Poor Charlie 39;s Almanack Review

[Eleanora Parrot]

Theproblem is that modernity serves up challenges to humans that massively differ from life on the savanna. If we quickly reach conclusions and resist changes to our conclusions, regardless of contrary evidence, we are likely to make massive cognitive errors in a much more complex world. Homo sapiens first emerged about 200,000 years ago and remained in hunter-gatherer mode until roughly 10,000 years ago.

Inconsistency avoidance tendency makes it very important to avoid the formation of bad habits early in life before they become entrenched in our behavior and minds to the point where they are nearly impossible to change.

It is not impossible to reduce or eliminate bad habits once they are formed, as James Clear explained in his book, Atomic Habits, which I reviewed three years ago. But doing so requires implementing techniques that do not always work, at least not for all people. The abuse of alcohol and other mind-altering drugs is an excellent example. Alcoholics Anonymous is one of the oldest and most successful methods to achieve sobriety but it only has a fifty percent cure rate which obviously implies a fifty percent failure rate. Many bad habits are intractable for a significant percentage of the population. Alcoholism is just one example, albeit a particularly pernicious one.

Avoiding the formation of bad habits is so important that Charlie Munger decided to completely invert the standard words of wisdom typically delivered to students at graduation ceremonies. In a commencement address in 1986, Mr. Munger explained how the graduates should go about guaranteeing a life of failure and misery through time-tested strategies such as ingesting drugs and indulging in envy and resentment.

In 2024, addiction to electronic devices is a clear bad habit that must be avoided from childhood. Unfortunately, most children are exposed to electronics at a very early age and it is now normal for teenagers to carry smartphones. At a recent concert, I was seated directly behind a group of middle school students who were clearly addicted to their phones. No amount of scolding from teachers or ushers could get these children to stop. Society has badly failed children by not only tolerating but promoting terrible habits that encourage nonstop context switching and obstruct the natural state of flow required to become educated and productive members of society.

Recent events have clearly demonstrated that many prestigious universities are intellectual monocultures where only one set of beliefs are permissible. This is not education. It is indoctrination and an affront to young minds.

As someone who has been writing about investing for over fifteen years, I have come to appreciate and greatly fear inconsistency avoidance because I know for certain that I am not immune to the negative effects of this psychological tendency. Several years ago, I wrote an article about the risk of sharing ideas after I identified a case when taking a public stand clearly resulted in financial losses.

For many years, I posted stock write-ups on my website. I disclosed when I held positions in the stocks that I wrote about and made it clear that articles were not recommendations. Until 2022, write-ups were free. Despite no legal, financial, or even ethical obligation to post follow-up articles or to disclose my subsequent activity, I nevertheless felt a need to 1) post follow-ups if my thinking on a company changed and 2) disclose any purchases or sales along with an explanation to readers.

What is the upside of voluntarily taking actions that undoubtedly increase the risk of inconsistency avoidance tendency affecting subsequent investment decisions? The answer is that there is no upside whatsoever. This is why investors like Warren Buffett and Charlie Munger are rarely willing to discuss their positions in publicly traded investments and they do not disclose positions until they are required to.

In 2022, I wrote a series of profiles of public companies that I did not own, thinking that I would avoid inconsistency avoidance by having no financial interest in the companies and, again, clearly making it known that the profiles did not constitute advice. The problem is that in some cases I might have wanted to purchase shares had I not publicly written about the company. Although in no way legally or ethically barred from doing so, I avoided buying to avoid potential psychological pitfalls.

In recent months, I have restricted deep analytical articles to Berkshire Hathaway, but it is far from clear whether writing such articles is intelligent on my part. Berkshire is my most important investment and I am writing about it in public. I try hard to be unbiased, and as many of my recent articles demonstrate, I am capable of calling out negative developments. Yet, I do question whether writing about Berkshire in public might one day psychologically prevent me from taking actions in my portfolio.

I write this personal account because it is a good illustration for readers, especially those who write about their investments in public. As someone who benefits from the writing of other investors, I selfishly do not want them to stop, but I often wonder why they do it given the potential for inconsistency avoidance to cause problems.

Even for those who do not write in public, providing recommendations to family and friends can have similar effects. This is an excellent reason to never give advice to others except in highly unusual situations where one feels an obligation to help very close family members. There is limited upside and huge downside.

Only talk three has any explicit references to abridgment, and in those cases, reference is made to other talks where similar information is presented. I have mixed feelings about this and would have preferred to have the original talk in full even at the risk of repetition. Some amount of repetition is not a bad thing and the book, at 351 pages, would not be excessively long even if it had 25% more pages.

Not everyone enjoys relationships characterized by a seamless web of deserved trust and sometimes such trust can be misplaced with severe negative consequences. It is unrealistic to think that one can live a meaningful life without serious setbacks. It is human nature to react poorly under adverse conditions without the appropriate intellectual and emotional armor, but fortunately I had such armor at my disposal.

Nothing in this article constitutes investment advice and all content is subject to the copyright and disclaimer policy of The Rational Walk LLC. The Rational Walk is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

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