Tag: Charlie Munger

Charlie Munger on Getting Rich, Wisdom, Focus, Fake Knowledge and More

“In the chronicles of American financial history,” writes David Clark in The Tao of Charlie Munger: A Compilation of Quotes from Berkshire Hathaway's Vice Chairman on Life, Business, and the Pursuit of Wealth, “Charlie Munger will be seen as the proverbial enigma wrapped in a paradox—he is both a mystery and a contradiction at the same time.”

On one hand, Munger received an elite education and it shows: He went to Cal Tech to train as a meteorologist for the Second World War and then attended Harvard Law School and eventually opened his own law firm. That part of his success makes sense.

Yet here's a man who never took a single course in economics, business, marketing, finance, psychology, or accounting, and managed to become one of the greatest, most admired, and most honorable businessmen of our age. He was noted by essentially all observers for the originality of his thoughts, especially about business and human behavior. You don't learn that in law school, at Harvard or anywhere else.

Bill Gates said of him: “He is truly the broadest thinker I have ever encountered.” His business partner Warren Buffett put it another way: “He comes equipped for rationality… I would say that to try and typecast Charlie in terms of any other human that I can think of, no one would fit. He's got his own mold.”

How does such an extreme result happen? How is such an original and unduly capable mind formed? In the case of Munger, it's clearly a combination of unusual genetics and an unusual approach to learning and life.

While we can't have his genetics, we can try to steal his approach to rationality. There's almost no limit to the amount one could learn from studying the Munger mind, so let's at least start with a rundown of some of his best ideas.

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Wisdom and Circles of Competence

“Knowing what you don’t know is more useful than being brilliant.”
“Acknowledging what you don’t know is the dawning of wisdom.”

Identify your circle of competence and use your knowledge, when possible, to stay away from things you don't understand. There are no points for difficulty at work or in life.  Avoiding stupidity is easier than seeking brilliance.

Of course this principle relates to another of Munger's sayings: “People are trying to be smart—all I am trying to do is not to be idiotic, but it’s harder than most people think.”

And this reminds me of perhaps my favorite Mungerism of all time, the very quote that sits right beside my desk:

“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

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Divergence

“Mimicking the herd invites regression to the mean.”

Here's a simple axiom to live by: If you do what everyone else does, you're going to get the same results that everyone else gets. This means that, taking out luck (good or bad), if you act average, you're going to be average. If you want to move away from average, you must diverge. You must be different. And if you want to outperform others, you must be different and correct. As Munger would say, “How could it be otherwise?”

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Know When to Fold ’Em

“Life, in part, is like a poker game, wherein you have to learn to quit sometimes when holding a much-loved hand—you must learn to handle mistakes and new facts that change the odds.”

Mistakes are an opportunity to grow. How we handle adversity is up to us. This is how we become personally antifragile.

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False Models

Echoing Einstein, who said that “Not everything that counts can be counted, and not everything that can be counted counts,” Munger said this about his and Buffett's shift to acquiring high-quality businesses for Berkshire Hathaway:

“Once we’d gotten over the hurdle of recognizing that a thing could be a bargain based on quantitative measures that would have horrified Graham, we started thinking about better businesses.”

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Being Lazy

“Sit on your ass. You’re paying less to brokers, you’re listening to less nonsense, and if it works, the tax system gives you an extra one, two, or three percentage points per annum.”

Time is a friend to a good business and the enemy of the poor business. It's also the friend of knowledge and the enemy of the new and novel. As Seneca said, “Time discovers truth.”

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Investing Is a Perimutuel System

“You’re looking for a mispriced gamble,” says Munger. “That’s what investing is. And you have to know enough to know whether the gamble is mispriced. That’s value investing.”  At another time, he added: “You should remember that good ideas are rare— when the odds are greatly in your favor, bet heavily.”

May the odds forever be in your favor. Actually, learning properly is one way you can tilt the odds in your favor.

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Focus

When asked about his success, Munger says, “I succeeded because I have a long attention span.”

Long attention spans allow for a deep understanding of subjects. When combined with deliberate practice, focus allows you to increase your skills and get out of your rut. The Art of Focus is a divergent and correct strategy that can help you identify where the leverage points are and apply your efforts toward them.

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Fake Knowledge

“Smart people aren’t exempt from professional disasters from overconfidence.”

We're so used to outsourcing our thinking to others that we've forgotten what it's like to really understand something from all perspectives. We've forgotten just how much work that takes. The path of least resistance, however, is just a click away. Fake knowledge, which comes from reading headlines and skimming the news, seems harmless, but it's not. It makes us overconfident. It's better to remember a simple trick: anything you're getting easily through Google or Twitter is likely to be widely known and should not be given undue weight.

However, Munger adds, “If people weren’t wrong so often, we wouldn’t be so rich.

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Sit Quietly

Echoing Pascal, who said some version of “All of humanity's problems stem from man's inability to sit quietly in a room alone,” Munger adds an investing twist: “It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait.”

The ability to be alone with your thoughts and turn ideas over and over, without giving in to Do Something syndrome, affects so many of us. A perfectly reasonable option is to hold your ground and await more information.

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Deal With Reality

“I think that one should recognize reality even when one doesn’t like it; indeed, especially when one doesn’t like it.”

Munger clearly learned from Joseph Tussman's wisdom. This means facing harsh truths that you might prefer to ignore. It means meeting the world on the world's terms, not according to how you wish it would be. If this causes temporary pain, so be it. “Your pain,” writes Kahil Gibran in The Prophet, “is the breaking of the shell that encloses your understanding.”

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There Is No Free Lunch

We like quick solutions that don't require a lot of effort. We're drawn to the modern equivalent of an old hustler selling an all-curing tonic. However, the world does not work that way. Munger expands:

“There isn’t a single formula. You need to know a lot about business and human nature and the numbers… It is unreasonable to expect that there is a magic system that will do it for you.”

Acquiring knowledge is hard work. It's reading and adding to your knowledge so it compounds. It's going deep and developing fluency, something Darwin knew well.

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Maximization/Minimization

In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables—like the discount warehouses of Costco.

When everything is a priority, nothing is a priority. Attempting to maximize competing variables is a recipe for disaster. Picking one variable and relentlessly focusing on it, which is an effective strategy, diverges from the norm. It's hard to compete with businesses that have correctly identified the right variables to maximize or minimize. When you focus on one variable, you'll increase the odds that you're quick and nimble — and can respond to changes in the terrain.

