Excerpts - Poor Charlie's Alamanack

March 1, 2020

The arduous working conditions in the Buffett grocery store had a lasting influence on both Charlie and Warren. Warren, six years younger, served his hard times under Grandpa Ernest several years after his future business partner had moved on.

The 1930s brought hard times, and Omaha experienced the severity of the Great Depression. Charlie's observations of the plight of those less fortunate made lasting impressions. He saw hobos roaming the streets looking for handouts and others who were willing to sweep a driveway or porch in exchange for a sandwich.

What Carson said was that he couldn't tell the graduating class how to be happy, but he could tell them from personal experience how to guarantee misery.     Carson's prescription for sure misery included:  l. Ingesting chemicals in an effort to alter mood or perception;  2. Envy and  3. Resentment.

Addiction can happen to any of us through a subtle process where the bonds of degradation are too light to be felt until when they are too strong to be broken.    Well, so much for Carson's three prescriptions. Here are four more prescriptions from Munger:    First, be unreliable. Do not faithfully do what you have engaged to do. If you will only master this one habit, you will more than counterbalance the combined effect of all your virtues, how so ever great. If you like being distrusted and excluded from the best human contribution and company, this prescription is for you. Master this one habit, and you will always play the role of the hare in the fable, except that instead of being outrun by one fine turtles, you will be outurn by hordes and hordes of mediocre turtles and even some mediocre turtles on crutches.

I must Warn you that if you don't follow my first Prescription it may be hard to end up miserable even if you start disadvantaged. I had a roommate in college who was and is severely dyslexic but he is perhaps the most reliable man I have ever known. He has had a wonderful Life so far, outstanding wife and children, chief executive of a multibillion dollar corporation. If you want to avoid a conventional, main-culture, establishment result of this kind, you simply can't count on your other handicaps to hold you back if you persist in being reliable.

The other aspect of avoiding vicarious wisdom is the rule for not learning from the best work done before yours. The prescription is to become as non educated as you reasonably can.

My third prescription to you for misery is to go down and stay down when you get your first, second, or third severe reverse in the battle of life. Because there is so much adversity out there, even for the lucky and wise, this will guarantee that, in due course, you will be permanently mired in misery. Ignore at all cost the lesson contained in the accurate epitaph written for himself by Epictetus: "Here lies Epictetus, a slave, maimed in body, the ultimate in poverty, and favored by the gods."

My final prescription to you for a life of fuzzy thinking and infelicity is to ignore a story they told me when I was very young about a rustic who said, "I wish I knew where I was going to die, and then I'd never go there." Most people smile (as you did) at the rustic's ignorance and ignore his basic wisdom. If my experience is any guide, the rustic's approach is to be avoided at all cost by someone bent on misery. To help fail, you should discount as mere quirk, with no useful message, the method of the rustic, which is the same one used in Carson's speech.

What Carson did was to approach the study of how to create X by turning the question backward, that is, by studying how to create non-X. The great algebraist, Jacobi, had exactly the same approach as Carson and was known for his constant repetition of one phrase: "Invert, always invert." It is in the nature  of things, as Jacobi knew, that many hard problems are best solved only when they are addressed backward. For instance, when almost everyone else was trying to revise the electromagnetic laws of Maxwell to be consistent with the motion laws of Newton, Einstein discovered special relativity as he made a 180 degree turn and revised Newton's laws to fit Maxwell's

As I review in 2006 this talk made in 1986, I would not revise a single idea. If anything, I now believe even more strongly that   (1) reliability is essential for progress in life and (2) while quantum mechanics is unlearnable for a vast majority, reliability can be learned to great advantage by almost Anyone.

mechanics is unlearnable for a vast majority, reliability can be learned to great advantage by almost Anyone.

What I say is that McDonald's is one of our most admirable institutions. Then, as signs of shock come to surrounding faces, I explain that McDonald's, providing first jobs to millions of teenagers, many troubled, over the years, has successfully taught most of them the one lesson they most need: to show up reliably

One of the advantages of a fellow like Buffett, whom I've worked with all these years, is that he automatically thinks in terms of decision trees and the elementary math of permutations and combinations.

Obviously, you have to know accounting. It's the language of practical business life. It was a very useful thing to deliver to civilization. I've heard it came to civilization through Venice, which, of course, was once the great commercial power in the Mediterranean. However, double-entry bookkeeping was a hell of an invention.

His rule for all the Braun Company's communications was called the five Ws-you had to tell who was going to do what, where, when, and why. And if you wrote a letter or directive in the Braun Company telling somebody to do something, and you didn't tell him why, you could get fired. In fact you would get fired if you did it twice. You might ask why is that so important? Well, again, that's a rule of psychology. Just as you think better if you array knowledge on a bunch of models that are basically answers to the question, why, why, why, if you always tell people why, they'll understand it better, they'll consider it more important, and they'll be more likely to comply. Even if they don't understand your reason, they'll be more likely to comply.

the engineering idea of a backup system is a very powerful idea. The engineering idea of breakpoints- that's a very powerful model, too. The notion of a critical mass-that comes out of physics-is a very powerful model.

Personally, I've gotten so that I now use a kind of two-track analysis. First, what are the factors that really govern the interests involved, rationally considered? And second, what are the subconscious influences where the brain at a subconscious level is automatically doing these things-which, by and large, are useful but which often misfunction?  One approach is rationality-the way you'd work out a bridge problem: by evalUating the real interests, the real probability, and so forth. And the other is to evaluate the psychological factors that cause subconscious conclusions-many of which are wrong.

Just as animals flourish in niches, similarly, people who specialize in the business world-and get very good because they specialize-frequently find good economics that they wouldn't get any other way.

Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche. Just as animals flourish in niches, similarly, people who specialize in the business world-and get very good because they specialize-frequently find good economics that they wouldn't get any other way...  And once we get into microeconomics, we get into the concept of advantages of scale. Now we're getting closer to investment analysis-because in terms of which businesses succeed and which businesses fail, advantages of scale are ungodly important.  For example, one great advantage of scale taught in all of the business schools of the world is cost reductions along the so-called experience curve. Just doing something complicated in more and more volume enables human beings, who are  trying to improve and are motivated by the incentives of capitalism, to do it more and more efficiently.

The very nature of things is that if you get a whole lot of volume through your operation, you get better at processing that volume. 'That's an enormous advantage. And it has a lot to do with which businesses succeed and fail.

you can get advantages of scale from TV advertising. When TV advertising first arrived-when talking color pictures first came into our living rooms-it was an unbelievably powerful thing. And in the early days, we had three networks that had whatever it was-say ninety percent of the audience.    Am I going to take something I don't know and put it in my mouth-which is a pretty personal place, after all-for a lousy dime?    Well, if you were Procter & Gamble, you could afford to use this new method of advertising. You could afford the very expensive cost of network television because you were selling so damn many cans and bottles. Some little guy couldn't. And there was no way of buying it in part. Therefore, he couldn't use it. In effect, if you didn't have a big volume, you couldn't use network TV advertising-which was the most effective technique.  So when TV came in, the branded companies that were already big got a huge tailwind. Indeed, they prospered and prospered and prospered until some of them got fat and foolish, which happens with prosperity-at least to some people.  And your advantage of scale can be an informational advantage. If I go to some remote place, I may see  Wrigley chewing gum alongside Glotz's chewing gum. Well, I know that Wrigley is a satisfactory product whereas I don't know anything about Glotz's. So if one is forty cents and the other is thirty cents, am I going to take something I don't know and put it in my mouth which is a pretty personal place, after all-for a lousy  dime?    So, in effect, Wrigley, simply by being so well knowledge, has advantage of  scale-what we might call an informational advantage.  Another advantage of scale comes from psychology. The psychologists use the term "social proof." We are all influenced-subconsciously and, to some extent, consciously- we see others do and approve. Therefore , if everybody's buying something, we think it's better. We don't like to be the one guy who's out  of step.  Again, some of this is at a subconscious, level, and some of it isn't. Sometimes,  consciously and rationally think, "God, I didn't know' much about this. 'they know more than I do. 'Therefore, why shouldn't I follow them"    The social proof phenomenon which comes right out of psychology gives huge advantage to scale for example with very wide distribution which course is hard to get one advantage of Coca-Cola is that it's available almost everywhere in the world     well suppose you have a little soft drink exactly how do you make it available all over the Earth the world wide distribution setup which is slowly won by big enterprise games to be a huge advantage and if you think about it once you get enough advantages of that type it can become very hard for anybody to dislodge you    There's another kind of advantage of scale in some businesses the very nature of things is to sort of cascade towards the overwhelming dominance of One For The Other obvious when is daily newspaper there is practically no City left in the United States aside from few very big ones where there is more than one daily newspaper     and again that as a scale think once I get most of the circulation I get most of the advertising and once I get most of the advertising and circulation why would anyone want the thinner paper with less information in it? So it tends to cascades to a winner take all situation and that is a separate form of advantages of scale phenomenon    Similarly, all these huge advantages of scale allow greater specialization within the firm. Therefore, each person can be better at what he does. And these advantages of scale are so great, for example, that when Jack Welch came into General Electric, he just said, "The hell with it. We're either going to be #l or #2 in every field we're in or we're going to be out. I don't care how many people I have to fire and what I have to sell. We're going to be #1 or #2 or out."

