negative connotation or not. Hacks tend to be, I think, relevant for a discrete moment in time. And the good thing about these models, if you look at Charlie's true list of mental models is that they are pretty consistently useful across different eras of time, different situations, different domains. Most of them have been true for all of humanity. And I think hacks just tend to have a short shelf life.

9:43They have sort of an arbitrage about them. And there's some people who make their career out of sort of this sequential series of hacks. And even if they're all perfectly morally reasonable, you are having to consistently reinvent what you're doing that's working. and one of the great things about Buffett and Munger in my view is that they sort of derive this system that always works. It's a good default strategy, an optimal default, I think they like to say, or Peter Kaufman calls it an invariant strategy. You can always deploy this model and count on it working, then you can get better and better and better at deploying that model and understanding it over years and decades, which is exactly what Buffett and Munger did, right?

10:21Like they observed some things that worked and they just compounded those and then as Charlie says, like rule number one of compounding is never interrupted unnecessarily. Let's move on to lesson number two. Acquisition of wisdom is a moral duty. One thing that he says is that idiots are incredibly expensive to society, and then by extension, your business. So he believed that going to bed a little bit smarter every single day wasn't just like a life hack, it was his moral obligation, and it should be everyone's moral obligation. Tell me a little bit more about why you think it's a moral duty.

10:52One of the things that really drew me to him is his extremely stout moral compass. I don't want to misattribute my summary was idiots are expensive to society. I don't think that was a direct mongerism, though. I can maybe picture him saying it. It doesn't sound like something he might come up with. But I was trying to sort of summarize a quote that I know for sure is the best thing a human being can do is to help another human to know more. I didn't realize that was your mental model. I agree. Yeah, I inverted that one a little bit just to play around with it. Him and Buffett think of themselves as teachers, right?

11:21Like they say, if all we did was compound capital, that's a failure. We aspire for our legacy to be having taught and shared as much as we can. And I think I took that to heart. And it's a big part of what kind of started me tweeting and blogging and writing books was sharing the things that I was learning. What gave you the confidence to do that? Because obviously it's very successful. Your books have been read by millions of people. So it's been an awesome move for you. But for a lot of people, whether it's imposter syndrome or something else, It's quite a hard thing to pull themselves out there and try and share that wisdom.

11:52My particular brand of writing, at least the way it's framed for me, doesn't require confidence. I don't have confidence. I have humility. I have appreciated what I've learned from Charlie Munger. I'm here talking about how smart Charlie is. I wrote a book about how much I learned from Naval. Here's my collection of all of Naval's most useful ideas. I'm not marching around trying to draw a spotlight on myself. I'm trying to shine a light on things that I've found useful. That's a really uncomfortable thing for me to do. Back to Munger's thing. I believe it's my moral duty to acquire wisdom. I've found that Munger delivers that to me.

12:22I've found that Naval does that for me. I've found that Elon does that for me. And I also feel good sharing that with others, not just for myself because I'm helping other people to learn, I hope, but also because in broadcasting the things that seem interesting and valuable to me, I'm shining this beacon that attracts people who are attracted to the same ideas. One of the best things about the book that we're here talking about and Charlie Munger generally is that it became the foundation of many of my friendships. This is a great book because it's more than a book. I could go to the Daily Journal meetings and the Berkshire Hathaway meetings where the Buffett and Munger nerds unite.

12:55And the Daily Journal meeting was only a couple hundred people. There's not that many people in their early 20s who fly across the country to go watch a 90-year-old man speak. So a couple of us found each other in the crowd and started talking and started talking on Twitter and became close friends and now gone to each other's weddings and invest in companies together. And it's this amazing sort of mechanism for finding people with your shared values. It's just sort of who rallies around the icons like Munger. It's been really rewarding on many levels, not just sort of, hey, these are good ideas.