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Map and Terrain

At Berkshire there has never been a master plan. Anyone who wanted to do it, we fired because it takes on a life of its own and doesn’t cover new reality. We want people taking into account new information.”

Plans are maps that we become attached to. Once we've told everyone there is a plan and what that plan is, especially multi-year plans, we're psychologically more likely to stick to it because coming out and changing it would be admitting we were wrong. This makes it harder for us to change our strategies when we need to, so we're stacking the odds against ourselves. Detailed five-year plans (that will clearly be wrong) are as disastrous as overly general five-year plans (which can never be wrong).

Scrap the plan, isolate the key variables that you need to maximize and minimize, and follow the agile path blazed by Henry Singleton and followed by Buffett and Munger.

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The Keys to Good Government

There are three keys: honesty, effectiveness, and efficiency. Munger says:

“In a democracy, everyone takes turns. But if you really want a lot of wisdom, it’s better to concentrate decisions and process in one person. It’s no accident that Singapore has a much better record, given where it started, than the United States. There, power was concentrated in an enormously talented person, Lee Kuan Yew, who was the Warren Buffett of Singapore.”

Lee Kuan Yew put it this way: “With few exceptions, democracy has not brought good government to new developing countries. … What Asians value may not necessarily be what Americans or Europeans value. Westerners value the freedoms and liberties of the individual. As an Asian of Chinese cultural background, my values are for a government which is honest, effective, and efficient.”

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One Step At a Time

“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Slug it out one inch at a time, day by day. At the end of the day—if you live long enough—most people get what they deserve.”

An incremental approach to life reminds one of the nature of compounding. There will always be someone going faster than you, but you can learn from the Darwinian guide to overachieving your natural IQ. In order for this approach to be effective, you need a long axis of time as well as continuous incremental progress.

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Getting Rich

“The desire to get rich fast is pretty dangerous.” 

Getting rich is a function of being happy with what you have, spending less than you make, and time.

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Mental Models

“Know the big ideas in the big disciplines and use them routinely—all of them, not just a few.”

Mental models are the big ideas from multiple disciplines. While most people agree that these are worth knowing, they often think they can identify which models will add the most value, and in so doing they miss something important. There is a reason that the “know-nothing” index fund almost always beats the investors who think they know. Understanding this idea in greater detail will change a lot of things, including how you read. Acquiring the big ideas — without selectivity — is the way to mimic a know-nothing index fund.

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Know-it-alls

“I try to get rid of people who always confidently answer questions about which they don’t have any real knowledge.”

Few things have made as much of a difference in my life as systemically removing (and when that's not possible, reducing the importance of) people who think they know the answer to everything.

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Stoic Resolve

“There’s no way that you can live an adequate life without many mistakes. In fact, one trick in life is to get so you can handle mistakes. Failure to handle psychological denial is a common way for people to go broke.”

While we all make mistakes, it's how we respond to failure that defines us.

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Thinking

“We all are learning, modifying, or destroying ideas all the time. Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side.”

“It’s bad to have an opinion you’re proud of if you can’t state the arguments for the other side better than your opponents. This is a great mental discipline.”

Thinking is a lot of work. “My first thought,” William Deresiewicz said in one of my favorite speeches, “is never my best thought. My first thought is always someone else’s; it’s always what I’ve already heard about the subject, always the conventional wisdom.”

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Choose Your Associates Wisely

“Oh, it’s just so useful dealing with people you can trust and getting all the others the hell out of your life. It ought to be taught as a catechism. … [W]ise people want to avoid other people who are just total rat poison, and there are a lot of them.”

No comment needed there.

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Complement The Tao of Charlie Munger with this excellent Peter Bevelin interview.

Who’s in Charge of Our Minds? The Interpreter

One of the most fascinating discoveries of modern neuroscience is that the brain is a collection of distinct modules (grouped, highly connected neurons) performing specific functions rather than a unified system.

We'll get to why this is so important when we introduce The Interpreter later on.

This modular organization of the human brain is considered one of the key properties that sets us apart from animals. So much so, that it has displaced the theory that it stems from disproportionately bigger brains for our body size.

As neuroscientist Dr. Michael Gazzaniga points out in his wonderful book Who's In Charge? Free Will and the Science of the Brain, in terms of numbers of cells, the human brain is a proportionately scaled-up primate brain: It is what is expected for a primate of our size and does not possess relatively more neurons. They also found that the ratio between nonneuronal brain cells and neurons in human brain structures is similar to those found in other primates.

So it's not the size of our brains or the number of neurons, it's about the patterns of connectivity. As brains scaled up from insect to small mammal to larger mammal, they had to re-organize, for the simple reason that billions of neurons cannot all be connected to one another — some neurons would be way too far apart and too slow to communicate. Our brains would be gigantic and require a massive amount of energy to function.

Instead, our brain specializes and localizes. As Dr. Gazzaniga puts it, “Small local circuits, made of an interconnected group of neurons, are created to perform specific processing jobs and become automatic.” This is an important advance in our efforts to understand the mind.

Dr. Gazzaniga is most famous for his work studying split-brain patients, where many of the discoveries we're talking about were refined and explored. Split-brain patients give us a natural controlled experiment to find out “what the brain is up to” — and more importantly, how it does its work. What Gazzaniga and his co-researchers found was fascinating.

Emergence

We experience our conscious mind as a single unified thing. But if Gazzaniga & company are right, it most certainly isn't. How could a “specialized and localized” modular brain give rise to the feeling of “oneness” we feel so strongly about? It would seem there are too many things going on separately and locally:

Our conscious awareness is the mere tip of the iceberg of nonconscious processing. Below our level of awareness is the very busy nonconscious brain hard at work. Not hard for us to imagine are the housekeeping jobs the brain constantly struggles to keep homeostatic mechanisms up and running, such as our heart beating, our lungs breathing, and our temperature just right. Less easy to imagine, but being discovered left and right over the past fifty years, are the myriads of nonconscious processes smoothly putt-putting along. Think about it.

To begin with there are all the automatic visual and other sensory processing we have talked about. In addition, our minds are always being unconsciously biased by positive and negative priming processes, and influenced by category identification processes. In our social world, coalitionary bonding processes, cheater detection processes, and even moral judgment processes (to name only a few) are cranking away below our conscious mechanisms. With increasingly sophisticated testing methods, the number and diversity of identified processes is only going to multiply.

So what's going on? Who's controlling all this stuff? The idea is that the brain works more like traffic than a car. No one is controlling it!

