Preface to the Chinese Edition of Poor Charlie's Almanack:There Is a Treasure House in Books

Buffett said that in his lifetime, he had met countless people, but he had never met anyone like Charlie. Over the years of my interaction with Charlie, I have had the privilege of getting to know him up close and have no doubt about this. I haven’t found anyone like him in the biographies of people from both ancient and modern times, and from all over the world that I have read. Charlie is such a unique person, and his uniqueness is reflected in both his thoughts and his character.

Charlie himself is very fond of this book, believing that it collects the essence of his lifelong thoughts and life experiences. It not only contains his profound insights into the business world but also gathers his lifelong reflections on wisdom, expressed in a humorous and interesting way, which will benefit almost any reader.

Author: Louis Li

Date: 2010

More than twenty years ago, as a young Chinese student coming to the United States alone, I never imagined that I would later work in the investment industry, let alone that I would be fortunate enough to meet the contemporary investment master, Mr. Charlie Munger, due to various coincidences.

In 2004, Mr. Munger became my investment partner and has since been my lifelong mentor and friend. Such an opportunity was something I would never have dared to dream of.

Like the thousands of Buffett/Munger admirers around the world, the teachings of the two mentors and the magical performance of Berkshire Hathaway have had a formative influence on my personal investment career. Benefiting from Mr. Munger’s close mentorship over the years, I have gained a deeper understanding of the profoundness of his thoughts. I have always hoped to share these learning experiences with more like-minded people. Peter Kaufman’s book is the best effort in this regard. Peter, a long-time friend of Charlie and an outstanding entrepreneur and “professional bookworm,” has compiled “Poor Charlie’s Almanack” to comprehensively cover Charlie’s essence of thought. Peter is both my friend and my investment partner, so I have been closely following the entire publication process of this book. When the first edition was published in 2005, I treasured it and read it repeatedly, finding new insights each time. I then hoped to seriously translate and introduce this book to Chinese readers. Unexpectedly, this wish took another five years to realize. In 2009, when Charlie was 85 years old, a friend’s reminder made me realize that translating this book into Chinese would be the best way to repay my mentor and also fulfill my long-standing wish to share Munger’s wisdom with my compatriots.

Now that the book is about to be published, I would like to contribute my personal journey of learning and practicing Munger’s thoughts and character, hoping it will help readers better understand the wisdom contained in this book.

I. First Encounter with Value Investing and Mr. Munger

My first exposure to the Buffett/Munger value investing system dates back twenty years. At that time, I had just arrived in the United States, alone, with no relatives, unfamiliar with the culture, and with a language barrier. I fortunately entered Columbia University for undergraduate studies and immediately faced the expensive issue of tuition and living expenses. Although I had some scholarships and loans, for a penniless student, the amount was astronomical debt with no idea when it could be repaid, and the future seemed uncertain and anxiety-inducing. I believe many Chinese students coming to the U.S., especially those who rely on loans and part-time jobs to pay for tuition and living expenses, have had similar experiences.

Growing up in China during the 70s and 80s, I had little concept of business at that time. Business was not a major concern in China during that era. One day, a classmate told me, “If you want to understand how to make money in the U.S., there is a lecture at the business school you must attend.” The speaker’s name was a bit strange, Buffett, which sounded like “buffet.” I found the name interesting and decided to go. At that time, Buffett was not as famous as he is today, and the audience was small, but that lecture was a revelation for me.

Buffett spoke about how to invest in the stock market. Before that, my impression of the stock market was still stuck in the portrayal of Shanghai’s Bund in the 1930s in Cao Yu’s play “Sunrise,” full of deceit, luck, and bloodshed. However, this American businessman, who was said to have made a lot of money in the stock market, appeared to be a good person, friendly and smart, somewhat scholarly, completely different from the ruthless, speculative merchants I had imagined.

Buffett’s speech was concise, clear, and credible. In a little over an hour, he explained the principles of the stock market clearly. Buffett said that stocks are essentially partial ownership of a company, and the price of a stock is determined by the value of the company, which is determined by the company’s earnings and net assets. Although short-term fluctuations in stock prices are hard to predict, in the long run, they are determined by the company’s value. A smart investor can make a lot of money with minimal risk by buying stocks when their prices are far below their intrinsic value and selling them when their prices are close to or above their value.

