Three Keys to Making Better Decisions in Life

This article is an excerpt from the Shortform book guide to "Poor Charlie's Almanack" by Charles T. Munger. Shortform has the world's best summaries and analyses of books you should be reading.

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Why is making better decisions important? How do you make better choices?

You will become better at human relations, investing, and leadership when you start making better decisions. The secrets to making good choices are discipline, learning from the mistakes of others, and curbing ideological bias in favor of objectivity. 

Read more about the secrets to making better decisions.

Have Discipline in Choosing Good Ideas

After collecting more information and trying to be as objective as possible, you then need to make actual decisions. Making better decisions involves making few, high-quality decisions with discipline, instead of chasing too many seemingly promising ideas.

Warren Buffett articulated the process of making better decisions as follows—if you were given only twenty possible investments in your lifetime, you would be much more successful as an investor. You’d be forced to think through each investment very carefully, and if you saw a good opportunity, you’d bet big. In contrast, typical investors make far too many careless bets, knowing that they have unlimited opportunities to make up losses.

Li Lu, a fundamental investor and a disciple of Warren Buffett, describes the process of making better decisions with a baseball analogy: “Ted Williams is the only baseball player who had a .400 single-season hitting record in the last seven decades. In The Science of Hitting, he explained his technique. He divided the strike zone into seventy-seven cells, each representing the size of a baseball. He would insist on swinging only at balls in his ‘best’ cells, even at the risk of striking out, because reaching for the ‘worst’ spots would seriously reduce his chances of success. As a securities investor, you can watch all sorts of business propositions in the form of security prices thrown at you all the time. For the most part, you don’t have to do a thing other than be amused. Once in a while, you will find a ‘fat pitch’ that is slow, straight, and right in the middle of your sweet spot. Then you swing hard.”

Surprisingly, the worst risk often isn’t chasing bad ideas—bad ideas are relatively obvious and they’re hard to overdo. It’s the seemingly ‘good’ ideas with some attractive kernel of truth that are dangerous, because you can easily overdo them. 

  • This is especially true in boom times, when things seem to be going well. You can easily overdo too much of a good thing, overstep your circle of competence, and ruin yourself. Munger spoke kindly of money manager Lou Simpson, who during the dotcom bubble avoided the calls to reap higher gains and stuck to his fundamentals.

Learn Vicariously from Others’ Mistakes

Munger and Buffett both read and learn constantly, and one of the reasons is to learn from other people’s mistakes. Making better decisions requires learning vicariously from other people’s terrible experiences and saving yourself from the same fate. Munger offers a few quotes on this:

  • “I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself.”
  • “I sought good judgment mostly by collecting instances of bad judgment, then pondering ways to avoid such outcomes.”

Avoid Ideological Bias

Ideology can be an especially heavy form of bias. Because it consists of deep-seated beliefs, ideology can distort your view of reality and your cognition. In turn, ideology causes you to make worse decisions.

Mastering the process of making better decisions can be particularly difficult for young people because they are especially vulnerable to ideology, since it locks the brain into a biased pattern.

Here are a few examples of ideology and its effects:

  • Linguist Noam Chomsky maintained for years that language isn’t genetic, while Munger (and other scientists) found it obvious that, like every other behavior, language was established in human genetics through natural selection. Munger mused about why a genius like Chomsky was so clearly wrong, and he believed that it was because of Chomsky’s leftist, egalitarian ideology. If Chomsky conceded this one Darwnian point, it would throw into question his entire ideology.
  • While many people carry the ideology of egalitarianism and total equality, Munger thinks this is silly in many contexts. You wouldn’t want your brain surgeon to have gotten into medical school by random straw picking; you’d want the very best brain surgeon possible. You don’t want the airplane you ride in designed in an egalitarian way either. Sometimes the best decisions contradict common ideologies.

If there’s one ideology to have, it’s in favor of objectivity, rationality, and discipline.

Three Keys to Making Better Decisions in Life

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Here's what you'll find in our full Poor Charlie's Almanack summary :

  • A collection of Charlie Munger’s best advice given over 30 years
  • Why you need to know what you’re good at and what you’re bad at to make decisions
  • Descriptions of the 25 psychological biases that distort how you see the world

Joseph Adebisi

Joseph has had a lifelong obsession with reading and acquiring new knowledge. He reads and writes for a living, and reads some more when he is supposedly taking a break from work. The first literature he read as a kid were Shakespeare's plays. Not surprisingly, he barely understood any of it. His favorite fiction authors are Tom Clancy, Ted Bell, and John Grisham. His preferred non-fiction genres are history, philosophy, business & economics, and instructional guides.

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