It's due to a principle of complex systems called emergence, and it explains why all of these “specialized and localized” processes can give rise to what seems like a unified mind.

The key to understanding emergence is to understand that there are different levels of organization. My favorite analogy is that of the car, which I have mentioned before. If you look at an isolated car part, such as a cam shaft, you cannot predict that the freeway will be full of traffic at 5:15 PM. Monday through Friday. In fact, you could not even predict the phenomenon of traffic would even occur if you just looked at a brake pad. You cannot analyze traffic at the level of car parts. Did the guy who invented the wheel ever visualize the 405 in Los Angeles on Friday evening? You cannot even analyze traffic at the level of the individual car. When you get a bunch of cars and drivers together, with the variables of location, time, weather, and society, all in the mix, then at that level you can predict traffic. A new set of laws emerge that aren't predicted from the parts alone.

Emergence, Gazzaniga goes on, is how to understand the brain. Sub-atomic particles, atoms, molecules, cells, neurons, modules, the mind, and a collection of minds (a society) are all different levels of organization, with their own laws that cannot necessarily be predicted from the properties of the level below.

The unified mind we feel present emerges from the thousands of lower-level processes operating in parallel. Most of it is so automatic that we have no idea it's going on. (Not only does the mind work bottom-up but top down processes also influence it. In other words, what you think influences what you see and hear.)

And when we do start consciously explaining what's going on — or trying to — we start getting very interesting results. The part of our brain that seeks explanations and infers causality turns out to be a quirky little beast.

The Interpreter

Let's say you were to see a snake and jump back, automatically and quickly. Did you choose that action? If asked, you'd almost certainly say so, but the truth is more complicated.

If you were to have asked me why I jumped, I would have replied that I thought I'd seen a snake. That answer certainly makes sense, but the truth is I jumped before I was conscious of the snake: I had seen it, I didn't know I had seen it. My explanation is from post hoc information I have in my conscious system: The facts are that I jumped and that I saw a snake. The reality, however, is that I jumped way before (in a world of milliseconds) I was conscious of the snake. I did not make a conscious decision to jump and then consciously execute it. When I answered that question, I was, in a sense, confabulating: giving a fictitious account of a past event, believing it to be true. The real reason I jumped was an automatic nonconscious reaction to the fear response set into play by the amygdala. The reason I would have confabulated is that our human brains are driven to infer causality. They are driven to explain events that make sense out of the scattered facts. The facts that my conscious brain had to work were that I saw a snake, and I jumped. It did not register that I jumped before I was consciously aware of the snake.

Here's how it works: A thing happens, we react, we feel something about it, and then we go on explaining it. Sensory information is fed into an explanatory module which Gazzaniga calls The Interpreter, and studying split-brain patients showed him that it resides in the left hemisphere of the brain.

With that knowledge, Gazzaniga and his team were able to do all kinds of clever things to show how ridiculous our Interpreter can often be, especially in split-brain patients.

Take this case of a split-brain patient unconsciously making up a nonsense story when its two hemispheres are shown different images and instructed to choose a related image from a group of pictures. Read carefully:

We showed a split-brain patient two pictures: A chicken claw was shown to his right visual field, so the left hemisphere only saw the claw picture, and a snow scene was shown to the left visual field, so the right hemisphere saw only that. He was then asked to choose a picture from an array of pictures placed in fully view in front of him, which both hemispheres could see.

The left hand pointed to a shovel (which was the most appropriate answer for the snow scene) and the right hand pointed to a chicken (the most appropriate answer for the chicken claw). Then we asked why he chose those items. His left-hemisphere speech center replied, “Oh, that's simple. The chicken claw goes with the chicken,” easily explaining what it knew. It had seen the chicken claw.

Then, looking down at his left hand pointing to the shovel, without missing a beat, he said, “And you need a shovel to clean out the chicken shed.” Immediately, the left brain, observing the left hand's response without the knowledge of why it had picked that item, put into a context that would explain it. It interpreted the response in a context consistent with what it knew, and all it knew was: Chicken claw. It knew nothing about the snow scene, but it had to explain the shovel in his left hand. Well, chickens do make a mess, and you have to clean it up. Ah, that's it! Makes sense.

What was interesting was that the left hemisphere did not say, “I don't know,” which truly was the correct answer. It made up a post hoc answer that fit the situation. It confabulated, taking cues from what it knew and putting them together in an answer that made sense.

The left hand, responding to the snow Gazzaniga covertly showed the left visual field, pointed to the snow shovel. This all took place in the right hemisphere of the brain (think of it like an “X” — the right hemisphere controls the left side of the body and vice versa). But since it was a split-brain patient, the left hemisphere was not given any of the information about snow.

And yet, the left hemisphere is where the Interpreter resides! So what did the Interpreter do, asked to explain why the shovel was chosen seeing but having no information about snow, only about chickens? It made up a story about shoveling chicken coops!

Gazzaniga goes on to explain several cases of being able to fool the left brain Interpreter over and over, and in often subtle ways.

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This left-brain module is what we use to explain causality, seeking it for its own sake. The Interpreter, like all of our mental modules, is a wonderful adaption that's led us to understand and explain causality and the world around us, to our great advantage, but as any good student of social psychology knows, we'll simply make up a plausible story if we have nothing solid to go on — leading to a narrative fallacy.

This leads to odd results that seem pretty maladaptive, like our tendency to gamble like idiots. (Charlie Munger calls this mis-gambling compulsion.) But outside of the artifice of the casino, the Interpreter works quite well.

But here's the catch. In the words of Gazzaniga, “The interpreter is only as good as the information it gets.”

The interpreter receives the results of the computations of a multitude of modules. It does not receive the information that there are multitudes of modules. It does not receive the information about how the modules work. It does not receive the information that there is a pattern-recognition system in the right hemisphere. The interpreter is a module that explains events from the information it does receive.

[…]

The interpreter is receiving data from the domains that monitor the visual system, the somatosensory system, the emotions, and cognitive representations. But as we just saw above, the interpreter is only as good as the information it receives. Lesions or malfunctions in any one of these domain-monitoring systems leads to an array of peculiar neurological conditions that involve the formation of either incomplete or delusional understandings about oneself, other individuals, objects, and the surrounding environment, manifesting in what appears to be bizarre behavior. It no longer seems bizarre, however, once you understand that such behaviors are the result of the interpreter getting no, or bad, information.