After hearing this lecture, I felt as if I had found a lifeline. Could it be that a smart, upright, and knowledgeable person could succeed and become wealthy in the U.S. without family support, or mastering company management, or inventing and creating new products, or starting a new company? Here was a living example before me! At that time, I thought I was not suitable for management because of my lack of understanding of American society and culture, and I was not confident about starting a business. But if it was about studying the value of companies, analyzing complex business data and financial reports, that was my expertise. If so, could a penniless, isolated foreigner like me achieve something in stock investment? It was very tempting.

After the lecture, I immediately sought out all the books about Buffett, including his annual letters to Berkshire Hathaway shareholders and various studies about him, and also learned that Mr. Munger had been Buffett’s partner for decades. I spent a year or two thoroughly researching them, and all my research confirmed the impression I had from the lecture. After completing this research, I was truly confident that this industry was viable.

A year or two later, I bought my first stock. Although my personal net worth was still negative at that time, I had saved some cash for investment. The early 1990s was a period when globalization was just beginning, and American companies across various industries were in a long-term upward trend, with many undervalued stocks in the market. By the time I graduated from Columbia University in 1996, I had already gained considerable returns from stock market investments.

After graduation, I worked in an investment bank while continuing to invest in stocks on my own. A year later, I resigned from the investment bank and started my professional investment career. At that time, my family and friends were quite puzzled and worried, and I myself was not very confident about the future. Frankly, the courage to start my own business also came from the influence of Buffett and Munger.

In January 1998, I founded my own company with few supporters; a few old friends invested a small amount of money out of friendship, and I took on multiple roles, including chairman, fund manager, secretary, and analyst. All I had were a mobile phone and a laptop. At that time, the 1997 Asian financial crisis was ongoing, and oil prices had dropped below $10 per barrel. I began buying stocks of excellent Asian companies in large quantities, as well as stocks of oil companies in the U.S. and Canada. However, the subsequent stock fluctuations led to a 19% paper loss that year. This made some investors begin to worry about future operations and hesitant to invest more. One of the largest investors withdrew their investment the following year. Coupled with expensive initial operating costs, the company faced a survival crisis.

The poor start put me under great pressure and made me feel that I had let down the trust of my investors. This psychological burden indeed affected investment decisions, such as hesitating to act when encountering good opportunities. Yet, at that time, it was precisely the best investment period. At this time, Buffett and Munger’s ideas and examples provided significant support, as they had similar experiences during the 1973-74 U.S. economic recession. During my lowest moments, I used Buffett and Munger as models to encourage myself, always focusing on the long term.

Subsequently, in the second half of 1998, I withstood the pressure, gathered courage, and made three or four of the most important investment decisions at that time. These investments brought substantial returns to me and my investors over the next two years. Looking back, I was fortunate with the timing, but the example of Buffett and Munger, as well as their books and thoughts, had a crucial impact on me.

However, at that time and even now, the investment philosophies followed by most individual and institutional investors on Wall Street are completely different from Buffett/Munger’s value investing philosophy. For example, they believe in the efficient market theory and thus equate stock price fluctuations with real risk, judging performance based on volatility. From the perspective of value investors, the greatest risk in investing in the stock market is not the price fluctuations but whether your investment will suffer permanent loss. A mere drop in stock price is not a risk but an opportunity. Otherwise, where can you find cheap stocks? Just like if the price of steak at your favorite restaurant dropped by half, you would enjoy it more.

When buying stocks that are falling, it’s the sellers who are uncomfortable; as a buyer, you should be pleased. However, despite Warren Buffett and Charlie Munger’s success, most individual and institutional investors’ actual practices are completely contrary to Buffett/Munger’s investment philosophy. On the surface, famous fund managers on Wall Street show great respect for them, but in practice, their actions are entirely divergent because their clients’ expectations are also divergent. They still adhere to theories like “volatility equals risk” and “the market is always right,” which, in my view, are utterly misguided.