The great defect of scale of course which makes the game interesting so that the big people don't always when is that as you get big you get the Bureaucracy and with the Bureaucracy comes the territoriality which is again grounded in human nature

And then incentives are perverse, for example if you worked for a t and T in my day it was a great Bureaucracy who in the hell was really thinking about the shareholder or anything else? And in a Bureaucracy you think the work is done when it goes out of your in basket to somebody else’s in basket but of course it isn't. It's not done until AT&T delivers what it's supposed to deliver.  big, fat, dumb, unmotivated bureaucracies.  They also tend to become somewhat corrupt. In other words, if I've got a department and you've got a department and we kind of share power running this thing, there's sort of an unwritten rule: "If you won't bother me, I won't bother you, and we're both happy." So you get layers of management and associated costs that nobody needs. Then, while people are justifying all these lawyers, it takes forever to get anything done. They're too slow to make decisions, and nimbler people run circles around them.    Television was dominated by one network CBS-in its early days.    The constant curse of scale is that it leads to big, dumb bureaucracy which, of course, reaches its highest and worst form in government where the incentives are really awful. That doesn't mean we don't need government- because we do. But it's a terrible problem to get big bureaucracies to behave.  So people go to stratagems. They create little decentralized units and fancy motivation and training programs. For example, for a big company, General Electric has fought bureaucracy with amazing skill. But that's because they have a combination of a genius and a fanatic running it. And they put him in young enough so he gets a long run. Of course, that's Jack Welch.

On the subject of advantages of economies of scale, I find chain stores quite interesting. Just think about it. The concept of a chain store was a fascinating invention. You get this huge purchasing power-which means that you have lower merchandise costs. You get a whole bunch of little laboratories out there in which you can conduct experiments. And you get specialization.

He played the chain store game harder and better than anyone else. Walton invented practically nothing. But he copied everything anybody else ever did that was smart, and he did it with more fanaticism and better employee manipulation. So he just blew right by them all.

Obviously, there's a brand identity factor in cereals that doesn't exist in airlines. That must be the main factor that accounts for it.  And maybe the cereal makers, by and large, have learned to be less crazy about fighting for market share-because if you get even one person who's hell-bent on gaining market share.... For example, if I were Kellogg and I decided that I had to have sixty percent of the market, I think I could take most of the profit out of cereals. I'd ruin Kellogg in the process. But I think I could do

In microeconomics, of course, you've got the concept of patents, trademarks, exclusive franchises, and so forth. Patents are quite interesting. When I was young, I think more money went into patents than came out. Judges tended to throw them out-based on arguments about what was really invented and what relied on prior art. That isn't altogether clear.  But they changed that. They didn't change the laws. They just changed the administration-so that it all goes to one patent court. And that court is now very much more pro-patent. So I think people are now starting to make a lot of money out of owning patents.

Trademarks, of course, have always made people a lot of money. A trademark system is a wonderful thing for a big operation if it's well known. The exclusive franchise can also be wonderful. If there were only three television channels awarded in a big city and you owned one of them, there were only so many hours a day that you could be on. So you had a natural position in an oligopoly in the pre-cable days. And if you get the franchise for the only food stand in an airport, you have a captive clientele, and you have a small monopoly of a sort. The great lesson in microeconomics is to discriminate between when technology is going to help you and when it's going to kill you. And most people do not get this straight in their heads. But a fellow like Buffett does.

What was he thinking He was thinking, "[it's a lousy business. We're warning substandard returns and keeping it open just to be nice to the elderly workers. But we're not going to put huge amounts of new capital into a lousy  business."  And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners.    They don't do the second step of the analysis-which is to determine how much is going to stay home and how much is just going to flow through to the customer

That's such an obvious concept-that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that's still going to be lousy. The money still won't come to you. All of the advantages from great improvements are going to flow through to the customers.

In all cases, the people who sell the machinery-and, by and large, even the internal bureaucrats urging you to buy the equipment-show you projections with the amount you'll save at current prices with the new technology. However, they don't do the second step of the analysis-which is to determine how much is going to stay home and how much is just going to flow through to the customer. I've never seen a single projection incorporating that second step in my life.

And when these new businesses come in, there are huge advantages for the early birds. And when you're an early bird, there's a model that I call "surfing"-when a surfer gets up and catches the wave and just stays there, he can go a long, long time' But if he gets off the wave, he becomes mired in shallows.  But people get long runs when they're right on the edge of the wave, whether it's Microsoft or Intel or all kinds of people , including National Cash Register in the early days.    The cash register was one of the great contributions to civilization. It's a wonderful story.  Patterson was a small retail merchant who didn't make any money. One day, somebody sold him a crude cash register, which he put into his retail operation. And it instantly changed from losing money to earning a profit because it made it so much harder for the employees to steal. But Patterson, having the kind of mind that he did, didn't think, "Oh, good for my retail business." He thought, "I'm going into the cash register business." And, of course, he created National Cash Register. And he "surfed." He got the best distribution system, the biggest collection of patents, and the best of everything. He was a fanatic about everything important as the technology developed. I have in my files an early National Cash Register Company report in which Patterson described his methods and objectives. And a well-educated orangutan could see that buying into partnership with Patterson in those early days, given his notions about the cash register business, was a total one hundred percent cinch. And, of course, that's exactly what an investor should be looking for. In a long life, you can expect to profit heavily from at least a few of those opportunities if you develop the wisdom and will to seize them. At any rate, "surfing" is a very powerful model.

Well, so much for the basic microeconomic models, a little bit of psychology, a little bit of mathematics, helping create what I call the general substructure of worldly wisdom. Now, if you want to go on from carrots to dessert, I'll turn to stock picking trying to draw on this general worldly wisdom as we go.

The model I like-to sort of simplify the notion of what goes on in a market for common stocks-is the pari-mutuel system at the race track. If you stop to think about it, a pari-mutuel system is a market.    Everybody goes there and bets, and the odds change based on what's bet. That's what happens in the stock market. Any damn fool can see that a horse carrying a lightweight with a wonderful win rare and a good post position. etc.. etc.. is way more likely to win than a horse with a terrible record and extra weight and so on and so on. But if you look at the damn odds, the bad horse pays 100 to 1, whereas the good horse pays 3 to 2. Then, it's not clear which is statistically the best bet using the mathematics of Fermat and Pascal. The prices have changed in such a way that it's very hard to beat the system.    And then the track is taking seventeen percent off the top. So not only do you have to outwit all the other bettors, but you've got to outwit them by such a big margin that on average, you can afford to take seventeen percent of your gross bets off the top and give it to the house before the rest of your money can be put to work.    Given those mathematics, is it possible to beat the horses using only one's intelligence? Intelligence should give some edge because lots of people who don't know anything go out and bet lucky numbers and so forth. Therefore, somebody who really thinks about nothing but horse performance and is shrewd and mathematical could have a very considerable edge, in the absence of the frictional cost caused by the house take.    Unfortunately, what a shrewd horseplayer's edge does in most cases is to reduce  his average loss over a season of betting from the seventeen percent that he would lose if he got the average result to maybe ten percent. However, there are actually a few people who can beat the game after paying the full seventeen percent.  I used to play poker, when I was young, with a guy who made a substantial living doing nothing but bet harness races. Now, harness racing is a relatively inefficient market. You don't have the depth of intelligence betting on harness races that you do on regular races. What my poker pal would do was to think about harness races  as his main profession. And he would bet only occasionally when he saw some mispriced bet available. And by doing that, after paying the full handle to the house-which I presume was around seventeen percent-he made a substantial living.

The one thing all those winning bettors in the whole history of people who’ve beaten the parimutuel system have is quite simple: they bet very seldom.

think the reason why we sot into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, "my God, they're purple and green. Do fish really take these lures?" And he said, "Mister, I don't sell to fish."

From all business, my favorite case on incentives is Federal Express. The heart and soul of its system-which creates the integrity of the product-is having all its airplanes come to one place in the middle of the night and shift all the packages from plane to plane. If there are delays, the whole operation can't deliver a product full of integrity to Federal Express customers.    And it was always screwed up. They could never get it done on time. they tried everything-moral suasion, threats, you name it. And nothing worked.  Finally, somebody got the idea to pay all these people not so much an hour, but so much a shift-and when it's all done, they can all go home. Well, their problems cleared up overnight.

How do you get into these great companies? One method is what I'd call the method of finding them small-get em when they're little. For example, buy WalMart when Sam Walton first goes public and so forth. And a lot of people try to do just that. And it's a very beguiling idea. If I were a young man, I might actually go into it.

Occasionally, you'll find a human being who's so talented that he can do things that ordinary skilled mortals can't. I would argue that Simon Marks-who was second generation in Marks & Spencer of England was such a man. Patterson was such a man at National Cash Register.  And Sam Walton was such a man.

These people do come along-and, in many cases, they're not all that hard to identify. If they've got a reasonable hand-with the fanaticism and intelligence and so on that these people generally bring to the party-then management can matter much.