This can account for a lot of the ridiculous behavior and ridiculous narratives we see around us. The Interpreter must deal with what it's given, and as Gazzaniga's work shows, it can be manipulated and tricked. He calls it “hijacking” — and when the Interpreter is hijacked, it makes pretty bad decisions and generates strange explanations.

Anyone who's watched a friend acting hilariously when wearing a modern VR headset can see how easy it is to “hijack” one's sensory perceptions even if the conscious brain “knows” that it's not real. And of course, Robert Cialdini once famously described this hijacking process as a “click, whirr” reaction to social stimuli. It's a powerful phenomenon.

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What can we learn from this?

The story of the multi-modular mind and the Interpreter module shows us that the brain does not have a rational “central command station” — your mind is at the mercy of what it's fed. The Interpreter is constantly weaving a story of what's going on around us, applying causal explanations to the data it's being fed; doing the best job it can with what it's got.

This is generally useful: a few thousand generations of data has honed our modules to understand the world well enough to keep us surviving and thriving. The job of the brain is to pass on our genes. But that doesn't mean that it's always making optimal decisions in the modern world.

We must realize that our brain can be fooled; it can be tricked, played with, and we won't always realize it immediately. Our Interpreter will weave a plausible story — that's it's job.

For this reason, Charlie Munger employs a “two track” analysis: What are the facts; and where is my brain fooling me? We're wise to follow suit.

What Are You Doing About It? Reaching Deep Fluency with Mental Models

The mental models approach is very intellectually appealing, almost seductive to a certain type of person. (It certainly is for us.)

The whole idea is to take the world's greatest, most useful ideas and make them work for you!

How hard can it be?

Nearly all of the models themselves are perfectly well understandable by the average well-educated knowledge worker, including all of you reading this piece. Ideas like Bayes' rule, multiplicative thinking, hindsight bias, or the bias from envy and jealousy, are all obviously true and part of the reality we live in.

There's a bit of a problem we're seeing though: People are reading the stuff, enjoying it, agreeing with it…but not taking action. It's not becoming part of their standard repertoire.

Let's say you followed up on Bayesian thinking after reading our post on it — you spent some time soaking in Thomas Bayes‘ great wisdom on updating your understanding of the world incrementally and probabilistically rather than changing your mind in black-and-white. Great!

But a week later, what have you done with that knowledge? How has it actually impacted your life? If the honest answer is “It hasn't,” then haven't you really wasted your time?

Ironically, it's this habit of “going halfway” instead of “going all the way,” like Sisyphus constantly getting halfway up the mountain, which is the biggest waste of time!

See, the common reason why people don't truly “follow through” with all of this stuff is that they haven't raised their knowledge to a “deep fluency” — they're skimming the surface. They pick up bits and pieces — some heuristics or biases here, a little physics or biology there, and then call it a day and pull up Netflix. They get a little understanding, but not that much, and certainly no doing.

The better approach, if you actually care about making changes, is to imitate Charlie Munger, Charles Darwin, and Richard Feynman, and start raising your knowledge of the Big Ideas to a deep fluency, and then figuring out systems, processes, and mental tricks to implement them in your own life.

Let's work through an example.

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Say you're just starting to explore all the wonderful literature on heuristics and biases and come across the idea of Confirmation Bias: The idea that once we've landed on an idea we really like, we tend to keep looking for further data to confirm our already-held notions rather than trying to disprove our idea.

This is common, widespread, and perfectly natural. We all do it. John Kenneth Galbraith put it best:

“In the choice between changing one's mind and proving there's no need to do so, most people get busy on the proof.”

Now, what most people do, the ones you're trying to outperform, is say “Great idea! Thanks Galbraith.” and then stop thinking about it.

Don't do that!

The next step would be to push a bit further, to get beyond the sound bite: What's the process that leads to confirmation bias? Why do I seek confirmatory information and in which contexts am I particularly susceptible? What other models are related to the confirmation bias? How do I solve the problem?

The answers are out there: They're in Daniel Kahneman and in Charlie Munger and in Elster. They're available by searching through Farnam Street.

The big question: How far do you go? A good question without a perfect answer. But the best test I can think of is to perform something like the Feynman technique, and to think about the chauffeur problem.

Can you explain it simply to an intelligent layperson, using vivid examples? Can you answer all the follow-ups? That's fluency. And you must be careful not to fool yourself, because in the wise words of Feynman, “…you are the easiest person to fool.

While that's great work, you're not done yet. You have to make the rubber hit the road now. Something has to happen in your life and mind.

The way to do that is to come up with rules, systems, parables, and processes of your own, or to copy someone else's that are obviously sound.

In the case of Confirmation Bias, we have two wonderful models to copy, one from each of the Charlies — Darwin, and Munger.

Darwin had rule, one we have written about before but will restate here: Make a note, immediately, if you come across a thought or idea that is contrary to something you currently believe. 

As for Munger, he implemented a rule in his own life: “I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.”

Now we're getting somewhere! With the implementation of those two habits and some well-earned deep fluency, you can immediately, tomorrow, start improving the quality of your decision-making.

Sometimes when we get outside the heuristic/biases stuff, it's less obvious how to make the “rubber hit the road” — and that will be a constant challenge for you as you take this path.

But that's also the fun part! With every new idea and model you pick up, you also pick up the opportunity to synthesize for yourself a useful little parable to make it stick or a new habit that will help you use it. Over time, you'll come up with hundreds of them, and people might even look to you when they're having problems doing it themselves!

Look at Buffett and Munger — both guys are absolute machines, chock full of pithy little rules and stories they use in order to implement and recall what they've learned.

For example, Buffett discovered early on the manipulative psychology behind open-outcry auctions. What did he do? He made a rule to never go to one! That's how it's done.

Even if you can't come up with a great rule like that, you can figure out a way to use any new model or idea you learn. It just takes some creative thinking.

Sometimes it's just a little mental rule or story that sticks particularly well. (Recall one of the prime lessons from our series on memory: Salient, often used, well-associated, and important information sticks best.)

We did this very thing recently with Lee Kuan Yew's Rule. What a trite way to refer to the simple idea of asking if something actually works…attributing it to a Singaporean political leader!

But that's exactly the point. Give the thing a name and a life and, like clockwork, you'll start recalling it. The phrase “Lee Kuan Yew's Rule” actually appears in my head when I'm approaching some new system or ideology, and as soon as it does, I find myself backing away from ideology and towards pragmatism. Exactly as I'd hoped.

Your goal should be to create about a thousand of those little tools in your head, attached to a deep fluency in the material from which it came. 

