As Vice Chairman of Berkshire Hathaway, Charlie Munger is one of the most successful investors in the world. In this article, we’ll take a look at what Munger has to say about investing and what lessons we can learn from him.
Who Is Charlie Munger?
Charlie Munger is an American business magnate, lawyer, and investor who is widely considered to be one of the most successful investors in the world. He is the vice chairman of Berkshire Hathaway, and has been Warren Buffett’s business partner for over 50 years. He is also the chairman of the Daily Journal Corporation, and has served on the board of directors for Costco and Wesco Financial. In addition to his business career, Munger is also a noted philanthropist. He has donated millions of dollars to a variety of causes, including education and medical research.
Munger is known for his investing philosophy, which he has dubbed “The Munger Way.” This approach is based on the idea of taking a long-term view, diversifying one’s investments, and thinking for oneself. By following these tenets, investors can increase their chances of making money in the stock market.
The Beginning of Charlie Munger’s Life
Charlie Munger was born in Omaha, Nebraska, on January 1, 1924. He began his investing career while still in school, buying shares in a local grocery store chain. After graduating from the University of Michigan Law School in 1948, he moved to Los Angeles to start his own law practice. While there, he met Warren Buffett, and the two men soon formed a partnership and became close friends.
Munger’s investment philosophy is built on the principles of value investing, which calls for buying stocks that are trading at a discount to their intrinsic worth. Over the years, he has also developed a reputation for being an adept stock picker. In addition to his work with Berkshire Hathaway, Munger is also a director of the Daily Journal Corporation, a newspaper publisher, and he has served on the boards of several non-profit organizations.
The Cornerstone of Munger’s Investing Philosophy
Munger is known for his investing philosophy, which is based on a simple but powerful idea: that by taking a long-term approach and diversifying one’s investments across different asset classes, it is possible to minimize risk and maximize returns.
Munger has also said that “It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” This philosophy has helped him achieve tremendous success in his investing career, and has made him one of the most respected investors in the world.
In this article, we will take a look at some of the key ideas that Charlie Munger has shared about how to successfully invest. By following his advice, we can all become better investors.
1. Take a Long-Term Approach
One of the most important pieces of advice that Charlie Munger has given is to take a long-term approach when it comes to investing. He believes that by taking a long-term view, investors can avoid the mistakes that are often made when trying to time the market.
Munger has said that “The best way to make money is to buy good companies and hold them.” By taking a long-term approach, investors can minimize the risk of losing money in the short-term, and maximize the chances of making money in the long-term.
2. Diversify Your Investments
Another important piece of advice from Charlie Munger is to diversify your investments across different asset classes. He believes that by diversifying, investors can reduce the overall risk of their portfolio.
Munger has said that “diversification is protection against ignorance.” By diversifying, investors can protect themselves against the risks that come with not knowing enough about a particular investment.
3. Invest in Wonderful Companies at Fair Prices
Charlie Munger’s most famous investing advice is to “buy a wonderful company at a fair price.” He believes that it is far better to invest in a great company that is trading at a fair price, than to invest in a fair company that is trading at a great price.
Berkshire Hathaway is one example of a wonderful company that Charlie Munger bought at a fair price. He has also spoken about how he inverted his thinking when it came to investing in companies like Walt Disney and GEICO. Inverting means to think about what could go wrong instead of what could go right. This type of thinking has helped Munger become one of the most successful investors in history.
By following this advice, investors can avoid overpaying for a stock, and increase the chances of making money in the long-term.
4. Have Patience
Another important piece of advice from Charlie Munger is to have patience when investing. He believes that “patience is a virtue,” and that by being patient, investors can avoid the mistakes that are often made when trying to time the market.
Munger has said that “the best way to make money is to buy good companies and hold them.” By following this advice, investors can increase the chances of making money in the long-term.
5. Think for Yourself
Finally, Charlie Munger advises investors to think for themselves. He believes that it is important to do your own research, and to not blindly follow the advice of others.