However, averaged out, betting on the quality of a business is better than betting on the quality of management. In other words, if you have to choose one, bet on the business momentum, not the brilliance of the manager.    But, very rarely, you find a manager who's so good that you're wise to follow him into what looks like a mediocre business. Another very simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you're going to buy something that compounds for thirty years at fifteen percent per annum and you pay one thirty-five percent tax at the very end, the way that works out is that after taxes, you keep 13.3 percent per annum.    222    Trying to minimize taxes too much is one of the great standard causes of really dumb mistakes.    In contrast, if you bought the same investment but had to pay taxes every year of thirty-five percent out of the fifteen percent that you earned, then your return would be fifteen percent minus thirty-five percent of fifteen percent-or only 9.75 percent per year compounded. So the difference there is over 3.5 percent. And what 3.5 percent does to the numbers over long holding periods like thirty years is truly eye-opening. If you sit on your ass for long, long stretches in great companies, you can get a huge edge from nothing but the way income taxes work.    Even with a ten percent per annum investment, paying a thirty-five percent tax at the end gives you 8.3 percent after taxes as an annual compounded result after thirty years. In contrast, if you pay the thirty-five percent each year instead of at the end, your annual result goes down to 6.5 percent. So you add nearly two percent of after-tax return per annum if you only achieve an average return by historical standards from common stock investments in companies with low dividend payout ratios.    But in terms of business mistakes that I've seen over a long lifetime, I would say that trying to minimize taxes too much is one of the great standard causes of really dumb mistakes. I see terrible mistakes from people being overly motivated by tax considerations.    Warren and I personally don't drill oil wells. We pay our taxes. And we've done pretty well, so far. Anytime somebody offers you a tax shelter from here on in life, my advice would be don't buy it.    In fact, anytime anybody offers you anything with a big commission and a 200 page prospectus, don't buy it.

Finally, I'd like to once again talk about investment management. That is a funny business-because on a net basis, the whole investment management business together gives no value added to all buyers combined. That's the way it has to work.

(1) By investing in LBO funds, Harvard and Yale, introduced leverage into their results from owning interests in U.S. businesses. And the LBO fund structure gave them a way to make their leveraged business investments in a manner safer than is possible in a normal margin account, prone during panics co forced sales. Decent comparative results often followed in markets with tolerable general outcomes. And this happened even when net-after-cost results from investments in the LBO funds were no better than would have occurred through only slightly leveraged investment in an index of U.S. stocks.

(2) In category after category, Harvard and Yale selected or directly employed investment managers who were way above average in ability, providing additional evidence that investment markets are not perfectly efficient and that some good investment results come from abnormal skill or other abnormal advantage. As one example, Harvard and Yale, by reason of their own prestige, were able to get into some of the most profitable high-tech venture-capital funds, not available to all other investors. These funds, using momentum provided by their own past success, had an opportunity advantage over less well established venture capital operations, in that the best entrepreneurs, quite logically, made early presentations to the best-regarded funds.

(3) Harvard and Yale wisely and opportunistically imitated investment banking firms by going into several activities that were then non-traditional, like investing in distressed U.S. corporate bonds and high-coupon foreign bonds and leveraged "fixed income arbitrage," during a period when many good opportunities were available to skilled operators in the activities chosen.

(4) Finally, the benefits that came to Harvard and Yale in recent years through leverage and unconventionality were often, of course, given a large tailwind by a happy combination of declining interest rates and rising price-earnings ratios for stocks

Thales of Miletus. This scientist of antiquity made a large profit by leasing most of the olive presses in his area just before the occurrence of a particularly bountiful harvest.

Don't sell anything you wouldn't buy yourself..  Don't work for anyone you don't respect and admire.  Work only with people you enjoy.

One of my favorite business stories comes from Hershey. They get their flavor because they make their cocoa butter in old stone grinders that they started with in the 1800s in Pennsylvania. And a little bit of the husk of the cocoa bean winds up in the chocolate. Therefore, they get that odd flavor that people like in Hershey's chocolate.

Hershey, knew enough when they wanted to expand into Canada to know they shouldn't change their winning flavor. Therefore, they copied their stone grinders. Well, it took them five years to duplicate their own flavor. As you can see, flavors can be quite tricky.

Even today, there's a company called International Flavors and Fragrances. It's the only company I know that does something on which you can't get a copyright or a patent, but which nevertheless receives a permanent royalty. They manage to do that by helping companies develop flavors and aromas in their trademarked products-like shaving cream. The slight aroma of shaving cream is very important to consumption. So all of this stuff is terribly important.

In 1899, grocer E. A. Stuart founded the Pacific Coast Condensed Milk Company in the state of 'Washington based on the relatively new process of evaporation. Using a local tobacconist's store name, Carnation, he had a brand for his new milk product. Through attention to processes and clever marketing. Carnation became associated with its "Contented Cows" and high-quality milk products. In 1985, the company was acquired by Nestle.    Now when Carnation tried to make a deal for its trademark, there was this one guy who sold Carnation Fish. So help me God, that was his trade name. Don't ask me why. And every time they'd say, "We'll pay you $250,000," he'd say, "I want $400,000." And, then, four years later, they'd say, "We'll give you $1 million," and he'd say, "I want $2 million." And they just kept doing that all the way through. And they never did buy the trademark-at least, they hadn't bought it the last time I looked.    In the end, Carnation came to him sheep facedly and said, "We'd like to put our quality control inspectors into your fish plants to make sure that your fish are perfect; and we'll pay all the costs"-which he quickly and smirkily allowed. So he got free quality control in his fish plants-courtesy of the Carnation Company.    This history shows the enormous incentive you create if you give a guy a trademark [he can protect]. And this incentive is very useful to the wider civilization. As you see, Carnation got so that it was protecting products that it didn't even own.    That sort of outcome is very, very desirable [for society]. So there are some very fundamental macroeconomic reasons why even communist countries should protect trademarks. They don't all do it, but there are very powerful reasons why they should. And, by and large, averaged out around the world, trademark protection been pretty good.    [Charlie applies various mental models to Coca-Cola.]    However, if you don't have the basic models and the basic mental methods for dealing with the models, then all you can do is to sit there twiddling your thumbs as you look at the Value Line graph. But you don't have to twiddle your thumbs. You've got to learn one hundred models and a few mental tricks and keep doing it all of your life. It's not that hard    And the beauty of it is that most people won't do it-partly because they've been miseducated. And I'm here trying to help you avoid some of the perils that might otherwise result from that miseducation.    OK. We've been through some of the general ideas in the search for worldly wisdom. And now I want to turn to something even more extreme and peculiar than the talk I've already given you. Of all the models that people ought to have in useful form and don't, perhaps the most important lie in the area of psychology....    I recently had an instructive experience: I just returned from Hong Kong. I have a pal there who's a headmaster of one of the leading schools. He gave me this book called The Language Instinct, written by Steven Pinker. Well, Pinker is a semanticist professor who rose in the shadow of Noam Chomsky-Linguistics Institute Professor at M.I.T.-who is probably the greatest semanticist who ever lived.

Warren observed this as a kid. And he decided that ideology was dangerous and that he was going to stay a long way away from it. And he has throughout his whole life. That has enormously helped the accuracy of his cognition.

you get a lot of heavy ideology young-and then you start expressing it-you are really locking your brain into a very unfortunate pattern    Therefore, in a system of multiple models across multiple disciplines, I should add as an extra rule that you should be very wary of heavy ideology.    You can have heavy ideology in favor of accuracy, diligence, and objectivity. But a heavy ideology that makes you absolutely sure that the minimum wage should be raised or that it shouldn't-and it's kind of a holy construct where you know you're right-makes you a bit nuts.

So beware of ideology-based mental misfunctions.

The mind will sometimes flip so that the wish becomes the belief. It will do so at various levels. Individuals vary in how, much psychological denial they get. But miscognition from denial overwhelmingly pervades the reality that you're going to have to deal with.

The five essential entrepreneurial skills for success are concentration, discrimination,, organization, innovation, and communication,"

Well, the single most publicized psychology experiment ever done is the Milgram experiment- where they asked people to apply what they had every reason to believe was heavy electrical torture on innocent fellow human beings. And they manipulated most of these decent volunteers into doing the torture.

Milgram performed the experiment right after Hitler had gotten a bunch of believing Lutherans, Catholics, and so forth to perform unholy acts they should have known were wrong. He was trying to find out how much authority could be used to manipulate high grade people into doing things that were clearly and grossly wrong.    And he got a very dramatic effect. He managed to get high-grade people to do many awful things. But for years, it was in the psychology books as a demonstration of authority-how authority could be used to persuade people to do awful things.

His experiment found that sixty five percent of his subjects, ordinary residents of New Haven, were willing to give apparently harmful electric shocks to a pitifully protesting victim, simply because a scientific authority commanded them to, despite the fact that the victim did nothing to deserve punishment. Milgram's results have been used as partial explanation for the German atrocities of 'World war II.

And being on a primitive sailing ship with a bunch of dying sailors is very awkward business so everybody was terribly interested in Scurvy but they did not know about vitamin C. Well, Captain Cook, being a smart man with a multiple model kind of approach, noticed that Dutch ships had less scurvy than English ships on long voyages. So he said, "What are the Dutch doing that's different?"  And he noticed they had all these barrels of sauerkraut. So he thought, "I'm going on these long voyages. And it's very dangerous. Sauerkraut may help." So he laid in all this sauerkraut, which, incidentally, happens to contain a trace of vitamin C.    But English sailors were a tough, cranky!, and dangerous bunch in that day. They hated "krauts." And they were used to their standard food and booze. So how do you get such English sailors to eat sauerkraut?    Well, Cook didn't want to tell 'em that he was doing it in the hope it would prevent scurvy-because they might mutiny and take over the ship if they thought that he was taking them on a voyage so long that scurvy was likely.  So here's what he did: Officers ate at one place where the men could observe them. And for a long time, he served sauerkraut to the officers, but not to the men. And, then, finally, Captain Cook said, "Well, the men can have it one day a week."    In due course, he had the whole crew eating sauerkraut. I regard that as a very constructive use of elementary psychology. It may have saved God knows how many lives and caused God knows how much achievement. However, if you don't know the right techniques, you can't use them.

