WWII 054: Poor Charlie's Almanac, Charlie Munger, 3x Leverage ETF Decay, Calculating Taxable Gains and Losses, Fed Hawk Wants 4 Raises

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Main Topic: Poor Charlie's Almanack the Wit and Wisdom of Charles T. Munger

Poor Charlie's Almanack is in my list of top 5 favorite books. This book is a compendium of the stories, jokes, sarcasms, and speeches by Charlie Munger the Vice Chairman of Berkshire Hathaway and Warren Buffett's life-long investing partner.

I have the expanded third edition that I purchased at WestCo Financial’s annual shareholder meeting and lugged it around while at the Value Investing Congress in Pasadena, California. I think the year was 2010.

This book is a large format, beautifully illustrated by Ed Wexler. It was originally printed in 2005.

The forward to the book is written by Warren E. Buffett and also references Ben Franklin. Munger provides a rebuttal to Warren’s foreword. That’s the first time I’ve ever seen that happen, but is fitting with Charlie’s personality.

The book is edited by Peter Kaufman, who writes a fitting introduction.

The first few chapters are a portrait of Charlie, some of his sayings, reflections, and his approach to life, learning and decision making.

Chapter Four contain copies of the “Eleven Talks”, which I think are absolutely essential for anyone who wants to grow in wisdom and knowledge.

You see, Charlie is essentially a philosopher, feather ruffeler, rational thinker, and a throwback to the days of Benjamin Franklin, one of Charlie’s heroes. He also has a cutting, sarcastic sense of humor and doles it out in good measure.

There is so much wisdom contained in the eleven talks, you will probably need to read them more than once.

One of the talks, was captured and is up on youtube, and I will post a link to it in the show notes to this episode. It is a little over an hour long and should also be listened to more than once.

One of the concepts that Charlie espouses is the idea that you should have a series of mental models in your mind. These are decision making frameworks. Here’s how he describes them:

“You must know the big ideas in the big disciplines and use them routinely – all of them, not just a few. Most people are trained in one model – economics, for example – and try to solve all problems in one way. You know the old saying: “To the man with a hammer, the world looks like a nail.” This is a dumb way of handling problems.”

If you get nothing else from this book, it’s that is not just ok, by mandatory to learn as much as you can about all the big disciplines. Psychologists should learn business and business people should learn about psychology."

I provide you an example of using this kind of cross disciplinary mental model when I introduced you to my use of the null hypothesis in episode 37. In future episodes I will talk about some of these important mental models and how to learn about them. This is a lifelong pursuit of mine.

poor-charlies-almanack

Acquire wordly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group…then to hell with them.”
Charles T. Munger
Berkshire Hathaway


Ask JB: Wouldn't taking a long position in a 3x inverse commodity ETF's essentially be free money?

porkyfly 2 points 1 day ago

Wouldn't taking a long position in a 3x inverse commodity ETF's essentially be free money?

Since the 3x commodity ETF's are devalued via futures rollover contango even while the underlying commodity price stays the same, would't buying the inverse of that ETF benefit from contango?

JB Says: If you think you found easy, free money in the stock market, you haven’t. If you are considering investing in a levered ETF and haven’t used the term “ETF decay” yet, you shouldn’t invest in it. Even if contango impacts the underlying futures in a positive manner, ETF decay will eat into any profit you might realize and often far faster than any growth in underlying value. The more leverage, the more the decay, and 3x leverage means really rapid decay.

Ask JB: [–]Rubber_Duckie_ 1 point 1 day ago

So, when it comes to short-term vs long term gain, I have a question.

Let's say I buy 5 shares of X Company. 6 months later I buy 5 more shared, and 7 months later, I sell all 10 shares.

Are half my shares taxed at a short term and the other half taxed long term?

(Hopefully that makes sense)

JB Says: Yes, each position is taxed based on its own holding period, even if it is the same ticker symbol. The group held for more than a year would be taxed at long term capital gains rate, and the group held for less than a year would first be offset by any short term losses, then you would pay tax at your current income tax rate on any short-term gain remaining.

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News: Boston Federal Reserve Chairman Wants Four Raises in 2017

http://www.cnbc.com/2017/03/29/feds-rosengren-wants-four-rate-hikes-this-year.html

http://www.cnbc.com/2017/03/27/here-are-the-nations-healthiest-and-unhealthiest-housing-markets.html

Thoughts on this podcast? Disagree with me on some point? Something I missed? Leave a comment!

About the Author

Jeremy Scott Bailey is an investor, author, entrepreneur and host of the “What Works In Investing?” podcast now available on iTunes. He is founder and Chief Investment Officer of Burgeón Group, Inc. an investment advisory firm that provides portfolio management services to families and individuals.

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