Munger has said that “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” By doing your own research, you can avoid overpaying for a stock, and increase the chances of making money in the long-term.
6. Avoid Cigar Butt Companies
Charlie Munger has spoken out against Warren Buffett’s “cigar butt” investing strategy, saying that it is a bad idea. Warren Buffett has famously said that he used to look for companies that are like “cigar butts” – companies that are in financial distress and are about to go bankrupt. The thinking behind this strategy is that the investor can buy the company for a very low price and then sell it once the company turns around.
However, Charlie Munger believes that this strategy is a bad idea because the companies are often in poor financial health and are at risk of going bankrupt. In addition, Munger believes that the companies often have poor management teams and are not well-positioned to succeed in the future. Based on Munger’s advice to avoid “cigar butts,” Warren Buffet no longer takes this approach to investing.
7. Invert, Invert, Invert
Inversion is Charlie Munger’s mental model that helps you to think about problems in a different way. It is a powerful tool that can be used to find solutions to difficult problems.
The inversion philosophy of Charlie Munger is based on the idea that you should turn a problem upside down and look at it from a different perspective. This can help you to see the problem in a new light and find creative solutions that you may not have thought of before.
In order to use the inversion technique, you need to first identify the problem that you want to solve. Once you have done this, you need to think about what would happen if the opposite were true. For example, if you are trying to lose weight, you could think about what you would need to do in order to gain weight. This would help you to identify the actions that you need to take in order to achieve your goal.
The inversion technique can be used to solve problems of all types. Whether you are trying to improve your health, your relationships, or your career, using inversion can help you to find creative solutions that you may not have thought of before. Give it a try the next time you are faced with a difficult problem and see how it can help you to find the right solution.
8. What does Charlie Munger say is the stupidest thing you can do?
“The stupidest thing you can do is touch a hot stove.”
-Charlie Munger
This sage advice comes from none other than Charlie Munger, the Vice Chairman of Berkshire Hathaway. As the business partner of Warren Buffett, Munger is considered one of the most successful investors in the world.
Munger has also become well-known for his wit and wisdom, which he often dispenses at Berkshire Hathaway’s annual shareholder meeting. In addition to his now-famous hot stove analogy, Munger has offered up a number of other memorable quotes over the years.
Favorite Charlie Munger quotes
“I always believe that it’s better to be roughly right than precisely wrong.”
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
“A great business at a good price is superior to a good business at a great price.”
“You only find out who is swimming naked when the tide goes out.”
“I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.”
“There seems to be some perverse human characteristic that likes to make easy things difficult.”
-Charlie Munger
By following the advice of Charlie Munger, we can all become better investors. By taking a long-term approach, diversifying our investments, and thinking for ourselves, we can increase the chances of making money in the stock market. There is no surefire path to success in the stock market, but by heeding the advice of Charlie Munger, we can put ourselves in a much better position to profit. By taking a long-term view, diversifying our investments, and thinking for ourselves, we can give ourselves a greater chance at success.
While there is no guarantee of success in the stock market, following the advice of Charlie Munger can put you on the path to profits.
If you are interested in learning more about Charlie Munger, check out this amazing book about his life and his investment philosophy. I learned more about investing from reading it than I did in four years of college.
Resources
Poor Charlie’s Almanack (the BEST book about him)
University of Berkshire Hathaway
Damn Right! (Forward by Warren Buffett)
Charlie Munger: The Pursuit of Worldy Wisdom (The Super Investor Series)
Erika Finn, founder of Stacking Acorns, is an attorney who graduated from law school at University of California, Berkeley. She was a member and editor of the California Law Review and won the Prosser Prize for Legal Accounting. She holds a Master’s Degree from the University of Southern California (USC) and a Bachelor’s degree from Indiana University- Bloomington. Stacking Acorns is a personal finance website for women by women. We help mid-life women achieve financial freedom through real estate investing and other streams of passive income.