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I can hear the objection coming. Who has time for this stuff?

You do. It's about making time for the things that really matter. And what could possibly matter more than upgrading your whole mental operating system? I solemnly promise that you're spending way more time right now making sub-optimal decisions and trying to deal with the fallout.

If you need help learning to manage your time right this second, check out our Productivity Seminar, one that's changed some people's lives entirely. The central idea is to become more thoughtful and deliberate with how you spend your hours. When you start doing that, you'll notice you do have an hour a day to spend on this Big Ideas stuff. It's worth the 59 bucks.

If you don't have 59 bucks, at least imitate Cal Newport and start scheduling your days and put an hour in there for “Getting better at making all of my decisions.”

Once you find that solid hour (or more), start using it in the way outlined above, and let the world's great knowledge actually start making an impact. Just do a little every day.

What you'll notice, over the weeks and months and years of doing this, is that your mind will really change! It has to! And with that, your life will change too. The only way to fail at improving your brain is by imitating Sisyphus, pushing the boulder halfway up, over and over.

Unless and until you really understand this, you'll continue spinning your wheels. So here's your call to action. Go get to it!

Bias from Disliking/Hating

(This is a follow-up to our post on the Bias from Liking/Loving, which you can find here.)

Think of a cat snarling and spitting, lashing with its tail and standing with its back curved. Her pulse is elevated, blood vessels constricted and muscles tense. This reaction may sound familiar, because everyone has experienced the same tensed-up feeling of rage at least once in their lives.

When rage is directed towards an external object, it becomes hate. Just as we learn to love certain things or people, we learn to hate others.

There are several cognitive processes that awaken the hate within us and most of them stem from our need for self-protection.

Reciprocation

We tend to dislike people who dislike us (and, true to Newton, with equal strength.) The more we perceive they hate us, the more we hate them.

Competition

A lot of hate comes from scarcity and competition. Whenever we compete for resources, our own mistakes can mean good fortune for others. In these cases, we affirm our own standing and preserve our self-esteem by blaming others.

Robert Cialdini explains that because of the competitive environment in American classrooms, school desegregation may increase the tension between children of different races instead of decreasing it. Imagine being a secondary school child:

If you knew the right answer and the teacher called on someone else, you probably hoped that he or she would make a mistake so that you would have a chance to display your knowledge. If you were called on and failed, or if you didn't even raise your hand to compete, you probably envied and resented your classmates who knew the answer.

At first we are merely annoyed. But then as the situation fails to improve and our frustration grows, we are slowly drawn into false attributions and hate. We keep blaming and associating “the others” who are doing better with the loss and scarcity we are experiencing (or perceive we are experiencing). That is one way our emotional frustration boils into hate.

Us vs. Them

The ability to separate friends from enemies has been critical for our safety and survival. Because mistaking the two can be deadly, our mental processes have evolved to quickly spot potential threats and react accordingly. We are constantly feeding information about others into our “people information lexicon” that forms not only our view of individuals, whom we must decide how to act around, but entire classes of people, as we average out that information.

To shortcut our reactions, we classify narrowly and think in dichotomies: right or wrong, good or bad, heroes or villains. (The type of Grey Thinking we espouse is almost certainly unnatural, but, then again, so is a good golf swing.) Since most of us are merely average at everything we do, even superficial and small differences, such as race or religious affiliation, can become an important source of identification. We are, after all, creatures who seek to belong to groups above all else.

Seeing ourselves as part of a special, different and, in its own way, superior group, decreases our willingness to empathize with the other side. This works both ways – the hostility towards the others also increases the solidarity of the group. In extreme cases, we are so drawn towards the inside view that we create a strong picture of the enemy that has little to do with reality or our initial perceptions.

From Compassion to Hate

We think of ourselves as compassionate, empathetic and cooperative. So why do we learn to hate?

Part of the answer lies in the fact that we think of ourselves in a specific way. If we cannot reach a consensus, then the other side, which is in some way different from us, must necessarily be uncooperative for our assumptions about our own qualities to hold true.

Our inability to examine the situation from all sides and shake our beliefs, together with self-justifying behavior, can lead us to conclude that others are the problem. Such asymmetric views, amplified by strong perceived differences, often fuel hate.

What started off as odd or difficult to understand, has quickly turned into unholy.

If the situation is characterized by competition, we may also see ourselves as a victim. The others, who abuse our rights, take away our privileges or restrict our freedom are seen as bullies who deserve to be punished. We convince ourselves that we are doing good by doing harm to those who threaten to cross the line.

This is understandable. In critical times our survival indeed may depend on our ability to quickly spot and neutralize dangers. The cost of a false positive – mistaking a friend for a foe – is much lower than the potentially fatal false negative of mistaking our adversaries for innocent allies. As a result, it is safest to assume that anything we are not familiar with is dangerous by default. Natural selection, by its nature, “keeps what works,” and this tendency towards distrust of the unfamiliar probably survived in that way.

The Displays of Hate

Physical and psychological pain is very mobilizing. We despise foods that make us nauseous and people that have hurt us. Because we are scared to suffer, we end up either avoiding or destroying the “enemy”, which is why revenge can be pursued with such vengeance. In short, hate is a defense against enduring pain repeatedly.

There are several ways that the bias for disliking and hating display themselves to the outer world. The most obvious of them is war, which seems to have been more or less prevalent throughout the history of mankind.

This would lead us to think that war may well be unavoidable. Charlie Munger offers the more moderate opinion that while hatred and dislike cannot be avoided, the instances of war can be minimized by channeling our hate and fear into less destructive behaviors. (A good political system allows for dissent and disagreement without explosions of blood upheaval.)

Even with the spread of religion, and the advent of advanced civilization, modern war remains pretty savage. But we also get what we observe in present-day Switzerland and the United States, wherein the clever political arrangements of man “channel” the hatreds and dislikings of individuals and groups into nonlethal patterns including elections.

But these dislikings and hatreds that are arguably inherent to our nature never go away completely and transcend themselves into politics. Think of the dichotomies. There is the left versus the right wing, the nationalists versus the communists and libertarians vs. authoritarians. This might be the reason why there are maxims like: “Politics is the art of marshaling hatreds.

Finally, as we move away from politics, arguably the most sophisticated and civilized way of channeling hatred is litigation. Charlie Munger attributes the following words to Warren Buffett:

A major difference between rich and poor people is that the rich people can spend their lives suing their relatives.