13:27I'm going to use them in my life. I want to ask you about how you think about this lesson of acquisition of wisdom and also maybe teaching as a company CEO. And what you're doing is like trying to build a culture. And I think one of the great things about building culture, thinking right through this lens is that passing on knowledge between people in the company really compounds. It doesn't just make the one person better. It makes the whole company better in an exponential way. So how do you go about like entrenching that into company culture? This moral duty goes a lot of places. And another candidate for important books here was David Deutsch's The Beginning of Infinity.

14:02It's a little bit of a thick read because he's very academic. It's a very rich and very deep idea, and he proves it out through many, many different chapters. David Joyce talks about the most fundamental sort of human traits, especially since the Enlightenment, as the creation of new knowledge. How do we know what we know and how do we create new knowledge? This happens in evolution. This happens through capitalism. This happens through the scientific method of coming up with new ideas and then criticizing them, exposing them to the environment that sort of checks them against reality, right? And through that lens, knowledge is the most important thing to compound, not just for ourselves individually, but for civilization as a whole, but it also applies directly to how you build a company.

14:42SpaceX is one of the most valuable companies in the world because it is full of knowledge that nobody else in the world has, which is how to build a reusable rocket. And so they can build a product that nobody else in the world can do, but that's downstream of the knowledge of how to do it and what the materials and technologies and systems are. Now leading a company, my role and my mission is to try to either bring in or create within the company a type of knowledge that only exists at our company. Companies are successful to the degree that they can do things that others cannot. And so we have to acquire as much of this wisdom, this knowledge as we possibly can, because that's going to let us help our authors either write better books, make those books more successful, make the businesses on the other side of those books more successful, whatever it is.

15:24That differential in knowledge is ultimately what drives the differential in outcomes. And I think we saw this with Buffett and Munger, right? Like they just knew things about investing and they had a discipline and a character that many other people couldn't replicate, even when they go on a stage and say, here's all my secrets. You know, there's a lot more to it than just knowing the words. That's such a cool way of explaining how businesses can be valued. Is that one of the ways that you evaluate businesses when you're deciding whether to invest in them or not? Yeah. And it's really difficult at the very earliest stages.

15:54But as I look back through some of my more recent, my last year or two, I think during the era of heavy software investment and scrappy young founders, the idea of investing in PhDs got a bad rap. But as I look back recently, my recent investments are deeply technical. There's a PhD on the founding team. They're creating products that nobody else in the world can create because they're just already at these extreme fringes of knowledge. And there's different traps over there of you have to find really high agency, commercially minded, fast moving PhDs who haven't been slowed down by the cadence and just brought into too much comfort by an academic setting for too long.

16:30But especially when you're working backwards from like, all right, what are the mega cap companies of the 2050s? What are going to be the most consequential companies on earth? They're going to be the ones who can do something nobody else can do, whether that's scaling up massive production or developing IP or having this particular process around, let's say, a gene editing or a proprietary data set. It's just an interesting lens to look at. It's really hard to tell from the earliest stages, but at least gives you a new clue that not everybody's thinking about it the same way. Let's move on to lesson number three.

16:56What have you got for us here? The highest form which civilization can reach is a seamless web of deserved trust. Bit of context here then. So as founders, we're taught that we have to kind of protect our downside. And we have these ironclad contracts. And, you know, it's part of the legal structure of what you have to do when you start a business. Munger's got this phrase in the book where he talks about if your marriage contract has 47 pages in it, then he suggests that you don't enter it. He didn't view trust as this kind of warm, fuzzy feeling. It is, to him, the most efficient economic force.

17:29When trust is high, friction disappears and speed goes up and cost drops to zero, which is great. The bit I'm missing a little bit from your lesson is the highest form which civilization can reach. Can you talk a little bit more about that? I've talked about this with Naval. When you find an idea that works, and these are David Deutsch's knowledge example was a good precursor to this. It operates at every level, right? A seamless web of deserved trust is certainly how you want your family to feel. It's how you want your marriage to feel. It's certainly how you want your business to feel. It's probably how you want your community to feel, like your church, your neighborhood, your block.

