blog post 10/3/16

Addition by Subtraction

Some time ago, I read a wonderful book chock full of wisdom, called Poor Charlie’s Almanac – The Wit and Wisdom of Charlie Munger. The title is a play on Benjamin Franklin’s book, Poor Richard’s Almanac, which is another excellent repository of uncommon common sense and insight.

Charlie Munger is the business partner of Warren Buffet. According to Forbes, Mr. Buffet is worth almost 65 billion dollars, making him one of the richest people on the planet today. The lesser known Mr. Munger, by contrast, is only worth a couple billion dollars, owing in part to the fact that he has donated considerable amounts of money to charity, over the course of his life. In contrast, Buffet has retained the bulk of his fortune and allowed it to compound with the intention of giving most of it away after he dies.

Threaded through Munger’s book is a concept which can best be termed “addition by subtraction or omission.” This notion is based on improving things by removing or omitting excess, rather than through augmentation. Charlie does not use that exact term, but it is what he means when he says:

We recognized early on that very smart people do very dumb things, and we wanted to know why and who, so we could avoid them ."

Charlie Munger at Berkshire Hathaway 2007 Meeting

And

"Another thing that does one in, of course, is the self-serving bias to which we're all subject. You think the 'True Little Me' is entitled to do what it wants to do. And, for instance, why shouldn't the True Little Me overspend my income. There once was a man who became the most famous composer in the world but was utterly miserable most of the time, and one of the reasons was because he always overspent his income. That was Mozart. If Mozart can't get by with this kind of asinine conduct, I don't think you should try.”

Charlie Munger's USC Law Commencement Speech, May 2007

As well as,

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

Charlie Munger AzQuotes.com

What Charlie is saying is remarkable in both its simplicity and valuable impact. If we subtract the fairly avoidable mistakes of doing dumb things, like overspending our income, it is remarkable how far we can get in life. And we can do it without being very smart.

During my early years, I was led to believe, or perhaps I just assumed, that success was about brilliance. I thought that one had to build a better mouse trap or change the world if they wanted to be successful, productive, impactful, wealthy etc. This simply is not true. It turns out that, like our diets, what we do not do is every bit as important as what we do.

That is not to say that doing nothing is the answer. On the contrary, there are some actions that we should absolutely commit to. Again, these few simple things do not have to be brilliant but they do have to be done if we want to give ourselves and the people we love the greatest chance at prosperity. What we do not have to do is roll the dice or commit to a no guts, no glory approach to things like wealth building.

When it comes to building up our wealth, we can give ourselves the best odds of getting where we want to go by following the broad and well-lit road of proper planning. And, if fortune happens to smile on us and we create something that leads to truly massive wealth, so much the better. If that does not happen, and this will probably be true for most of us, we can still do quite well.

Develop a well thought out financial plan if you do not already have one. Subtract the idea that your plan need be overly confusing and complex. If you like, contact a financial advisor you trust to help you. Subtract procrastination. I believe you will be glad you did.

Scott McGimpsey October 3rd, 2016

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