Special Report

Today I am going to share an insight that shook my life pretty hard, for the good of course.

How many times it has happened with you that after reading a book you thought that you understood the idea until you were asked to explain it. The idea seemed pretty clear in your head but the moment you had to verbalise it you discovered that either you didn’t have a proper grasp on the idea at the first place or you were unable to explain it in a logical coherent way to a third person.

This is the kind of silent reaction I got from people “You’re telling me that you just finished reading a compelling book but can’t explain the central idea in few sentences?”

This problem haunted me for a long time. Then one fine day I discovered the Feynman Technique, which says that the mere action of writing something down allows for a more effective integration of the learning. This further led me to the idea of Journaling. It was a Eureka moment!

Let me first share my definition of journaling. Journaling is simply an activity of writing in plain language about what’s going on around you and what your thoughts are about them. It can include things like your future goals, plans, dreams, reminders to yourself, comments on ideas/people or any unrelated thing that crosses your mind. It’s a conversation that you have with yourself.

So what’s so special about journaling? Stick with me through the rest of the post and you might find some surprising insights.

Journaling allows you to take fuzzy thinking and distil it into precise line of thought. If you want to think better you have to start writing your thoughts. It’s not a common knowledge that writing, apart from being a communication tool, is a thinking tool too. Famous author, Dan Pink, further validated my belief in this commencement speech.
[Read more…] about Life 2.0: Journaling

Charlie Munger is widely quoted in value investing community for his multidisciplinary ideas. However, he has some unconventional advice on the subject of corporate governance also which deserves a discussion. Let’s look at some of the insights from Munger on the issue of governance.

Munger believes more in the spirit of corporate governance rather than enforcement of compliance rules and regulations. If the intention is not right, people can always bend the rules and find workarounds for carrying out unethical practices without breaking the law. But when you know that the intentions are right then even an occasional instance of non-compliance doesn’t bother you because you trust the person and know that things will eventually get sorted out.

Munger is of the opinion that different companies have different cultures and you cannot come up with a one-size-fits-all solution in form generic compliance rules. An organization is made up of diverse set of people with different interests and values. Such collection of people behaves as a complex adaptive system. The moment complex rules are infused to command more control it invariably results in unintended consequence. So the solution is not to device more rules but to make the system simpler.

In the annual meeting for Wesco Financials in 2007, Munger pointed out –

A lot of people think if you just had more process and more compliance—checks and double checks and so forth—you could create a better result in the world. Well, Berkshire has had practically no process. We had hardly any internal auditing until they forced it on us. We just try to operate in a seamless web of deserved trust and be careful whom we trust.

This brings us to the Munger’s first idea for simplifying the corporate governance puzzle.

Seamless Web of Deserved Trust

A system in which the individuals making decisions do not bear the consequences of those decisions seems incompatible with a seamless web of deserved trust. Munger explains –

Good character is very efficient. If you can trust people, your system can be way simpler. There’s enormous efficiency in good character and dis-efficiency in bad character.

Moreover, unethical behavior is contagious. Gresham’s law says that bad values (or currency or people) drive out the good values from a system. If you find that it’s easy to cheat and steal in an organization, it’s just a matter of time before majority of the people in that system start exhibiting dishonest and unethical behaviour. Even if everybody was absolutely honest to begin with. Such is the human behaviour.
[Read more…] about Corporate Governance: Charlie Munger on Governance