But to retain and attract more investors, I also had to make compromises for a period. For two or three years, I had to manage the volatility of my funds through long-short hedging. Compared to going long, short-selling is difficult to use for long-term investments. There are three reasons:

First, the profit potential for short-selling is only 100%, but the loss potential is almost infinite, which is the opposite of going long.

Second, short-selling involves borrowing, so even if the decision to short is correct, poor timing can still lead to losses or even bankruptcy.

Third, the best short-selling opportunities are generally frauds, which are often well concealed and take a long time to expose.

For instance, Madoff’s scam took decades to be uncovered. Due to these three reasons, short-selling requires constant attention to market fluctuations and frequent trading. After a few years of this approach, the volatility of the portfolio decreased significantly. During the 2001–02 financial crisis triggered by the Internet bubble, we did not suffer losses and made modest gains, with the funds we managed also increasing. It looked quite good on the surface, but I was internally very distressed. To control the risks of short-selling while simultaneously going long, constant trading was necessary. But constant trading left no time to genuinely research long-term investment opportunities.

The returns during this period were better in terms of volatility compared to the past, but the results were lackluster. In reality, many top investment opportunities emerged during that time. Frankly speaking, my greatest career failure was not the losses caused by incorrect decisions (though such mistakes were not few), but the inability to buy large amounts of my favorite, top-quality stocks during this period.

This period was a low point in my career. I even once considered quitting and spent a lot of time on venture capital funds, which was not my main business. At a crossroads on my path, I had a chance encounter with my lifelong mentor and friend, Charlie Munger. I first met Charlie when I had just graduated from college and was working at an investment bank in Los Angeles, at a mutual friend’s home. I remember his first impression as always being aloof; he was often inattentive to the conversation and very focused on his own topics. But this elder spoke concisely, with wisdom that left you pondering. At first meeting, Charlie seemed an unreachable senior to me, and he probably had little impression of me.

After meeting a few more times and having some conversations, we had a long, heartfelt talk at a Thanksgiving gathering in 2003, seven years after we first met. I introduced all the companies I invested in, the ones I had researched, and those that interested me to Charlie, who then provided comments on each. I also sought his advice on the troubles I encountered. By the end of our discussion, he told me that the problems I faced were almost the entire problem of Wall Street. The entire mindset of Wall Street was flawed. Although Berkshire Hathaway had achieved such great success, no company on Wall Street truly mimicked it. If I continued on this path, my troubles would never be resolved. But if I was willing to abandon my current approach and pursue a path different from Wall Street, he was willing to invest in me. I was truly flattered.

With Charlie’s help, I thoroughly restructured the company. The structure was completely changed to resemble the early partnership firms of Buffett and Munger, while eliminating all the typical hedge fund pitfalls. The investors who wished to stay made a long-term investment commitment, and we no longer accepted new investors. As a fund manager, I was no longer constrained by various restrictions from Wall Street investors, and the results of the investment after the institutional transformation validated the correctness of this decision. Not only did the company’s performance improve, but my work also became much smoother. I no longer had to be entangled in stock market fluctuations, constant trading, and short-selling. Instead, I could devote all my time to researching and understanding the companies. My investment experience has clearly demonstrated that investing according to the Buffett/Munger system benefits all parties. However, due to the constraints of investment institutions, the vast majority of institutional investors do not adopt this approach, giving those who do a significant competitive advantage. This advantage will not disappear for a long time.

II Munger’s Unique Thinking and Influence

Warren Buffett said that throughout his life he has met countless people, but he has never encountered anyone like Charlie. In the years I have interacted with Charlie, I have had the fortune of getting to know him up close, and I firmly believe this. Even among the biographies of historical and contemporary figures I have read, I have not found anyone similar. Charlie is such a unique person; his uniqueness is evident both in his thoughts and his personality.

For example, Charlie always begins his problem-solving process in reverse. To understand how to achieve happiness in life, Charlie first studies how life can become painful; to study how a business can grow and thrive, Charlie first investigates how businesses decline; while most people are concerned with how to succeed in the stock market, Charlie is most interested in why most people fail in the stock market. His method of thinking comes from the philosophy embedded in the following farmer’s proverb: “I only want to know where I will die in the future so that I will avoid that place.”