This sort of tragedy is caused by letting the slop run. You must stop slop early. It's very hard to stop slop and moral failure if you let it run for a while.

I'm all for fixing social problems. I'm all for being generous to the less fortunate. And I'm all for doing things where, based on a slight preponderance of the evidence, you guess that it's likely to do more good than harm.

What I'm against is being very confident and feeling that you know, for sure, that your particular intervention will do more good than harm, given that you're dealing with highly complex systems wherein everything is interacting with everything else.

You must have the confidence to override people with more credentials than you  whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. But there are also cases where you have to recognize that you have no wisdom to add-and that your best course is to trust some expert.

My father said, "Grant McFadyen treats his employees right, his customers right, and his problems right. And if he gets involved with a psychotic, he quickly walks over to where the psychotic is and works out an exit as fast as he can. Therefore, Grant McFadyen doesn't have enough remunerative law business to keep you in Coca-Cola. But Mr. X is a walking minefield of wonderful legal business."    This case demonstrates one of the troubles with practicing law. To a considerable extent, you're going to be dealing with grossly defective people. They create an enormous amount of the remunerative law business. And even when your own client is a paragon of virtue, you'll often be dealing with gross defectives on the other side or even on the bench.

What I personally hate most are systems that make fraud easy. Probably way more than half of all the chiropractic income in California comes from pure fraud. For example, I have a friend who had a little fender bender-an auto accident-in a tough neighborhood. And he got two chiropractors cards and one lawyer's card before he'd even left the intersection. They're in the business of manufacturing claims that necks hurt.

Even better, the fun never stops. I was miseducated horribly. And I hadn't bothered to pick up what's called modern Darwinism. I do a lot of miscellaneous reading, too. But I just missed it. And in the last year, I suddenly realized I was a total damned fool and hadn't picked it up properly.

You've got to hang reality on a theoretical structure with reasons. That's the way it hangs together in usable form so that you're an effective thinker.

Sure. Look at Berkshire Hathaway. I call it the ultimate didactic enterprise. Warren's never going to spend any money. He's going to give it all back to society. He's just building a platform so people will listen to his notions. Needless to say, they're very good notions. And the platform's not so bad either. But you could argue that Warren and I are academics in our own way.

The first helpful notion is that it is usually best to simplify problems by deciding big "no-brainer" questions first.    The second helpful notion mimics Galileo's conclusion that scientific reality is often revealed only by math as if math was the language of God.

The third helpful notion is that it is not enough to think problems through forward. You must also think in reverse, much like the rustic who wanted to know where he was going to die so that he'd never go there.

You must also think in reverse, much like the rustic who wanted to know where he was going to die so that he'd never go there.

The fourth helpful notion is that the best and most practical wisdom is elementary academic wisdom. But there is one extremely important qualification: You must think in a multidisciplinary manner.

If, in your thinking, you rely entirely on others, often through purchase of professional advice, whenever outside a small territory of your own, you will suffer much calamity. And it is not just difficulties in complex coordination that will do you in. You will also suffer from the reality evoked by the Shavian character who said, "In the last analysis, every profession is a conspiracy against the laity."

The fifth helpful notion is that really big effects, lollapalooza effects, will often come only from large combinations of factors.

Well, Glotz, the big "no-brainer" decisions that, to simplify our problem, should be made first are as follows: First, we are never going to create something worth $2 trillion by selling some generic beverage. Therefore, we must make your name, "Coca-Cola," into a strong legally protected trademark. Second, we can get to $2 trillion only by starting in Atlanta, then succeeding in the rest of the united States, then rapidly succeeding with our new beverage all over the world. This will require developing a product having universal appeal because it harnesses powerful elemental forces. And the right place to find such powerful elemental forces is in the subject matter of elementary academic courses.    We will next use numerical fluency to ascertain what our target implies. We can guess reasonably that by 2034 there will be about eight billion beverage consumers in the world. On average, each of these consumers will be much more prosperous in real terms than the average consumer of 1884. Each consumer is composed mostly of water and must ingest about sixty-four ounces of water per day. This is eight, eight ounce servings. Thus, if our new beverage, and other imitative beverages in our new market, can flavor and otherwise improve only twenty-five percent of ingested water worldwide, and we can occupy half of the new world market, we can sell 2.92 trillion eight-ounce servings in 2034. And if we can then net four cents per serving, we will earn $117 billion. This will be enough, if our business is still growing at a good rate, to make it easily worth $2 trillion.    In essence, we are going into the business of creating and maintaining conditioned reflexes.

start by exploring the consequences of our simplifying "no-brainer" decision that we must rely on a strong trademark. This conclusion automatically leads to an understanding of the essence of our business in proper elementary academic terms. We can see from the introductory course in psychology that, in essence, we are going into the business of creating and maintaining conditioned reflexes.

And how does one create and maintain conditioned reflexes? Well, the psychology text gives two answers: (1) by operant conditioning and (2) by classical conditioning, often called Pavlovian conditioning to honor the great Russian scientist. And, since we want a lollapalooza result, we must use both conditioning techniques-and all we can invent to enhance effects from each technique. The operant conditioning part of our problem is easy to solve. We need only (1) maximize rewards of our beverage's ingestion and (2) minimize possibilities that desired reflexes, once created by us, will be extinguished through operant conditioning by proprietors of competing products.    For operant conditioning rewards, there are only a few categories we will find practical:  (l) Food value in calories or other inputs;  (2) Flavor, texture, and aroma acting as stimuli to consumption under neural reprogramming of man through Darwinian natural selection;  (3) Stimulus, as by sugar or caffeine;  (4) Cooling effect when man is too hot or warming effect when man is too cool.

And, to counteract possibilities that desired operant-conditioned reflexes, once created by us, will be extinguished by operant-conditioning-employing competing products, there is also an obvious answer: We will make it a permanent obsession in our company that our beverage, as fast as practicable, will at all times be available everywhere throughout the world.

And the brain of man yearns for the type of beverage held by the pretty woman he can't have. And so, Glotz, we must use every sort of decent, honorable Pavlovian conditioning we can think of. For as long as we are in business, our beverage and its promotion must be associated in consumer minds with all other things consumers like or admire.

Moreover, Pavlovian effects from mere association will help us choose the flavor, texture, and color of our new beverage. Considering Pavlovian effects, we will have wisely chosen the exotic and expensive-sounding name "Coca-Cola," instead of a pedestrian name like "Glotz's Sugared, Caffeinated Water." For similar Pavlovian reasons, it will be wise to have our beverage look pretty much like wine instead of sugared water. And so, we will artificially color our beverage if it comes out clear. And we will carbonate our water, making our product seem like champagne, or some other expensive beverage, while also making its flavor better and imitation harder to arranGe for competing products. And, because we are going to attach so many expensive psychological effects to our flavor, that flavor should be different from any other standard flavor so that we maximize difficulties for competitors and give no accidental  same-flavor benefit of any existing product.

The logistics and the distribution strategy of our business will be simple. There are only two practical ways to sell our beverage: (1) as syrup to fountains and restaurants and (2) as a complete carbonated-water product in containers. Wanting lollapalooza results, we will naturally do it both ways. And, wanting huge Pavlovian and social-proof effects, we will always spend on advertising and sales promotion, per serving, over forty percent of the fountain price for syrup needed to make the serving.    A few syrup-making plants can serve the world. However, to avoid needless shipping of mere space and water, we will need many bottling plants scattered over the world. We will maximize profits if (like early General Electric with light bulbs) we always set the first-sale price, either (1) for fountain syrup or (2) for any container of our complete product. The best way to arrange this desirable profit-maximizing control is to make any independent bottler we need a subcontractor, not a vendee of syrup, and certainly not a vendee of syrup under a perpetual franchise specifying a syrup price frozen forever at its starting level.

few syrup-making plants can serve the world. However, to avoid needless shipping of mere space and water, we will need many bottling plants scattered over the world. We will maximize profits if (like early General Electric with light bulbs) we always set the first-sale price, either (1) for fountain syrup or (2) for any container of our complete product. The best way to arrange this desirable profit-maximizing control is to make any independent bottler we need a subcontractor, not a vendee of syrup, and certainly not a vendee of syrup under a perpetual franchise specifying a syrup price frozen forever at its starting level.

Eventually, food-chemical engineering will advance so that our flavor can be copied with near exactitude. But, by that time, we will be so far ahead, with such strong trademarks and complete, "always available" worldwide distribution, that good flavor copying won't bar us from our objective. Moreover, the advances in food chemistry that help competitors will almost surely be accompanied by technological advances that will help us, including refrigeration, better transportation, and, for dieters, ability to insert a sugar taste without inserting sugar's calories. Also, there will be related beverage opportunities we will seize.

This brings us to a final reality check for our business plan. We will, once more, think in reverse like Jacobi. What must we avoid because we don't want it? Four answers seem clear:    First, we must avoid the protective, cloying, stop-consumption effects of aftertaste that are a standard part of physiology, developed through Darwinian evolution to enhance the replication of man's genes by forcing a generally helpful moderation on the gene carrier. To serve our ends, on hot days, a consumer must be able to drink container after container of our product with almost no impediment from aftertaste.

