Here for Charlie Munger principles from John Train’s book, “The Midas Touch.” They cover specialization, technology, circle of competence, and understanding your advantage.
Four Charlie Munger Principles
from “The Midas Touch”
These four Charlie Munger principles are taken from the introduction to “The Midas Touch” by John Train. The book focuses on Warren Buffet’s investment strategies but these four principles are also applicable to entrepreneurs.
1. “Specialization often produces very good business economics.”
This ties into the “stick with your circle of competence” model he developed with Warren Buffet who advised, “Know your circle of competence, and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital.” Munger observed, “I don’t play in a game where the other people are wise and I’m stupid. I look for a place where I’m wise and they’re stupid. You have to know the edge of your own competency. I’m very good at knowing when I can’t handle something.”
3. “Technology can either help you or kill you. The difference is whether the customer gets all the savings or if some of the savings go to the shareholders.
Customers have to a make a profit on what they pay you for your services or the money they spend on your product. But if they make all of the profit, if you sell at a loss, it’s not a good business.
4. “Figure out where you have an edge and stay in your circle of competence. “How do you beat Bobby Fischer? Get him to play you any game except chess.”
Startups have to be especially careful about trying to beat incumbents at their own game. They need to find niche markets where an established firm’s business model or core competencies place them at a disadvantage. There is an enormous difference between understanding a problem and being able to provide a differentiated solution.
5. “Winners bet big when they have the odds–otherwise, they do not bet at all. Those who make a few well-calculated bets have a much greater chance, load up on a good idea.”
You can be confident you have good odds when you have at least a few customers who have paid more than once and you understand how to continue to improve your offering. At least one and preferably two or three aspects of your product or solution should be hard to easily reverse engineer or copy.
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