Throughout his long life, Charlie has continuously researched and collected famous cases of human failure across various fields, including individuals, businesses from all industries, government governance, and academic research, and has arranged the causes of those failures into a checklist for correct decision-making, enabling him to almost never make major errors in decisions related to life and career. The importance of this to Buffett and Berkshire’s fifty-year performance cannot be overstated.

Charlie’s mind is original, never constrained by any frameworks or dogmas. He has the curiosity of a child and the research qualities and methods of a top scientist, maintaining a strong desire for knowledge and curiosity throughout his life, showing interest in almost all problems. Any problem, in his view, can be fully mastered through self-learning with the correct method and can be innovated upon based on previous work. In this respect, he is very similar to Benjamin Franklin, akin to an encyclopedia figure of the 18th and 19th centuries.

Many top experts and scholars today can maintain relative objectivity within their narrow fields of study, but once they step outside their domain, they become subjective, dogmatic, rigid, or simply lose the ability to self-learn, thus falling into the limitations of the blind men and the elephant. Charlie’s mind has never been constrained by any academic boundaries. His thoughts radiate to every corner of career, life, and knowledge. To him, everything in the world is an interacting whole, and all human knowledge is part of the attempt to study this whole. Only by integrating this knowledge and weaving it into a cohesive framework of thought can it aid in accurate understanding and decision-making. Therefore, he advocates learning truly important theories across all disciplines and forming what he calls “universal wisdom” based on that, using it as a tool to study important issues in the field of business and investment. Charlie elaborates on how to acquire such “universal wisdom” in this book.

The basis of Charlie’s way of thinking is honesty towards knowledge. He believes that the world is complex and ever-changing, and human cognition is always limited. Therefore, you must use all tools, focus on collecting new, falsifiable evidence, and constantly revise, as the saying goes, “Know it as knowing it, and not knowing it as not knowing it.” In fact, everyone has blind spots in their thinking. While we might be objective about our own professions, others, or specific matters, maintaining objectivity about everything in the world is very difficult and can even be contrary to human nature. But Charlie manages to be objective in all matters. In this book, Charlie also discusses how objective spirit can be cultivated through training. Cultivating this way of thinking allows you to see what others cannot, predict futures others cannot foresee, and thus live a happier, freer, and more successful life. But even so, a person’s true insight in a lifetime remains very limited, so correct decisions must be confined within one’s “circle of competence.” An ability that cannot be defined by its boundaries certainly cannot be called a true ability.

How can one define their circle of competence? Charlie says, if I hold an opinion, and I cannot refute it better than the smartest, most capable, and most qualified people in the world, then I do not deserve to hold that opinion. So when Charlie truly holds a certain opinion, his thoughts are both original and unique, and almost never erroneous.

Once, a beautiful lady sitting next to Charlie insisted that Charlie sum up his success in one word. Charlie said it was “rationality.” However, Charlie’s definition of “rationality” is not what we generally understand. Charlie’s “rationality” is more stringent. It is this kind of “rationality” that gives Charlie a keen and unique perspective and insight, allowing him to see the essence of things even in completely unfamiliar fields. Buffett referred to this characteristic of Charlie as the “two-minute effect”—he said Charlie can explain the essence of a complex business more clearly than anyone else in the shortest amount of time. The experience of Berkshire investing in BYD is a case in point. I remember when I first discussed BYD with Charlie in 2003, although he had never met Wang Chuanfu in person, never visited BYD’s factory, and was relatively unfamiliar with the Chinese market and culture, the questions and comments he made about BYD at that time still seem to be the most substantive issues for investing in BYD today.

Everyone has blind spots, and even the most outstanding people are no exception. Buffett said: “Benjamin Graham once taught me to only buy cheap stocks, and Charlie changed that idea for me. This is Charlie’s real impact on me. It took a powerful force to make me move beyond Graham’s limited theories. Charlie’s thoughts were that force, and they expanded my horizons.” I also have a deep personal experience of this. At least on two major issues, Charlie pointed out blind spots in my thinking. Without his help, I would still be crawling slowly through the evolutionary process from ape to human. Buffett has repeatedly emphasized over fifty years in various settings that Charlie’s influence on him and on Berkshire is irreplaceable by anyone.