Second, we must avoid ever losing even half of our powerful trademarked name. It will cost us mightily, for instance, if our sloppiness should ever allow sale of any other kind of "cola," for instance, a "peppy cola." If there is ever a "peppy cola," we will be the proprietor of the brand.

Third, with so much success coming, we must avoid bad effects from envy, which is given a prominent place in the Ten Commandments because envy is so much a part of human nature. The best way to avoid envy, recognized by Aristotle, is to plainly deserve the success we get. We will be fanatic about product quality, quality of product presentation, and reasonableness of prices, considering the harmless pleasure we will provide.

Fourth, after our trademarked flavor dominates our new market, we must avoid making any huge and sudden change in our flavor. Even if a new flavor performs better in blind taste tests, changing to that new flavor would be a foolish thing to do. This follows because, under such conditions, our old flavor will be so entrenched in consumer preference by psychological effects that a big flavor change would do us little good. And it would do immense harm by triggering in consumers the standard Deprival super-reaction syndrome that makes "takeaways" so hard to get in any type of negotiation and helps make most gamblers so irrational. Moreover, such a large flavor change would allow a competitor, by copying our old flavor, to take advantage of both (1) the hostile consumer super-reaction to Deprival and (2) the huge love of our original flavor created by our previous work.

Well, it has just invited into a precious slot amid its company of greats a wise and witty Cornell economist, Richard Thaler. And it has done this because Thaler pokes fun at much that is holy at the University of Chicago. Indeed, Thaler believes, with me, that people are often massively irrational in ways predicted by psychology that must be taken into account in microeconomics.

One partial cure for man-with-a-hammer tendency is obvious: If a man has a vast set of skills over multiple disciplines, he, by definition, carries multiple tools and, therefore, will limit bad cognitive effects from man-with-a-hammer tendency. Moreover when he is multidisciplinary enough to absorb from practical psychology the idea that all his life he must fight bad effects from both the tendencies I mentioned, both within himself and from others, he has taken a constructive step on the road to worldly wisdom.

Alfred North Whitehead, for one, long ago sounded an alarm in strong language when he spoke of "the fatal un connectedness of academic disciplines." And, since then, elite educational institutions. agreeing more and more with Whitehead, have steadily fought un connectedness by bringing in more multidisciplinarity, causing some awesome plaudits to be won in our time by great un Connectedness fighters at borders of academic disciplines, for instance, Harvard's E. O. Wilson and Caltech's Linus Pauling.

Moreover, we can believe in the attainability of broad multidisciplinary skill for the same reason the fellow from Arkansas gave for his belief in baptism: "I've seen it done." We all know of individuals, modern Ben Franklin's, who have (1) achieved a massive multidisciplinary synthesis with less time in formal education than is now available to our numerous brilliant young and (Z) thus become better performers in their own disciplines, not worse, despite diversion of learning time to matter outside the normal coverage of their own disciplines.

After all, hard science has, by a wide margin, the best record for both (1) avoiding unidisciplinary folly and (2) making user-friendly a big patch of multidisciplinary domain, with frequent, good results like those of physicist Richard Feynman when he so quickly found in cold O-rings the cause of our greatest space shuttle disaster.

Charlie lays out the case for checklists, both formal and informal, as indispensable tools for decision making and problem solving. Throughout the Almanack, he recommends four basic types of checklists that necessarily overlap and reinforce each other:    334    The Two-Track Analysis (Pages 63,64):  o What are the factors that really govern the interests involved, rationally considered? (for example, macro and micro-level economic factors). o What are the subconscious influences, where the brain at a subconscious level is automatically forming conclusions? (influences from instincts, emotions, cravings,  and so on).    Interesting and Decision Making Checklist (Pages 73-76):  . Charlie's informal. but extensive. list of factors worthy of consideration.    Ultra-Simple , General Problem-Solving Notions (Pages 279-281):  o Decide the big "no-brainer" questions first. . Apply numerical fluency. o Invert (think the problem through in reverse). . Apply elementary multidisciplinary wisdom, never relying entirely upon others. o Watch for combinations of factors-the Lollapalooza effect.    Psychology-Based Tendencies (Pages 440-498):  o His famous Twenty-Five Standard Causes of Human Misjudgment.    This speech, delivered in October 1998 to the Foundation Financial Officers Group in Santa Monica, helps account for Charlie's line: "It's sad, but true: Not everybody loves me." In the talk, he attacks the accepted and practiced orthodoxy of his audience with sharp humor, though always without malice. Charlie has a deep and abiding belief in philanthropy, as is demonstrated by his own generous giving, and he seeks here to save the philanthropic community from itself.    Charlie believes foundations should serve as societal exemplars, which means they must discourage wasteful, non productive practices. He posits a choice for his audience: the model of genius statesman Ben Franklin or that of disgraced fund manager Bernie Cornfeld. Referring back to his days as a limited partnership manager, Charlie employs, as is typical, self-deprecation and self-reflection: "Early Charlie Munger is a horrible career model for the young." If Charlie can emerge from that state successfully, he seems to be saying, so can the wayward foundation managers in his audience.

Famed economist John Kenneth Galbraith offers his wisdom:    "We all agree that pessimism is a mark of superior intellect."

John Kenneth Galbraith

"We all agree that pessimism is a mark of superior intellect."

"Meetings are indispensable when you don't want to do anything."

"The only function of economic forecasting is to make astrology look respectable."

"The modern conservative is engaged in one of man's oldest exercises in moral philosophy that is, the search for a superior moral justification for selfishness. "

"People who are in a fortunate position always attribute virtue to that makes them so happy."

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage'"

show how standard accounting treatment for stock options was functionally equivalent to simpler types of promotional fraud.

I absorbed what I call the fundamental full attribution ethos of hard science. And that was enormously useful to me. Let me explain that ethos.    Under this ethos, you've got to know all the big ideas in all the disciplines more fundamental than your own. You can never make any explanation that can be made in a more fundamental way in any other way than the most fundamental way. And you always take with full attribution to the most fundamental ideas that you are required to use. When you're using physics, you say you're using physics. When you're using biology, you say you're using biology.

Let me explain how extreme that ethos is in hard science. There is a constant, one of the fundamental constants in physics, known as Boltzmann's constant. You probably all know it very well. And the interesting thing about Boltzmann's constant is that Boltzmann didn't discover it. So why is Boltzmann's constant now named for Boltzmann? Well, the answer is that Boltzmann derived that constant from basic physics in a more fundamental way than the poor forgotten fellow who found the constant in the first place in some less fundamental way. The ethos of hard science is so strong in favor of reductionism to the more fundamental body of knowledge that you can wash the discoverer right out of history when somebody else handles his discovery in a more fundamental way. I think that is correct. I think Boltzmann's constant should be named for Boltzmann.

My fourth criticism is that there's too much emphasis on macroeconomics and not enough on microeconomics. I think this is wrong. It's like trying to master medicine without knowing anatomy and chemistry.

There's a tire store chain in the Northwest that has slowly succeeded over fifty years, the Les Schwab tire store chain. It just ground ahead. It started competing with the stores that were owned by the big tire companies that made all the tires, the Goodyears and so forth. And, of course, the manufacturers favored their own stores. Their "tied stores" had a big cost advantage. Later, Les Schwab rose in competition with the huge price discounters like Costco and Sam's Club and before that Sears, Roebuck and so forth. And yet, here is Schwab now, with hundreds of millions of dollars in sales. And here's Les Schwab in his eighties, with no education, having done the whole thing. How did he do it? I don't see a whole lot of people looking like a light bulb has come on. Well, let's think about it with some microeconomic fluency.    Is there some wave that Schwab could have caught? The minute you ask the question, the answer pops in. The Japanese had a zero position in tires, and they got big. So this guy must have ridden that wave some in the early times.  Then, the slow following success has to have some other causes.

there some wave that Schwab could have caught? The minute you ask the question, the answer pops in. The Japanese had a zero position in tires, and they got big. So this guy must have ridden that wave some in the early times.  Then, the slow following success has to have some other causes.

Leslie Schwab was born in Bend, Oregon. After service in the Air Cadet Corps during World War II, he returned to Oregon and bought OK Rubber Welders, a small tire shop that he turned from a $32,000-a-year business into one generating $150,000 annually. In the 1950s, Schwab began expanding his business throughout the Pacific Northwest. Through innovations such as profit sharing, "supermarket" product selection, and independence from the tire manufacturing companies, the company now operates over three hundred stores with sales exceeding $l billion annually. And what probably happened here, obviously, is this guy did one hell of a lot of things right. And among the things that he must have done right is he must have harnessed what Mankiw calls the superpower of incentives. He must have a very clever incentive structure driving his people. And a clever personnel selection system, etc. And he must be pretty good at advertising. Which he is. He's an artist. So, he had to get a wave in Japanese tire invasion, the Japanese being as successful as they were. And then a talented fanatic had to get a hell of a lot of things right and keep them right with clever systems. Again, not that hard of an answer. But what else would be a likely cause of the peculiar success?