While most of us reflect on our memories of growing up with our siblings with fondness, there are cases where the competition for shared attention or resources breeds hatred. If the siblings can afford it, they will sometimes litigate endlessly to lay claims over their parents' property or attention.

Under the Influence of Bias

There are several ways that bias from hating can interfere with our normal judgement and lead to suboptimal decisions.

Ignoring Virtues of The Other Side

Michael Faraday was once asked after a lecture whether he implied that a hated academic rival was always wrong. His reply was short and firm “He’s not that consistent.” Faraday must have recognized the bias from hating and corrected for it with the witty comment.

What we should recognize here is that no situation is ever black or white. We all have our virtues and we all have our weaknesses. However, when possessed by the strong emotions of hate, our perceptions can be distorted to the extent that we fail to recognize any good in the opponent at all. This is driven by consistency bias, which motivates us to form a coherent (“she is all-round bad”) opinion of ourselves and others.

Association Fueled Hate

The principle of association goes that the nature of the news tends to infect the teller. This means that the worse the experience, the worse the impression of anything related to it.

Association is why we blame the messenger who tells us something that we don't want to hear even when they didn't cause the bad news. (Of course, this creates an incentive not to speak truth and avoid giving bad news.)

A classic example is the unfortunate and confused weatherman, who receives hate mail, whenever it rains. One went so far as to seek advice from the Arizona State professor of psychology, Robert Cialdini, whose work we have discussed before.

Cialdini explained to him that in light of the destinies of other messengers, he was born lucky. Rain might ruin someone’s holiday plans, but it will rarely change the destiny of a nation, which was the case of Persian war messengers. Delivering good news meant a feast, whereas delivering bad news resulted in their death.

The weatherman left Cialdini’s office with a sense of privilege and relief.

“Doc,” he said on his way out, “I feel a lot better about my job now. I mean, I'm in Phoenix where the sun shines 300 days a year, right? Thank God I don't do the weather in Buffalo.”

Fact Distortion

Under the influence of liking or disliking bias we tend to fill gaps in our knowledge by building our conclusions on assumptions, which are based on very little evidence.

Imagine you meet a woman at a party and find her to be a self-centered, unpleasant conversation partner. Now her name comes up as someone who could be asked to contribute to a charity. How likely do you feel it is that she will give to the charity?

In reality, you have no useful knowledge, because there is little to nothing that should make you believe that people who are self-centered are not also generous contributors to charity. The two are unrelated, yet because of the well-known fundamental attribution error, we often assume one is correlated to the other.

By association, you are likely to believe that this woman is not likely to be generous towards charities despite lack of any evidence. And because now you also believe she is stingy and ungenerous, you probably dislike her even more.

This is just an innocent example, but the larger effects of such distortions can be so extreme that they lead to a major miscognition. Each side literally believes that every single bad attribute or crime is attributable to the opponent.

Charlie Munger explains this with a relatively recent example:

When the World Trade Center was destroyed, many Pakistanis immediately concluded that the Hindus did it, while many Muslims concluded that the Jews did it. Such factual distortions often make mediation between opponents locked in hatred either difficult or impossible. Mediations between Israelis and Palestinians are difficult because facts in one side's history overlap very little with facts from the other side's. These distortions and the overarching mistrust might be why some conflicts seem to never end.

Avoiding Being Hated

To varying degrees we value acceptance and affirmation from others. Very few of us wake up wanting to be disliked or rejected. Social approval, at its heart the cause of social influence, shapes behavior and contributes to conformity. Francois VI, Duc de La Rochefoucauld wrote: “We only confess our little faults to persuade people that we have no big ones.”

Remember the old adage, “The nail that sticks out gets hammered down.” This is why we don't openly speak the truth or question people, we don't want to be the nail.

How do we resolve hate?

It is only normal that we can find more common ground with some people than with others. But are we really destined to fall into the traps of hate or is there a way to take hold of these biases?

That’s a question worth over a hundred million lives. There are ways that psychologists think that we can minimize prejudice against others.

Firstly, we can engage with others in sustained close contact to breed our familiarity. The contact must not only be prolonged, but also positive and cooperative in nature – either working towards a common cause or against a common enemy.

Secondly, we also reduce prejudice by attaining equal status in all aspects, including education, income and legal rights. This effect is further reinforced, when equality is supported not only “on paper”, but also ingrained within broader social norms.

And finally the obvious – we should practice awareness of our own emotions and ability to hold back on the temptations to dismiss others. Whenever confronted with strong feelings it might simply be best to sit back, breathe and do our best to eliminate the distorted thinking.

 

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Want more? Check out the opposite bias of liking/loving, or check out a whole bunch of mental models.

Mental Model: Bias from Liking/Loving

The decisions that we make are rarely impartial. Most of us already know that we prefer to take advice from people that we like. We also tend to more easily agree with opinions formed by people we like. This tendency to judge in favor of people and symbols we like is called the bias from liking or loving.

We are more likely to ignore faults and comply with wishes of our friends or lovers rather than random strangers. We favor people, products, and actions associated with our favorite celebrities. Sometimes we even distort facts to facilitate love. The influence that our friends, parents, lovers and idols exert on us can be enormous.

In general, this is a good thing, a bias that adds on balance rather than subtracts. It helps us form successful relationships, it helps us fall in love (and stay in love), it helps us form attachments with others that give us great happiness.

But we do want to be aware of where this tendency leads us awry.

For example, some people and companies have learnt to use this influence to their advantage.

In his bestseller on social psychology Influence, Robert Cialdini tells a story about the successful strategy of Tupperware, which at the time reported sales of over $2.5 million a day.

As many of us know, the company for a long time sold its kitchenware at parties thrown by friends of the potential customers. At each party there was a Tupperware representative taking orders, but the hostess, the friend of the invitees, received a commission.

These potential customers are not blind to the incentives and social pressures involved. Some of them don’t mind it, others do, but all admit a certain degree of helplessness in their situation. Cialdini recalls a conversation with one of the frustrated guests:

It's gotten to the point now where I hate to be invited to Tupperware parties. I've got all the containers I need; and if I wanted any more, I could buy another brand cheaper in the store. But when a friend calls up, I feel like I have to go. And when I get there, I feel like I have to buy something. What can I do? It's for one of my friends.

We are more likely to buy in a familiar, friendly setting and under the obligation of friendship rather than from an unfamiliar store or a catalogue. We simply find it much harder to say “no” or disagree when it's a friend. The possibility of ruining the friendship, or seeing our image altered in the eyes of someone we like, is a powerful motivator to comply.