Charlie spent his life studying catastrophic human errors, particularly those caused by human psychological tendencies. His most significant contributions include predicting the disaster that would be brought by the proliferation of financial derivatives and the loopholes in accounting and auditing systems. As early as the late 1990s, he and Mr. Buffett had already warned of the potentially catastrophic effects of financial derivatives. As the proliferation of financial derivatives worsened, their warnings escalated, even pointing out that financial derivatives are financial weapons of mass destruction, and if not stopped in a timely and effective manner, they would bring disastrous impacts to modern civilized society. The financial tsunami of 2008 and 2009 and the global economic recession unfortunately validated Charlie’s foresight. On the other hand, his research on these issues has also provided valuable experience and knowledge for preventing similar disasters, which is especially worthy of attention from governments, the financial sector, businesses, and academia.

Compared to Buffett, Charlie has a broader range of interests. For instance, he has a strong interest and extensive research in almost all fields of science and soft sciences, which has led to the development of his original and unique Munger thought system. Unlike any thought system from the ivory tower, Mungerism was born to solve practical problems. For example, as far as I know, Charlie was among the first to propose and systematically study the huge impact of human psychological tendencies on investment and business decisions. Today, over a decade later, behavioral finance has become one of the hottest research fields in economics, and behavioral economics has received Nobel Prize recognition. The theoretical framework presented by Charlie in the final lecture of this book, “The Psychology of Human Misjudgment,” is likely to be more widely understood and applied in the future.

Charlie’s interests are not limited to thinking; he also enjoys hands-on involvement and pays attention to detail. He has one of the world’s largest private catamarans, which he designed himself. He is also an excellent architect. He builds houses according to his preferences, participating in every detail from the initial design to every subsequent detail. For example, all the buildings he donated were personally designed by him, including the Stanford University graduate dormitory, Harvard High School Science Museum, and the rare book research library at the Huntington Library and Gardens.

Charlie is naturally energetic. I met Charlie in 1996 when he was 72 years old. Now, at 86, Charlie’s energy has remained unchanged over these years. He is always energetic, rising early. Breakfast meetings always start at 7:30. Due to some evening social engagements, he may get less sleep than others, but this does not affect his vigorous energy. His memory is astonishing; many years ago, I discussed BYD’s operational numbers with him, and while I have since forgotten, he still remembers. At 86, his memory is better than mine as a younger person. These are his innate advantages, but the traits that make him exceptionally successful are those he has developed through hard work.

To me, Charlie is not only a partner, a senior, a teacher, a friend, a model of career success, but also a role model for life. From him, I have learned not only the principles of value investing but also many principles of living. He has taught me that a person’s success is not accidental; while timing is important, inner qualities are even more important.

Charlie likes to have breakfast meetings, usually starting at 7:30. I remember the first time I had breakfast with Charlie, I arrived on time and found that Charlie was already sitting there and had finished reading the newspapers for the day. Although it was still a few minutes before 7:30, I felt bad making such a distinguished elder wait for me. On the second meeting, I arrived about fifteen minutes early and found that Charlie was already sitting there reading the newspapers again. By the third date, I arrived half an hour early, but Charlie was still there reading the newspaper, as if he had never left that seat, always waiting. By the fourth date, I mustered up the courage to arrive an hour early, sitting there waiting at 6:30. At 6:45, Charlie walked in leisurely, holding a stack of newspapers, sat down without lifting his head, completely oblivious to my presence. Later, I gradually understood that Charlie always arrived early for appointments. Once there, he wouldn’t waste time and would take out his prepared newspapers to read. Since learning about Charlie’s habit, I always arrive early for our dates, bringing a newspaper to read, so we don’t disturb each other, and we chat over breakfast after 7:30.

Occasionally, Charlie would be late. Once, I brought a young entrepreneur from China to meet Charlie. Charlie was half an hour late because he had come from a lunch meeting. Upon arrival, Charlie first apologized to us young people and explained in detail why he was late, even suggesting how the valet parking at the lunch meeting could be improved to avoid a 45-minute wait for guests. The Chinese young man was both surprised and touched because it was rare to find an elder of Charlie’s stature apologizing repeatedly for being late to younger people.