I was using a simple search engine in my mind to go through checklist-style, and I was using some rough algorithms that work pretty well in a great many complex systems, and those algorithms run something like this: Extreme success is likely to be caused by some combination of the following factors:    A) Extreme maximization or minimization of one or two variables. Example,  Costco or our furniture and appliance store.    B) Adding success factors so that a bigger combination drives success, often in  nonlinear fashion, as one is reminded by the concept of breakpoint and the concept of critical mass in physics. Often results are not linear. You get a little bit more mass, and you get a lollapalooza result. And, of course, I've been searching for lollapalooza results all my life, so I'm very interested in models chat explain their occurrence.    C) An extreme of good performance over many factors. Example, Toyota or Les Schwab.    D) Catching and riding some sort of big wave. Example, Oracle. By the way, I cited Oracle before I knew that the Oracle CFO (Jeff Henley) was a big part of the proceedings here today.

"Now tell me several instances when, if you want the physical volume to go up, the correct answer is to increase the price?"

Answer: "There are four categories of answers to this problem. A few people get the first category but rarely any of the others.    1. Luxury goods: Raising the price can improve the product's ability as a show-off item, i.e., by raising the price the utility of the goods is improved to someone engaging in conspicuous consumption. Further, people will frequently assume that the high price equates to a better product, and this can sometimes lead to increased sales.    2. Non-luxury goods: same as second factor cited above, i.e., the higher price conveys information assumed to be correct by the consumer, that the higher price connotes higher value. This can especially apply to industrial goods where high reliability is an important factor.    3. Raise the price and use the extra revenue in legal ways to make the product work better or to make the sales system work better.    4. Raise the price and use the extra revenue in illegal or unethical ways to drive sales by the functional equivalent of bribing purchasing agents or in other ways detrimental to the end consumer, i.e., mutual fund commission practices. [This is the answer I like the most, but never get.]

I think my experience with my simple question is an example of how little synthesis people get, even in advanced academic settings, considering economic questions. Obvious questions, with such obvious answers. Yet, people take four courses in economics, go to business school, have all these I.Q. points, and write all these essays, but they can't synthesize worth a damn. This failure is not because the professors know all this stuff and they're deliberately withholding it from the students. This failure happens because the professors aren't all that good at this kind of synthesis. They were trained in a different way. I can't remember if it was Keynes or Galbraith who said that economics professors are most economical with ideas. They make a few they learned in graduate school last a lifetime.

The second interesting problem with synthesis involves two of the most famous examples in economics. Number one is Ricardo's principle of comparative advantage in trade, and the other is Adam Smith's pin factory. And both of these, of course, work to vastly increase economic output per person, and they're similar in that each somehow directs functions into the hands of people who are very good at doing the functions. Yet, they're radically different examples in that one of them is the ultimate example of central planning-the pin factory-where the whole system was planned by somebody, while the other example, Ricardo's, happens automatically as a natural consequence of trade.

Ricardo is often credited with the theory of comparative advantage, which explains why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. The concept was first described by Robert Torrens in l815 in an essay on the wheat trade, but Ricardo explained it more clearly in his 1817 book The Principles of Political Economy and Taxation.

Wealth of Nations (1776) his observations at a pin factory. He found that only ten workers were able to produce 48,000 pins per day because of divided and specialized labor. If Each worker handled all the steps required to make a pin, he could only make twenty per day, for a total factory output of two hundred pins daily. Smith recognized and extolled the great productivity gains and economic progress represented by the pin factory and its embrace of specialized labor.

saw an example of that kind of interaction years ago. Berkshire had this former savings and loan company, and it had made this loan on a hotel right opposite the Hollywood Park Racetrack. In due time, the neighborhood changed, and it was full of gangs, pimps, and dope dealers. They tore copper pipe out of the wall for dope fixes, and there were people hanging around the hotel with guns, and nobody would come. We foreclosed on it two or three times, and the loan value went down to nothing. We seemed to have an insolvable economic problem- a microeconomic problem.    Now, we could have gone to McKinsey, or maybe a bunch of professors from Harvard, and we would have gotten a report about ten inches thick about the ways we could approach this failing hotel in their terrible neighborhood. But instead, we put a sign on the property that said: "For sale or rent." And in came. in response to chat sign, a man who said, "I'll spend $200,000 fixing up your hotel and buy it at a high price on credit, if you can get zoning so I can turn the parking lot into a putting green." "You've got to have a parking lot in a hotel," we said. "What do you have in mind?" He said, "No, my business is flying seniors in from Florida, putting them near the airport, and then letting them go out to Disneyland and various places by bus and coming back. And I don't care how bad the neighborhood is going to be because my people are self-contained behind walls. All they have to do is get on the bus in the morning and come home in the evening, and they don't need a parking lot; they need a putting green." So we made the deal with the guy. The whole thing worked beautifully, and the loan got paid off, and it all worked out.    The odd system that this guy had designed to Amuse seniors was pare pin factory, and finding the guy with this system was pure Ricardo.

doing micro- and macro-economics while knowing psychology.

I've got a friend whose family controls about eight percent of the truck trailer market. He just closed his last factory in California, and he had one in Texas that was even worse. The workers comp cost in his Texas plant got to be double digit percentages of payroll. Well, there's no such profit in making truck trailers. He closed his plant and moved it to Ogden, Utah, where a bunch of believing Mormons are raising big families and don't game the workers' comp system. The workers' comp expense is two percent of payroll.    Are the Latinos who were peopling his plant in Texas intrinsically dishonest or bad compared to the Mormons No. It's just the incentive structure that so rewards all this fraud is put in place by these ignorant legislatures, many members of which have been to law school, and they just don't think about what terrible things they're doing to the civilization because they don't take into account the second order effects and the third-order effects in lying and cheating. So, this happens everywhere, and when economics is full of it, it is just like the rest of life.

He noticed that the graduate students did most of the boring work that would otherwise go to the professors, and he noticed that because it was so hard to get to be a graduate student at Harvard, they were all very brilliant and organized and hardworking, as well as much needed by grateful professors.    And, therefore, by custom, and as would be predicted from the psychological force called "reciprocity tendency," in a really advanced graduate course, the professors always gave an A. So Victor Niederhoffer signed up for nothing but the most advanced graduate courses in the Harvard Economics Department, and, of course, he got A, after A, after A, after A, and was hardly ever near a class. And, for a while, some people at Harvard may have thought it had a new prodigy on its hands. That's a ridiculous story, but the scheme will work still. And Niederhoffer is famous: They call his style "Niederhoffering the curriculum."

"In Portugal it is possible to produce both wine and cloth with less work than it takes in England. However, the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, but only moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore, while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade it for English cloth. Conversely, England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at closer to the cost of cloth".  Frequently overlooked is that Ricardo's comparative advantage in "delegating" tasks among nations is equally applicable for managers delegating work. Even if a manager can perform the full range of tasks better himself, it is still mutually advantageous to divide them up.

when you ignore second- and third-order consequences. The best answer I ever got on that subject-in three tries-was from George Shultz. He said, "Charlie, the way I figure it is if we stop trading with China, the other advanced nations will do it anyway, and we wouldn't stop the ascent of China compared to us, and we'd lose the Ricardo-diagnosed advantages of trade." Which is obviously correct. And I said, "We11, George, you've just invented a new form of the tragedy of the commons. You're locked in this system, and you can't fix it. You're going to go to a tragic hell in a handbasket, if going to hell involves being once the great leader of the world and finally going to the shallows in terms of leadership." And he said, "Charlie, I do not want to think about this."

I'll go further: I say economic systems work better when there's an extreme reliability ethos. And the traditional way to get a reliability ethos, at least in past generations in America, was through religion. The religions instilled guilt. We have a charming Irish Catholic priest in our neighborhood, and he loves to say, "Those old Jews may have invented guilt, but we perfected it." And this guilt, derived from religion, has been a huge driver of a reliability ethos, which has been very helpful to economic outcomes for man.

Many bad effects from vice are clear. You've got the crazy booms and crooked promotions-all you have to do is read the paper over the last six months. There's enough vice to make us all choke. And, by the way, everybody's angry about unfair compensation at the top of American corporations, and people should be. We now face various crazy governance nostrums invented by lawyers and professors that won't give us a fix for unfair compensation, yet a good partial solution is obvious: If directors were significant shareholders who got a pay of zero, you'd be amazed what would happen to unfair compensation of corporate executives as we dampened effects from reciprocity tendency.

roughly similar equivalent of this no-pay system has been tried in a strange place. In England,  lay magistrates staff the lower criminal courts, which can send you to prison for a year or fine you substantially. You've got three judges sitting up there, and they all get a pay of zero. Their expenses are reimbursed, but not too liberally. And they work about forty half-days a year, as volunteers. It's worked beautifully for about seven hundred years. Able and honest people compete to become magistrates, to perform the duty and get the significance, but no pay.    This is the system Benjamin Franklin, near the end of his life, wanted for the U.S. government. He didn't want the high executives of government to be paid, but to be like himself or the entirely unpaid, well-off ministers and rulers of the Mormon Church. And when I see what's happened in California, I'm not sure he wasn't right. At any rate, no one now drifts in Franklin's direction. For one thing, professors-and most of them need money-get appointed directors.

"Capitalism works best when there is trust in the system."  -Munger

Arguably the most important theme in this book is the need for trust: deserved reliance upon the character, values and integrity of those you live and work with. Charlie

Confucius (551479 BC) on Filial Piety  In Confucian thought, filial piety-a love and respect for one's parents and ancestors-is a virtue to be cultivated. More broadly, "filial piety means to take care of ones parents; not be rebellious; show love, respect and support; display courtesy; ensure male heirs; uphold fraternity among brothers; wisely advise ones parents; conceal their mistakes; display sorrow for their sickness and death; and carry out sacrifices after their death.