18:02It would be great if that's how your state felt or your country felt. Not always how it goes, but civilization, also true. We are tribal animals, and we don't want to be looking over our shoulder in fear. And actually, the cost of a lack of trust is massive, massive. Think about how much as a percentage of the GDP of our entire economy basically goes to ass covering insurance, proving or guaranteeing that people do what they say they're going to do, or punishing them or reclaiming them if they don't. I mean, this is much of accounting, much of law, much of criminal justice, much of the insurance industry.

18:41A huge, huge, huge share of what we do comes from a lack of trust. Back to Buffett and Munger more specifically, and you look at the deals that they've done, they have a great quote, you can't do a good deal with a bad person. To me, that goes back to deserve trust. Can I trust this counterparty? There is no price good enough for you to start doing business with somebody who's eventually going to screw you. They talk about integrity all the time as being the most important trait of a partner or a coworker, a compatriot of any sort. And there's all these different stories of somebody who's known Buffett for a while.

19:11He goes to buy their company. They say one number. He says yes or no. And then he wires the money. And there's never even a contract. I think one of these banks during the crisis called Buffett and said, hey, we need some insane, absurd, tens of billions of dollars in our bank account on Monday morning or this business collapses. And Buffett sends it on a phone call, right? Not a contract, not anything. And that level of trust, that seamless web of deserve trust that is earned over many, many years. You could do Buffettisms all day about this. It takes a lifetime to build a reputation and only five minutes to ruin it, right?

19:44That goes to the value of the seamless web of deserve trust. Below the sort of common lore of Buffett and Munger and their track record is that there is actually a whole network of friends that they had who all sort of came up and made each other successful. And Nivy, who's Naval's partner in AngelList, has a great frame of this, which like in the short run, it looks like everyone is making themselves rich, in the long run, it looks like everyone is making each other rich. And so that, especially through like the Silicon Valley lens where people are sort of investing in each other's companies and supporting each other and joining each other's boards and employees move around between each other and lessons are shared amongst each other, that comes from that seamless web of deserve trust.

20:19And so that really guided a lot of how I choose to live and who I choose to work with and how I do business and opportunities I choose to get involved with. I'm interested, how does a founder think about building that web of trust and like finding in those people who also have this as a kind of mental framework that they work to. Yeah, I mean, I think there's a lot of ways to go about it, you know, in a classic Munger inversion. Like, I think the best way to gain trust is simply to never break it, never lose it. If somebody's like pursuing your trust, that kind of automatically feels weird. You're trying too hard.

20:50Why are you trying to make me trust you? There must be a motive. And so I think it's just like, you just do what you say you're going to do. You just keep showing up. You're reliable. There's bad actors out there as well. For sure. People take advantage, you know? Yeah. So that's an interesting test is like you want to live your life such that if you had to call Buffett and ask him to wire you a billion dollars, he would be comfortable doing it. What traits does that person have? What have they done? How have they lived the last 10, 20, 50 years of their life? How long have their friendships been?

21:19How did their friends speak of them? How did their teammates? How did their investors speak of them? Going out of your way to conduct yourself well and avoid even any ambiguity around your actions or the motivation? of your actions over long, long, long periods of time. I think humans are deeply attuned to this kind of thing. Everybody can be fooled, and there are really good sociopaths out there. I think we've all run into them. Some people are just unreliable, but some people are truly sociopaths and are intentionally trying to manipulate. I know very smart people who've been hoodwinked multiple times.

21:50There's stories all over the place. Not all of it is malicious. Some of it is just incompetence or mistakes or inherent sort of unreliability. But those people who really build that seamless web of deserve trust, I do think find each other over the years and through repetition of partnerships and communication, sort of build those bonds ever more deeply. And you can think about it as a network of how much information or how much capital sort of passed between these different players over the years and use that as rough proof of how it's going to go going forward. It's definitely the sort of thing that attracted me to startups and to investors and VCs.