Another thing that had a significant impact on me in my interactions with Charlie was an experience from a few years ago when we attended an out-of-town event together. After the event, I had to rush back to New York, but unexpectedly, I encountered Charlie in the airport waiting lounge. His large body set off alarms repeatedly when passing through the security scanner for reasons unknown. Charlie kept going back and forth for security checks, and after much hassle, his flight had already departed.

But Charlie was not in a hurry. He pulled out a book he always carried with him and sat down to read, quietly waiting for the next flight. That day, my flight was also delayed, so I waited with him. I asked Charlie, “You have your own private jet, and Berkshire has a dedicated plane, so why go through all this trouble at a commercial airport?”

Charlie replied, “First, it’s too wasteful of fuel to fly alone on a private jet. Second, I think commercial flights are safer.” But what Charlie really meant was the third reason: “What I want in life is to engage with life and not to be isolated.”

Charlie cannot tolerate losing touch with the world due to wealth, isolating himself in a single-floor giant office with layers of bureaucracy, where no one can easily reach him. That would disconnect him from real life.

“As long as I have a book in my hand, I don’t feel like I’m wasting time.” Charlie always carries a book with him, and even if he’s in the middle seat of economy class, he remains untroubled as long as he has his book. Once, when he flew to Seattle for a board meeting, he still took economy class as usual. Next to him was a Chinese girl who was doing calculus homework during the flight. He was impressed by this Chinese girl because he found it hard to imagine an American girl of the same age having such focus to study amidst the noise of the airplane. If he took a private jet, he would never have the chance to get close to these ordinary people’s stories.

Although Charlie is strict with himself, he is very generous to those he genuinely cares about, not hesitating to spend money and always hoping others benefit more. For his personal travels, whether for business or pleasure, he takes economy class, but when traveling with his wife and family, he uses his private jet. He explains, “My wife has raised so many children for me and has given so much, and her health isn’t good. I must take good care of her.”

Although Charlie did not graduate from Stanford University, because his wife is a Stanford alumna and a university board member, Charlie donated over $60 million to Stanford University.

Once Charlie decides to do something, he can do it for a lifetime. For example, he served on the boards of Harvard High School and a charitable hospital in Los Angeles for forty years. For the charitable organizations he is involved in, Charlie is a very generous sponsor. But Charlie invests not just money; he also dedicates a lot of time and energy to ensure the successful operation of these institutions.

Charlie has spent his life studying the reasons for human failure, so he has a profound understanding of human weaknesses. Based on this, he believes that people should hold themselves to strict standards, continually improve their cultivation to overcome inherent human flaws. This way of life is a moral requirement for Charlie. To outsiders, Charlie might seem like an ascetic, but for Charlie, this process is both rational and enjoyable, allowing one to lead a successful and happy life.

Charlie is indeed unique. But think about it, if Munger and Buffett were not so unique, they could not have achieved the unprecedented performance in human investment history for Berkshire over fifty years. In the past two decades, interest in studying Buffett and Munger has grown worldwide and may continue to increase. There are countless books in both Chinese and English, many of which offer unique insights. Frankly, given my current abilities, it is still too early to evaluate Munger’s thoughts because every time I talk with Charlie or re-read his speeches, I gain new insights. This also indicates that my understanding of his thoughts is still insufficient. However, over the years, Charlie’s guidance has given me a more direct understanding of his thoughts and character. I just want to share my close observations and personal experiences with readers. I sincerely hope that after careful study of this book, readers can grasp the essence of Mungerism more deeply and benefit more from their own careers and lives.

I know that Charlie himself really likes this book, considering it a collection of the essence of his lifelong thoughts and life experiences. It not only includes his profound insights into the business world but also gathers his lifelong reflections on wisdom, expressed in a humorous and interesting way, which will benefit almost any reader. For example, when someone asked Charlie how to find an excellent spouse, Charlie said the best way is to make oneself worthy of them because excellent spouses are not fools. In his later years, Charlie often ended his speeches with a quote from the “Pilgrim’s Progress”: “My sword is for those who can wield it.” Through the publication of this book, I hope more readers will have the opportunity to learn and understand Munger’s wisdom and character. I believe every reader has the potential to become a fortunate swordsman through learning and practice.