The Tupperware example is a true “lollapalooza” in favor of manipulating people into buying things. Besides the liking tendency, there are several other factors at play: commitment/consistency bias, a bias from stress, an influence from authority, a reciprocation effect, and some direct incentives and disincentives, at least! (Lollapaloozas, something we'll talk more about in the future, are when several powerful forces combine to create a non-linear outcome. A good way to think of this conceptually for now is that 1+1=3.)

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The liking tendency is so strong that it stretches beyond close friendships. It turns out we are also more likely to act in favor of certain types of strangers.

Can you recall meeting someone with whom you hit it off instantly, where it almost seemed like you'd known them for years after a 20-minute conversation? Developing such an instant bond with a stranger may seem like a mythical process, but it rarely is. There are several tactics that can be used to make us like something, or someone, more than we otherwise would.

Appearance and the Halo Effect

We all like engaging in activities with beautiful people. This is part of an automatic bias that falls into a category called The Halo Effect.

The Halo Effect occurs when a specific, positive characteristic determines the way a person is viewed by others on other, unrelated traits. In the case of beauty, it's been shown that we automatically assign favorable yet unrelated traits such as talent, kindness, honesty, and intelligence, with those we find physically attractive.

For the most part, this attribution happens unnoticed. For example, attractive candidates received more than twice as many votes as unattractive candidates in the 1974 Canadian federal elections. Despite the ample evidence of predisposition towards handsome politicians, follow-up research demonstrated that nearly three-quarters of Canadians surveyed strongly denied the influence of physical appearance in their voting decisions.

The power of the Halo Effect is that it's mostly happening beneath the level of consciousness.

Similar forces are at play when it comes to hiring decisions and pay. While employers deny that they are strongly influenced by looks, studies show otherwise.

In one study evaluating hiring decisions based on simulated interviews, the applicants' grooming played a greater role in the outcome than job qualifications. Partly, this has a rational basis. We might assume that someone who shows up without the proper “look” for the job may be deficient in other areas. If they couldn't shave and put a tie on, how are we to expect them to perform with customers? Partly, though, it's happening subconsciously. Even if we never consciously say to ourselves that “Better grooming = better employee”, we tend to act that way in our hiring.

These effects go even beyond the hiring phase — attractive individuals in the US and Canada have been estimated to earn an average of 12-14 percent more than their unattractive coworkers. Whether this is due to liking bias or perhaps the increased self confidence that comes from above-average looks is hard to say.

Appearance is not the only quality that may skew our perceptions in favor of someone. The next one on the list is similarity.

Similarity

We like people who resemble us. Whether it's appearance, opinions, lifestyle or background, we tend to favor people who on some dimension are most similar to ourselves.

A great example of similarity bias is the case of dress. Have you ever been at an event where you felt out of place because you were either overdressed or underdressed? The uneasy feelings are not caused only by your imagination. Numerous studies suggest that we are more likely to do favors, such as giving a dime or signing a petition, to someone who looks like us.

Similarity bias can extend to even such ambiguous traits as interests and background. Many salesmen are trained to look for similarities to produce a favorable and trustworthy image in the eyes of their potential customers. In Influence: The Psychology of Persuasion, Robert Cialdini explains:

If there is camping gear in the trunk, the salespeople might mention, later on, how they love to get away from the city whenever they can; if there are golf balls on the back seat, they might remark that they hope the rain will hold off until they can play the eighteen holes they scheduled for later in the day; if they notice that the car was purchased out of state, they might ask where a customer is from and report—with surprise—that they (or their spouse) were born there, too.

These are just a few of many examples which can be surprisingly effective in producing a sweet feeling of familiarity. Multiple studies illustrate the same pattern. We decide to fill out surveys from people with similar names, buy insurance from agents of similar age and smoking habits, and even decide that those who share our political views deserve their medical treatment sooner than the rest.

There is just one takeaway: even if the similarities are terribly superficial, we still may end up liking the other person more than we should.

Praise and Compliments

“And what will a man naturally come to like and love,
apart from his parent, spouse and child?
Well, he will like and love being liked and loved.”

— Charlie Munger

We are all phenomenal suckers for flattery. These are not my words, but words of Robert Cialdini and they ring a bell. Perhaps, more than anything else in this world we love to be loved and, consequently, we love those that love us.

Consider the technique of Joe Girard, who has been continuously called the world's “greatest car salesman” and has made it to the Guinness World Record book.

Each month Joe prints and sends over 13,000 holiday cards to his former customers.While the theme of the card varies depending on the season and celebration, the printed message always remains the same. On each of those cards Girard prints three simple words ”I like you” and his name. He explains:

“There's nothing else on the card, nothin' but my name. I'm just telling 'em that I like 'em.” “I like you.” It came in the mail every year, 12 times a year, like clockwork.

Joe understood a simple fact about humans – we love to be loved.

As numerous experiments show, regardless of whether the praise is deserved or not, we cannot help but develop warm feelings to those that provide it. Our reaction can be so automatic, that we develop liking even when the attempt to win our favor is an obvious one, as in the case of Joe.

Familiarity

In addition to liking those that like us and look like us, we also tend to like those who we know. That’s why repeated exposure can be a powerful tool in establishing liking.

There is a fun experiment you can do to understand the power of familiarity.

Take a picture of yourself and create a mirror image in one of the editing tools. Now with the two pictures at hand decide which one – the real or the mirror image you like better. Show the two pictures to a friend and ask her to choose the better one as well.

If you and your friend are like the group on whom this trick was tried, you should notice something odd. Your friend will prefer the true print, whereas you will think you look better on the mirror image. This is because you both prefer the faces you are used to. Your friend always sees you from her perspective, whereas you have learnt recognize and love your mirror image.

The effect of course extends beyond faces into places, names and even ideas.

For example, in elections we might prefer candidates whose names sound more familiar. The Ohio Attorney-General post was claimed by a man who, shortly before his candidacy, changed his last name to Brown – a family name of Ohio political tradition. Apart from his surname, there was little to nothing that separated him from other equally if not more capable candidates.

How could such a thing happen? The answer lies partly in the unconscious way that familiarity affects our liking. Often we don't realize that our attitude toward something has been influenced by the number of times we have been exposed to it in the past.

Loving by Association and Referral

Charisma or attraction are not prerequisites for liking — a mere association with someone you like or trust can be enough.

