When Charlie Munger talks, people listen— particularly if they want to know how to invest their money.
Munger, who is the vice-chairman of Berkshire Hathaway, has delivered instrumental guidance to Berkshire’s renowned founder, Warren Buffett, and many others. By means of what Munger identifies as “elementary world wisdom,” Munger’s technique weighs risk and reward, make the most of fact-based data and abating emotion.
Keeping it simple, Munger declares, “I observe what works and what doesn’t and why.” Like Buffett, Munger pulls much of his motivation from post-Great Depression era investor Benjamin Graham, a “value investor.” Graham sought “mispriced assets” with values greater than people think.
Charlie Munger has some advice for investors.
- Measure risk: All investment evaluations should begin by measuring risk, especially reputational.
- Be independent: Only in fairy tales are emperors told they’re naked.
- Prepare ahead: The only way to win is to work, work, work, and hope to have a few insights.
- Have intellectual humility: Acknowledging what you don’t know is the dawning of wisdom.
- Analyze rigorously: Use effective checklists to minimize errors and omissions.
- Allocate assets wisely: Proper allocation of capital is an investor’s No. 1 job.
- Have patience: Resist the natural human bias to act.
- Be decisive: When proper circumstances present themselves, act with decisiveness and conviction.
- Be ready for change: Accept unremovable complexity.
- Stay focused: Keep it simple and remember what you set out to do.
Munger has argued that if “you’re investing for 40 years in some pension fund, what difference does it make if the path from start to finish is a little more bumpy or a little different than everybody else’s so long as it’s all going to work out well in the end? So what if there’s a little extra volatility.”