III Munger’s Wisdom and Chinese Tradition

Over the years of interacting with Charlie, I often forget that he is an American. He is closer to what I understand as a traditional Chinese scholar-official. During my twenty years in the United States, as a Chinese, I often asked myself: what is the essence and soul of Chinese culture? Objectively speaking, as a Chinese person growing up after the May Fourth Movement, we generally hold a negative attitude towards traditional Chinese culture.

After coming to the U.S., I had the fortune of systematically studying over a hundred foundational works that shaped Western civilization during my time at Columbia University. These works span various fields such as literature, philosophy, science, religion, and art, starting from Greek civilization, extending to Europe, and up to modern civilization. Later, I also benefited from Columbia’s courses on Confucian culture and Islamic civilization, gaining a new understanding and appreciation of Confucian culture. However, the textbooks at that time were all in English, and due to insufficient classical Chinese training, much of the pursuit of original texts had to be done through English translations, which was somewhat regrettable.

Throughout the reading and thinking process, I increasingly felt that the essence of Chinese civilization is actually the scholar-official civilization. The values embodied by the scholar-officials represent a process of self-cultivation and self-transcendence. Confucius’ “Great Learning” states: “Rectify the mind, cultivate the self, harmonize the family, govern the country, and bring peace to the world.” This value system has been extensively elaborated upon in subsequent Confucian schools. This can be said to be the core soul value of Chinese civilization. The carrier of the scholar-official civilization is the imperial examination system. The imperial examination system not only helped Confucian followers shape their own character but also provided them with a platform to display their talents, allowing them to enter the government and even the highest echelons of society through the examination, thus realizing their self-worth.

After the end of the imperial examination system, in the past hundred years, the spirit of the scholar-officials has lost its concrete practical basis and has become directionless. Especially in today’s highly developed commercial society, Chinese intellectuals with a scholar-official spirit are often more confused about their existence and value ideals. In a commercial society where tradition is lost, is the spirit of the scholar-official still applicable?

Since the Industrial Revolution, market economy and scientific technology have gradually become the two most important forces influencing human life outside of government. In recent decades, driven by globalization, markets and technology have broken through national and regional limits, synchronously shaping the common destiny of humanity worldwide. For contemporary Confucians, the concepts of “nation” and “world” must have new meanings. The competitive mechanism inherent in the market economy, like the ancient imperial examination system, also provides a broad space for outstanding talents. However, the true Confucian’s moral pursuit, sense of social responsibility, and ultimate concern for human destiny have become even more profound with thousands of years of accumulation.

During the late Ming period, capitalism began to sprout in China, and merchants at that time proposed the concept of “merchant talent and scholar-official spirit” to highlight their ideals. In today’s globalization, contemporary interpretations of “governing the country” and “bringing peace to the world” have long transcended the scope of government. Market and technology have become the dominant forces in society, providing an unprecedented stage for intellectuals with a scholar-official spirit.

Charlie can be said to be the best example of a “merchant talent and scholar-official spirit.” Firstly, Charlie has been extremely successful in the business field, and his achievements with Buffett can be said to be unparalleled. However, in my deep interactions with Charlie, I found that the essence of Charlie’s soul is that of a moral philosopher and scholar. He is widely read, knowledgeable, and truly concerned with self-cultivation and the ultimate care for society. Like Confucius, Charlie’s value system is inwardly oriented and outwardly expressed, advocating self-cultivation to achieve the state of a sage and thereby helping others.

As mentioned earlier, Charlie is very demanding of himself. Although he is very wealthy, he lives a life akin to an ascetic. His current house is still an ordinary house bought decades ago, he always flies economy class when traveling, and he always arrives forty-five minutes early for appointments and will specifically apologize for occasional tardiness. After achieving great success in business and wealth, Charlie has dedicated himself to charity, benefiting people all over the world.

Charlie is a person who has achieved success entirely through wisdom, which is undoubtedly an inspiring example for Chinese intellectuals. His success is entirely based on investment, and the success of investment relies entirely on self-cultivation and learning, which has nothing to do with power-money transactions, hidden rules, commercial fraud, or forgery seen in today’s society. As a person of integrity and kindness, he has achieved great success in the commercial world using the cleanest methods and his wisdom. In today’s market economy, can Chinese intellectuals with a scholar-official spirit also achieve success in the secular society through learning and self-cultivation and realize their ideals of self-worth and helping others?