Another idea, and this may remind you of Confucius, too, is that the acquisition of wisdom is a moral duty. It's not something you do jUst to advance in life. And there's a corollary to that idea that is very important. it requires that you are hooked on lifetime learning. Without lifetime learning, you people are not going to do very well.

Early in the history of Xerox, Joe Wilson, who was then in the government, had a similar experience. He had to go back to Xerox because he  couldn't understand why its new machine was  selling so poorly in relation to its older and inferior  machine. When he got back to Xerox, he found out  that the commission arrangement with the salesmen

Liking or loving, intertwined with admiration in a feedback mode, often has vast practical consequences in areas far removed from sexual attachments. For instance, a man who is so constructed  that he loves admirable persons and ideas with a special intensity has a huge advantage in life. This blessing came to both Buffett and myself in large  measure, sometimes from the same persons and  ideas. 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.

But the dislikings and harreds never go away  completely. Born into man, these driving tendencies remain strong. Thus, we get maxims like the  one from England: "Politics is the art of marshalling  hatreds."

endlessly if he can afford it. Indeed, a wag named Buffett has repeatedly explained to me that "a major difference between rich and poor people is  that the rich people can spend their lives suing their  relatives."

Four: Doubt-Avoidance Tendency.    The brain of man is programmed with a tendency to quickly remove doubt by reaching  some decision.

Of course, once one has recognized that man has a strong Doubt-Avoidance Tendency, it is logical  to believe that at least some leaps of religious faith  are greatly boosted by this tendency.

Five: Inconsistency-Avoidance Tendency    The brain of man conserves programming space  by being reluctant to change, which is a form of  inconsistency avoidance. We see this in all human  habits, constructive and destructive. Few people  can list a lot of bad habits that they have eliminated,  and some people cannot identify even one of these. Instead, practically everyone has a great many bad  habits he has long maintained despite their being known as bad.

anti-change mode was significantly caused by a  combination of the following factors:    (1) It facilitated faster decisions when speed  of decision was an important contribution to the  survival of nonhuman ancestors that were prey.    (2) It facilitated the survival advantage that our ancestors gained by cooperating in groups, which  would have been more difficult to do if everyone  was always changing responses.    (3) It was the best form of solution that evolution could get to in the limited number of  generations between the start of literacy and today's  complex modern life.

Inconsistency-Avoidance Tendency has many good effects in civilization. For instance, rather  than act inconsistently with public commitments, new or old public identities, etc., most people are  more loyal in their roles in life as priests, physicians,  citizens, soldiers, spouses, teachers, employees, etc.

Moreover, the tendency will often make man a "patsy" of manipulative "compliance-practitioners," who gain advantage from triggering his  subconscious Inconsistency-Avoidance Tendency.  Few people demonstrated this process better than Ben Franklin. As he was rising from obscurity in Philadelphia and wanted the approval of some  important man, Franklin would often maneuver  that man into doing Franklin some unimportant favor like lending Franklin a book. Thereafter the  man would admire and trust Franklin more because  a non admitted and non trusted Franklin would be inconsistent with the appraisal implicit in lending  Franklin the book.

shared  the observation of life with Warren Buffett over decades, I have heard him wisely say on several occasions: "It is not greed that drives the world, but  envy."

As I have shared  the observation of life with Warren Buffett over decades, I have heard him wisely say on several occasions: "It is not greed that drives the world, but  envy."

occasions: "It is not greed that drives the world, but  envy."

Nine: Reciprocation Tendency    The automatic tendency of humans to reciprocate both favors and disfavors has long been noticed as extreme, as it is in apes, monkeys, dogs, and many less

For instance, when an automobile salesman  graciously steers you into a comfortable place to sit and gives you a cup of coffee, you are very likely  being tricked, by this small courtesy alone, into  parting with an extra five hundred dollars. This is  far from the most extreme case of sales success that is rooted in a salesman dispensing minor favors.  However, in this scenario of buying a car, you are going to be disadvantaged by parting with an extra  five hundred dollars of your own money. This  potential loss will protect you to some extent.

Wise employers, therefore, try to oppose reciprocate-favor tendencies of employees engaged in  purchasing. The simplest antidote works best:  Don't let them accept any favors from vendors.  Sam Walton agreed with this idea of absolute prohibition. He wouldn't let purchasing agents  accept so much as a hot dog from a vendor. Given  the subconscious level at which much Reciprocation Tendency operates, this policy of Walton's was profoundly correct. If I controlled the Defense  Department, its policies would mimic Walton's.

In a famous psychology experiment, Cialdini brilliantly demonstrated the power of "compliance  practitioners" to mislead people by triggering their  subconscious Reciprocation Tendency.    Carrying out this experiment, Cialdini caused  his "compliance practitioners" to wander around his  campus and ask strangers to supervise a bunch of juvenile delinquents on a trip to a zoo. Because this  happened on a campus, one person in six out of a large  sample actually agreed to do this. After accumulating this one-in-six statistic, Cialdini changed his procedure. His practitioners next wandered around  the campus asking strangers to devote a big chunk  of time every week for two years to the supervision of juvenile delinquents. This ridiculous request  got him a one hundred percent rejection rate. But the practitioner had a follow-up question: "Will you at least spend one afternoon taking juvenile delinquents to a zoo?" This raised Cialdini's former acceptance rate of l/6 to 1/2, a tripling.    What Cialdini's "compliance practitioners"  had done was make a small concession, which was  reciprocated by a small concession from the other side. This subconscious reciprocation of a concession by Cialdini's experimental subjects actually  caused a much increased percentage of them to end up irrationally agreeing to go to a zoo with juvenile  delinquents. Now, a professor who can invent an  experiment like that, which so powerfully demonstrates something so important, deserves much

Ten: Influence -from-Mere-association Tendency    In the standard conditioned reflexes studied by  Skinner and most common in the world, responsive  behavior, creating a new habit, is directly triggered  by rewards previously bestowed. For instance, a  man buys a can of branded shoe polish, has a good  experience with it when shining his shoes, and  because of this "reward," buys the same shoe polish  when he needs another can.

People disagree about how much blindness  should accompany the association called love. In  Poor Richard's Almanac Franklin counseled: "Keep  your eyes wide open before marriage and half shut  thereafter." Perhaps this "eyes-half-shut" solution  is about right, but I favor a tougher prescription: "See it like it is and love anyway."

Hating and disliking also cause miscalculation triggered by mere association. In business,  I commonly see people under appraise both the  competency and morals of competitors they dislike.  This is a dangerous practice, usually disguised  because it occurs on a subconscious basis.    Another common bad effect from the mere association of a person and a hated outcome is displayed  in "Persian Messenger Syndrome." Ancient  Persians actually killed some messengers whose  sole fault was that they brought home truthful bad news, say, of a battle lost. It was actually safer for  the messenger to run away and hide, instead of doing his job as a wiser boss would have wanted it  done.    And Persian Messenger Syndrome is alive and  well in modern life, albeit in less lethal versions. It is actually dangerous in many careers co be a  carrier of unwelcome news. Union negotiators  and employer representatives often know this, and it leads to many tragedies in labor relations.  Sometimes lawyers, knowing their clients will  hate them if they recommend an unwelcome but  wise settlement, will carry on to disaster. Even  in places well known for high cognition, one will  sometimes find Persian Messenger Syndrome.  For instance, years ago, two major oil companies  litigated in a Texas trial court over some ambiguity  in an operating agreement covering one of the  largest oil reservoirs in the Western hemisphere.  My guess is that the cause of the trial was some general counsel's unwillingness to carry bad news to  a strong-minded CEO.    CBS, in its late heyday, was famous for occurrence of Persian Messenger Syndrome because  Chairman Paley was hostile to people who brought him bad news. The result was that Paley lived in  a cocoon of unreality, from which he made one bad  deal after another, even exchanging a large share of  CBS for a company that had to be liquidated shortly  thereafter.    The proper antidote to creating Persian  Messenger Syndrome and its bad effects, like those  at CBS, is to develop, through exercise of will, a  habit of welcoming bad news. At Berkshire, there is  a common injunction: "Always tell us the bad news promptly. It is only the good news that can wait." It also helps to be so wise and informed that people  fear not telling you bad news because you are so  likely to get it elsewhere.

Twelve: Excessive Self-Regard Tendency    We all commonly observe the excessive self  regard of man. He mostly misappraises himself on  the high side, like the ninety percent of Swedish drivers that judge themselves to be above average.  Such mis appraisals also apply to a person's major  "possessions." One spouse usually over appraises  the other spouse. And a man's children are likewise appraised higher by him than they are likely to be in a more objective view.

Excesses of self-regard often cause bad hiring  decisions because employers grossly over appraise  the worth of their own conclusions that rely on impressions in face-to-face contact. The correct  antidote to this sort of folly is to underweigh face  to-face impressions and overweigh the applicant's  past record.

once chose exactly this course of action  while I served as chairman of an academic search committee. I convinced fellow committee  members to stop all further interviews and simply  appoint a person whose achievement record was  much better than that of any other applicant.