The bias from association shows itself in many other domains and is especially strong when we associate with the person we like the most — ourself. For example, the relationship between a sports fan and his local team can be highly personal even though the association is often based only on shared location. For the fan, however, the team is an important part of his self-identity. If the team or athlete wins, he wins as well, which is why sports can be so emotional. The most dedicated fans are ready to get into fights, burn cars or even kill to defend the honor of their team.

Such associated sense of pride and achievement is as true for celebrities as it is for sports. When Kevin Costner delivered his acceptance speech after winning the best picture award for Dances With Wolves, he said:

“While it may not be as important as the rest of the world situation, it will always be important to us. My family will never forget what happened here; my Native American brothers and sisters, especially the Lakota Sioux, will never forget, and the people I went to high school with will never forget.”

The interesting part of his words is the notion that his high school peers will remember, which is probably true. His former classmates are likely to tell people that they went to school with Costner, even though they themselves had no connection with the success of the movie.

Costner’s words illustrate that even a trivial association with success may reap benefits and breed confidence.

Who else do we like besides ourselves, celebrities and our sports teams?

People we've met through those who are close to us – our neighbors, friends and family. It is common sense that a referral from someone we trust is enough to trigger mild liking and favorable initial opinions.

There are a number of companies that use friend referral as a sales tactic. Network providers, insurers and other subscription services offer a number of benefits for those of us who give away our friends’ contact details.

The success of this method rests on the implicit idea that turning down the sales rep who says “your friend Jenny/Allan suggested I call you” feels nearly as bad as turning down Jenny or Allan themselves. This tactic, when well executed, leads to a never-ending chain of new customers.

Can We Avoid Liking?

Perhaps the right question to ask here is not “how can we avoid the bias from liking”, but when should we?

Someone who is conditioned to like the right people and pick their idols carefully can greatly benefit from these biases. Charlie Munger recalls that both he and Warren Buffett benefitted from liking admirable persons:

One common, beneficial example for us both was Warren's uncle, Fred Buffett, who cheerfully did the endless grocery-store work that Warren and I ended up admiring from a safe distance. Even now, after I have known so many other people, I doubt if it is possible to be a nicer man than Fred Buffett was, and he changed me for the better.

The keywords here are “from a safe distance”.

If dealing with salesmen and others who clearly benefit from your liking, it might be a good idea to check whether you have been influenced. In these unclear cases Cialdini advises us to focus on our feelings rather than the other person’s actions that may produce liking. Ask yourself how much of what you feel is due to liking versus the actual facts of the situation.

The time to call out the defense is when we feel ourselves liking the practitioner more than we should under the circumstances, when we feel manipulated.

Once we have recognized that we like the requester more than we would expect under the given circumstances, we should take a step back and question ourselves. Are you doing the deal because you like someone or is it because it is indeed the best option out there?

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Still Interested? Check out some other mental models and biases.

Sol Price on Becoming Your Customer’s Best Friend

Sol Price is a legend in the retail business. Price founded one of the first discount retailers, FedMart, in the 1950s, and then later the pioneer warehouse club Price Club, which he later sold to Costco, a business started by his former protege Jim Sinegal. Price’s innovations would go on to change the retail landscape dramatically and permanently. Costco now does $120 billion in sales and Sam’s Club, owned by Wal-Mart, does about $60 billion. Adding in other smaller operations, warehouse retailing is at least a $200 billion business in the United States alone.

Price innovated in several ways: Membership fees, way fewer product SKUs in stock, much larger sizes, extremely low profit margins bordering on break-even, low employee turnover and a lean labor model. But these were all mere symptoms of his overall stance: Price’s fundamental innovation was his approach to the customer relationship.

Whereas most retailers saw customers as adversaries, bodies to be sold to, Price saw the world differently. He felt he was on the customers’ side. He felt his job as a retailer was to become the customer’s greatest friend and advocate, and in return, the customer would pledge his loyalty back. He understood that trust given is trust earned.

Sol Price Price Club

The idea was very simple: See the world through the eyes of the customer. His son Robert, influential in his own right, describes Price’s unusual attitude (which is still uncommon) in a book called Sol Price: Retail Revolutionary & Social Innovator:

Sol’s experience as an attorney representing clients, and his own moral code, became a foundational feature of the FedMart business. Sol described his business approach as “the professional fiduciary relationship between us (the retailer) and the member (the customer). We felt we were representing the customer. You had a duty to be very, very honest and fair with them and so we avoided sales and advertising. We have in effect said that the best advertising is by our members…the unsolicited testimonial of the satisfied customer.”

This fiduciary relationship with the customer was similar to the Golden Rule; the way Sol put it—if you want to be successful in retail, just put yourself in the place of a cranky, demanding customer. In other words, see your business through the eyes of the customer.

Clearly, Sol Price followed Tussman’s dictum to understand the world and act accordingly, and understood the value of a win-win relationship. The success of Costco in his wake, and the continued loyalty of its customers in the face of a rapidly changing retail landscape, is a testimony to the value of his attitude.

Price had a few simple tenets in running FedMart and Price Club, which Sinegal would later adopt at Costco:

  1. Provide the best possible value to the customers, excellent quality products at the lowest possible prices.
  2. Pay good wages and provide good benefits, including health insurance to employees.
  3. Maintain honest business practices.
  4. Make money for investors.

Regarding the last point, it was clearly important to Price to make money, and if you look at Costco today, the model is obviously profitable. But it’s not that profitable. Costco makes solid returns but not incredible ones. And that is by choice.

Price — and Sinegal by extension — wanted a win-win relationship whereby he made his investors a reasonable return on their capital and the customer got a better deal than they could find elsewhere, while employees were paid well enough and treated well enough that they wouldn’t want to leave. In his words, “If you recognize you’re really a fiduciary for the customer, you shouldn’t make too much money.” This model has been tough to beat.

Price was so hardcore about his fairness philosophy that he wouldn’t even engage in loss-leader pricing, which is common in retail. Have you ever found yourself saying How can they make any money at this price? Well, they may not be — products are frequently priced below cost to induce you to buy other products at a more inflated profit margin. But Price wouldn’t do this: It meant he was selling some portion of his goods at inflated prices to make up for the loss leaders, and that he would not abide.

His customer advocacy went so far that if Price’s competitors were selling a competing product below cost, Price did one of the most unusual things I’ve ever heard: He put up signs telling his customers to go shop there.

In this way and many others, the life of Sol Price reinforces the truth of Munger’s philosophy for living a more effective life: “Take a simple idea, and take it seriously.”

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Still Interested? Check out the book in its entirety.