The Psychology of Human Misjudgment

Charlie Mungers infamous talk simplified into a checklist

I finished reading Poor Charlie’s Almanack this week and I’m glad to say the book didn’t disappoint. It reminded me of one of my favourite books, Shoe Dog by Phil Knight in the sense that it lived up to its expectation. If you haven’t read either of those books I’d urge you to buy them both right away. If it’s the only two books you read for the rest of the year it’d still be an amazing investment in yourself.

Poor Charlie’s Almanack is full of worldly wisdom and dashed with a big serving of common sense. He’s clearly intelligent and clearly has an edge seemingly wherever he puts his effort in but I found it quite staggering how his seemingly simplistic way of viewing life and investments could produce such monstrous returns.

I liked the way he repeated himself throughout his talks. To some, this may come as an annoyance, after all, you want every chapter to have something new or exciting but Charlie shares the same wisdom, stories and anecdotes throughout the book which is made up of eleven separate talks. This is a man who isn’t following fad trends or trying to play to the crowd he’s in front of but rather he’s spewing out what he genuinely believes in and well, it obviously did very well for him so who are we to disagree.

We hear it time and again, keep it simple stupid, everything should be as simple as it can be and take away until you can’t take something away anymore. These are all great heuristics to live by but we humans can’t favour simplistic solutions for time and again we fall foul to its adversary, complexity.

Charlie fully understood this and one of the things he swore by is making his life simple. So how did he make his life simple? He observed people who operated in complex environments who needed to have vast amounts of knowledge readily available to them at a moment’s notice. So who did he look to? Pilots!

Pilots have enormous responsibility and being only human they need to make their life as easy as it can be when they’re in the cockpit because not only does their life depend on it but more so the 2/300 hundred people in the back who are desperate for a sun tan.

So how do pilots make their lives easier? Well, they use checklists. That’s right, a good old-fashioned, simple checklist. Well, Charlie knew a thing or two about checklists and he had a many of them readily available, in an instant, in his mind. I dare to say Charlie could have been an ace pilot.

Chapter Eleven The Psychology of Human Misjudgement is arguably his most famous and potentially life-altering talk but it didn’t ever take place. It is a collection of other talks made earlier with revisions made by Charlie back in 2005 after a near lifetime of putting these into practice.

The ‘talk’ is centred around our misjudgments and biases that often can do more harm than good. These don’t just apply to investing, although when you read them you can see how they can be used to mitigate yourself against stupid decisions but they also should be used for living your life. They’ll help you pay less for a new sofa, be a courteous driver, steer you away from toxic people and generally will help you to spot, in yourself and others just how animalistic and stupid we can be.

If all we can achieve in life is to not do stupid things then I think we’ll be well on our life to living better, happier and wealthier lives.

In keeping with Charlie’s fashion of using checklists I give to you my summary of talk eleven for you to keep. Keep it on your phone, memorise and practise it because if Charlie Munger says it’s important you better bloody well listen.

*You can also click here to download a PDF copy.

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