Poor Charlie's Almanack

Poor Charlie's Almanack is styled after Ben Franklin's Poor Richard's Almanack, a sort of 'guide to a life well-lived'. In it, Charlie tries to improve upon the things that old Ben left out, which decidedly skew towards investing + decision-making.

After a bunch of friends recommended it, I decided to dive in. Rather than a sequence of aphorisms, the book is a series of 11 talks that discuss investing advice, success in business, and how to think about big ideas. It's one of those books that I think is probably worth revisiting ever 5-10 years to ruminate on. At the very least, to enjoy some of Charlie's folksy wit.

The value of character

One thing which struck me (which often seems to get lost in today's business + social media world) is how much Charlie emphasized character. From his early days growing up in the midwest, he talks about how his father would come home and share stories about how to be an upstanding citizen.

There's one particular story about how his father borrowed a Jeep from a wealthy friend, and then insisted that he fill it up with gas as they were returning it, even though they were crunched for time.

Charlie's kids echo those sentiments, saying that Charlie was the master of teaching lessons via parable at the dinner table. Apparently Charlie learned a great deal about them from Warren Buffet's father, who owned the grocery store where Charlie worked his first job.

There's some transfer of character to investment practices here as well. Charlie says there are three types of businesses: "yes", "no", and "too difficult to understand". He only invests in simple businesses that are straightforward and easy to understand. They generate cash, and he holds them for a long time.

Multi-disciplinary Mental Models

If there's one thing that will stick with me from the book, it's the power of mental models–and in particular, mental models that come from multiple disciplines.

Charlie makes the claim that in each field, there are a handful of 'big' ideas that are worth studying. Examples would be concepts like...

• Biology: Darwin's theory of evolution
• Economics: incentives, supply and demand, compound interest
• Physics: critical mass, conservation of energy
• Statistics: regression to the mean
• General: Making checklists

And of course, there are a ton from behavioral psychology (a la Thinking Fast And Slow):

• loss avoidance
• the endowment effect
• availability bias
• man-with-a-hammer syndrome: if you are missing mental models to draw upon.
• and charlie's favorite: the lollapalooza effect (when you have a bunch of these all acting in concert!)

Learning about and applying these mental models to your daily life gives you a new 'lens' on the world.

As part of this, Charlie puts a strong emphasis on avoiding ideology. Rather than imagining the way the world should be from one person's perspective, try and understand how it actually is.

Invert, always invert

One particular technique is to invert, always invert. Charlie is a fan of the quote:

I want to know where I'll die, so I never go there!

And his thinking forms a similar pattern. Rather than trying to find how to succeed, think about ways you might fail–and then avoid those!

Dalton Caldwell from YC had a similar point, most startups try and execute sort of genius strategy instead of just asking themselves "what's the dumbest thing I could do?".

If you're ever in a sticky situation, it might be worth asking yourself "what's the thing I'm trying to avoid?". Akin to regret minimization.

Think about where the benefits accrue

One under-studied aspect of technology is understanding "where the benefits accrue". Charlie shares a story of a textile factory. A young entrepreneur comes up to the owners of the factory and says "hey, I can sell you a new loom which will double your production".

Is this good for the owners? Naively you'd answer "yes, it means they can produce double the material!"

But that ignores the rest of the players in the market. If everyone adopts the technology, it simply brings down the price of textiles for everyone. It might mean that the factory is actually a worse business after the technological shift.

Coca-cola: a case study

Charlie talks about what makes Coca-Cola special, and it comes down to a bunch of psychological effects..

• it's selling "better water", which has a huge market, every single person needs water
• it goes global, appealing to billions around the world
• it establishes itself as a 'habit' in advertising
• because it's a cold beverage, you drink more to cool you down than you might for a warm beverage
• it contains sugar and caffeine, both addictive substances
• it has a secret formula and unique color which establishes it as a 'premium' product rather than just water with flavor.
• the name conjures an aire of sophistication

He argues that the combination of all these factors form a lollapalooza effect and show why it's so successful. And that 'new coke' was doomed because it shied away from these things!

I have some issue with this in that it feels very much an argument made after the fact, and most startups tend to have a few path-dependent variables and/or special individuals who really cause the business to take off. It's almost never solely the product itself, and I'm sure there were dozens of coke competitors that went out of business.

Choice quotes

If at first you don't succeed... well, so much for hang-gliding.

Great writing is headed for downfall. Homer is dead. Shakespeare is long gone and even I am feeling unwell. – Mark Twain