I sincerely hope that Chinese readers will be interested in Charlie and this book. Charlie admires Confucius, especially Confucius’ spirit of teaching and resolving doubts. Charlie himself is very willing and skilled in teaching others, tirelessly imparting knowledge. This book collects the wisdom and learning of Charlie’s entire life and shares it with everyone without reservation. Charlie is confident about China’s future and highly respects Chinese culture. The tremendous commercial achievements of Confucian civilization in Asia in recent decades also give more confidence to the revival of Chinese civilization. After nearly a century since the May Fourth Movement, perhaps today we no longer need to entangle ourselves in the “substance and function” debate between “Chinese learning” and “Western learning.” We just need to calmly learn and accept all useful knowledge from around the world while peacefully returning our hearts to the moral value system that has been respected and upheld by the Chinese people for thousands of years.

Sometimes I think, if Confucius were reborn in today’s America, Charlie would probably be his best embodiment. If Confucius returned to today’s commercial China two thousand years later, he would probably advocate: rectifying the mind, cultivating the self, harmonizing the family, managing the business, and helping the world!

IV The Content of “Poor Charlie’s Almanack” and Acknowledgments

This book’s first through third chapters introduce Charlie’s life, his famous quotes, and summarize his main thoughts on life, career, and learning. The fourth chapter includes eleven of Charlie’s most representative speeches. Among these, four speeches may be of particular interest to readers: The first speech humorously outlines how to avoid living a painful life. The second and third speeches explain how to gain universal wisdom and apply this wisdom to successful investment practices. The eleventh speech records Charlie’s most original psychological system, detailing the 23 most important psychological causes of human misjudgment.

This reprint also includes Charlie’s latest article, “The Rise and Fall of Basicland,” published on February 11, 2010, in Slate Magazine. This article uses a fable to record how speculative financial derivative trading can lead a country into economic collapse. The prediction made by Charlie and Mr. Buffett in the 1990s about the potentially disastrous impact of financial derivatives on the economy was unfortunately confirmed during the global financial crisis of 2008-2009.

Within a year of the publication of this book’s mainland China edition, many events occurred that deepened my respect for Charlie. In early 2010, Charlie’s wife of fifty years, Nancy, passed away. A few months later, an accident caused Charlie to lose 90% of the vision in his only remaining right eye, nearly rendering him blind. For an eighty-six-year-old man for whom reading and thinking are more important than life itself, such consecutive blows are unimaginable. However, the Charlie I saw remained rational, objective, positive, and wise. He neither blamed fate nor gave up; instead, he calmly sought solutions. He tried various reading machines and even considered learning Braille. Miraculously, his right eye later recovered 70% of its vision. We were all thrilled! However, I also firmly believe that even if Charlie lost all his vision, he would still find a way to make his life meaningful and efficient.

Maintaining an objective and positive mindset in both good times and bad—that’s Charlie.

Many friends contributed to the publication of this book in the Chinese-speaking world. The Chinese translator, Mr. Li Jihong, undertook the main work, and his dedication and superb writing left a deep impression on me. My long-time friend, Mr. Chang Jin, devoted significant effort to proofreading, translating, and annotating the book. Without his help, I can hardly imagine the book being completed on time. As I am relatively familiar with Charlie’s thoughts and language style, I naturally took on the final review work, and any errors in the translation are ultimately my responsibility. Mr. Shi Hongjun from Shanghai Century Publishing Group is an elegant, patient, diligent, and generous partner. Ms. Zhang Xin played a crucial role in promoting the translation, proofreading, editing, and publishing of this book. Collaborating with these outstanding colleagues and friends made the translation and publication of this book a meaningful and enjoyable experience. Additionally, the publication of this book received encouragement and support from many friends both domestically and internationally, especially from the value investing and business communities, for which I am grateful.

Original manuscript in March 2010

Revised in Pasadena, USA, November 2011

Further Reading

Lecture 1: Speech at Harvard School Graduation

Lecture 2: On Basic, Universal Wisdom and Its Relationship to Investment Management and Business