Self-Regard Tendency. According to Tolstoy, the  worst criminals don't appraise themselves as all that bad. They come to believe either (1) that they didn't commit their crimes or (2) that, considering the pressures and disadvantages of their lives, it is  understandable and forgivable that they behaved as  they did and became what they became.

According to Tolstoy, the  worst criminals don't appraise

Tendency. According to Tolstoy, the  worst criminals don't appraise themselves as all that bad. They come to believe either (1) that they didn't commit their crimes or (2) that, considering the pressures and disadvantages of their lives, it is  understandable and forgivable that they behaved as  they did and became what they became.

believe either (1) that they didn't commit their crimes or (2) that, considering the pressures and disadvantages of their lives, it is  understandable and forgivable that they behaved as  they did and became what they became.

that, considering the pressures and disadvantages of their lives, it is  understandable and forgivable that they behaved as  they did and became what they became.

of their lives, it is  understandable and forgivable that they behaved as  they did and became what they became.

While an excess of self-regard is often counter  productive in its effects on cognition, or can cause  some weird successes from overconfidence that  happens to cause success. This factor accounts for the adage: "Never underestimate the man who  overestimates himself."

productive in its effects on cognition, or can cause  some weird successes from overconfidence that  happens to cause success. This factor accounts for the adage: "Never underestimate the man who  overestimates himself."

underestimate the man who  overestimates himself."

Fourteen: Deprival- Super Reaction Tendency    The quantity of man's pleasure from a ten dollar gain does not exactly match the quantity of  his displeasure from a ten-dollar loss. That is, the  loss seems to hurt much more than the gain seems  to help. Moreover, if a man almost gets something he greatly wants and has it jerked away from him at the last moment, he will react much as if he had long owned the reward and had it jerked away.

In displaying Deprival-Super Reaction Tendency,  man frequently incurs disadvantage by misframing his problems. He will often compare what is near  instead of what really matters. For instance, a man with $10 million in his brokerage account will often be extremely irritated by the accidental loss of $100 out of the $300 in his wallet.

This  phenomenon was recently involved in a break  through by Judith Rich Harris who demonstrated that superrespect by young people for their peers,  rather than for parents or other adults, is ordained to some considerable extent by the genes of the young people. This makes it wise for parents to rely  more on manipulating the quality of the peers than

When will Social-Proof Tendency be most easily triggered. Here the answer is clear from many  experiments: Triggering most readily occurs in the  presence of puzzlement or stress, and particularly  when both exist.    Because stress intensifies Social-Proof  Tendency, disreputable sales organizations,  engaged, for instance, in such action as selling

Contrast-MisReaction Tendency.

Few psychological tendencies do more damage to correct thinking. Small-scale damages involve  instances such as man's buying an overpriced  $1,000 leather dashboard merely because the price is so low compared to his concurrent purchase of  a $65,000 car. Large- scale damages often ruin  lives, as when a wonderful woman having terrible parents marries a man who would be judged satisfactory only in comparison to her parents. Or as  when a man takes wife number two who would be  appraised as all right only in comparison to wife  number one.

$1,000 leather dashboard merely because the price is so low compared to his concurrent purchase of  a $65,000 car. Large- scale damages often ruin  lives, as when a wonderful woman having terrible parents marries a man who would be judged satisfactory only in comparison to her parents. Or as  when a man takes wife number two who would be  appraised as all right only in comparison to wife  number one.

The salesman deliberately shows the customer three awful houses at  ridiculously high prices. Then he shows him a  merely bad house at a price only moderately too high. And, boom, the broker often makes an easy  sale.

Contrast-Misreaction Tendency is routinely  used to cause disadvantage for customers buying  merchandise and services. To make an ordinary price seem low, the vendor will very frequently  create a highly artificial price that is much higher  than the price always sought, then advertise his  standard price as a big reduction from his phony price. Even when people know that this sort of  customer manipulation is being attempted, it will  often work to trigger buying. This phenomenon  accounts in part for much advertising in newspapers. It also demonstrates that being aware of  psychological ploys is not a perfect defense.

And that was to spend the rest of his long life  giving stress-induced nervous breakdowns to dogs,  after which he would try to reverse the break  downs, all the while keeping careful experimental records. He found (1) that he could classify dogs  so as to predict how easily a particular dog would breakdown (2) that the dogs hardest to break  down were also the hardest to return to their pre  breakdown state; (3) that any dog could be broken  down; and (4) that he couldn't reverse a breakdown  except by reimposing stress.

first found a description of Pavlov's last work in a popular paperback, written by some Rockefeller-financed psychiatrist, when I was trying to figure out (1) how cults worked their horrible mischief and (2) what should the law say about what parents could do to "deprogram" children who had  become brainwashed zombies. Naturally, main  stream law objected to the zombies being physically  captured by their parents and next subjected to stress that would help to deprogram the effects of the stress they had endured in cult conversions.

Eighteen: Availability- Mis Weighing Tendency    This mental tendency echoes the words of the song: "When I'm not near the girl I love, I love the girl I'm near." Man's imperfect, limited-capacity  brain easily drifts into working with what's easily available to it. And

Nineteen: Use-It-or-Lose-It Tendency    All skills attenuate with disuse. I was a whiz  at calculus until age twenty, after which the skill was soon obliterated by total nonuse.

All skills attenuate with disuse. I was a whiz  at calculus until age twenty, after which the skill was soon obliterated by total nonuse.

Throughout his life, a wise man engages in  practice of all his useful, rarely used skills, many  of them outside his discipline, as a sort of duty to his better self. If he reduces the number of skills  he practices and, therefore, the number of skills he retains, he will naturally drift into error from man with a hammer tendency. His learning capacity will also shrink as he creates gaps in the latticework of  theory he needs as a framework for understanding new experience.

The hard rule of Lose-It-or-Lose-It Tendency tempers its harshness for the diligent. If a skill is  raised to fluency, instead of merely being crammed  in briefly to enable one to pass some test, then the skill (1) will be lost more slowly and (2) will come  back faster when refreshed with new learning.  These are not minor advantages, and a wise man engaged in learning some important skill will not

stop until he is really fluent in it.

Twenty-One: Senescence-Miss Influence Tendency    With advanced age, there comes a natural  cognitive decay, differing among individuals in the  earliness of its arrival and the speed of its

progression. Practically no one is good at learning complex  new skills when very old. But some people remain  pretty good in maintaining intensely practiced old  skills until late in life.

Twenty-TWo: Authority-Misinfluence Tendency    Living in dominance hierarchies as he does, like  all his ancestors before him, man was born mostly  to follow leaders, with only a few people doing  the leading. And so, human society is formally  organized into dominance hierarchies, with their  culture augmenting the natural follow-the-leader  tendency of man.    But automatic as most human reactions are, with  the tendency to follow leaders being no exception,  man is often destined to suffer greatly when the  leader is wrong or when his leader's ideas don't get  through properly in the bustle of life and are misunderstood. And so, we find much miscognition from  man's Authority-Mis Influence Tendency.    Some of the mis influences are amusing, as in  a case described by Cialdini. A physician left a written order for a nurse treating an earache, as follows: "Tho drops, twice a day, rear."' The  nurse then directed the patient to turn over and put  the eardrops in his anus.    Other versions of confused instructions from authority figures are tragic. In World War II, a new pilot for a general, who sat beside him in the  copilot's seat, was so anxious to please his boss  that he misinterpreted some minor shift in the  general's position as a direction to do some foolish thing.

Living in dominance hierarchies as he does, like  all his ancestors before him, man was born mostly  to follow leaders, with only a few people doing  the leading. And so, human society is formally  organized into dominance hierarchies, with their  culture augmenting the natural follow-the-leader  tendency of man.

Twenty-Three: Twaddle Tendency    Man, as a social animal who has the gift of language, is born to prattle and to pour out twaddle  that does much damage when serious work is being attempted. Some people produce copious amounts  of twaddle and others very little.

Twenty-Four: Reason-RespEcting Tendency    There is in man, particularly one in an advanced  culture, a natural love of accurate cognition and a joy in its exercise. This accounts for the widespread popularity of crossword puzzles, other puzzles,  and bridge and chess columns, as well as all games  requiring mental skill.

This tendency has an obvious implication. It  makes man especially prone to learn well when a  would-be teacher gives correct reasons for what  is taught, instead of simply laying out the desired belief ex cathedra with no reasons given. Few  practices, therefore, are wiser than not only thinking  through reasons before giving orders but also  communicating these reasons to the recipient of the  order.

Twenty-Five: Lollapalooza Tendency-The Tendency to Get Extreme Consequences from Confluences of  Psychological Tendencies Acting in Favor of a Particular Outcome    This tendency was not in any of the psychology texts I once examined, at least in any coherent fashion, yet it dominates life. It accounts for the  extreme result in the Milgram experiment and the  extreme success of some cults that have stumbled  through practice evolution into bringing pressure  from many psychological tendencies to bear at the same time on conversion targets. The targets  vary in susceptibility, like the dogs Pavlov worked  with in his old age, but some of the minds that are  targeted simply snap into zombiedom under cult  pressure. Indeed, that is one cult's name for the  conversion phenomenon: snapping.    What are we to make of the extreme ignorance  of the psychology textbook writers of yesteryear?  How could anyone who had taken a freshman  course in physics or chemistry not be driven to  consider, above all, how psychological tendencies  combine and with what effects? Why would anyone  think his study of psychology was adequate without  his having endured the complexity involved in  dealing with intertwined psychological tendencies?