Back in 2017, I wrote an article featuring six things legendary US businessman and philanthropist Warren Buffett can teach us about investing.
More recently, you may have read another article in which I explained why volatility is not something to fear, sharing some of Buffett’s key quotes on the specific issue of market fluctuation.
It’s now time to turn our attention to Buffett’s lesser-known partner, Charlie Munger, who died on 28 November last year, close to his 100th birthday.
As vice-chairman of Berkshire Hathaway, he was always perceived as Buffet’s right-hand man. However, when I describe him as “lesser-known”, that’s only in comparison to his partner, because he was no less successful and just as worth paying attention to.
After all, between them the two grew a small textiles business into a company that, according to Google, is valued in excess of $780 billion as of January 2024.
Like Buffett, Charlie Munger was more than happy to share his wisdom regarding investing your money, and – like his friend and partner – his advice was well worth paying close attention to.
This article is based around five of his most well-known quotes, but under each you’ll find others that reinforce the key points and ideas.
1. “We have three baskets for investing. Yes, no, and too tough to understand.”
Both Munger and Buffett were insistent that an important prerequisite to successful investing is being aware of your limitations.
Assuming you know it all and don’t need to take advice or do your own research can make for bad decision-making.
As Munger said, “The key is to know what you don’t know” and trying to bluff your way through is often a recipe for disaster.
Instead, it’s important to recognise your limitations and never be afraid to make use of experts.
He pointed out a common misconception that successful investment and financial strategies, almost by definition, must be complex.
He was happy to admit that “we have a passion for keeping things simple. If something is too hard, we move on to something else. What could be more simple than that?”
2. “If people weren’t so often wrong, we wouldn’t be so rich.”
Always willing to take advice from experts in certain fields, Munger had little time for investment market forecasters.
“The trouble with making all these pronouncements,” he said, “is people gradually begin to think they know something. It’s much better to think you’re ignorant.”
In a 2022 interview with an Australian investment publication and reported on The Street Munger admitted that: “I don’t pay much attention to macroeconomic trends. I just try to invest whatever capital I have as best I can and take the results as they fall. I just seize whatever opportunities I can, and I hope I get my share.”
He was deeply suspicious of any financial experts selling complex active strategies and didn’t have a high opinion of active fund managers either. “They’re used to charging big fees for stuff that isn’t doing their clients any good”, he said. “It’s a deep moral depravity.”
3. “The big money is not in the buying and selling, but in the waiting.”
If you’re a regular reader of my articles, you’ll know that I often refer to one of the best-known investment adages: that investment success is best derived from “time in the market, not timing the market.”
Although it’s not a Munger or Buffett quote, it certainly could be! Furthermore, both very much endorsed the principle behind it.
Munger regularly stressed the importance of buying shares and holding them for the long term, on the assumption that, over time, the market would reflect their true value.
He didn’t mince his words about it, either: “If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get.”
4. “I had a considerable passion to get rich. Not because I wanted Ferraris. I wanted the independence.”
Munger was a strong advocate of ensuring that you had a specific reason to invest, rather than simply trying to accumulate as much money as possible.
He always saw his wealth as a means to an end, rather than an end in itself. “A majority of life’s errors are caused by forgetting what one is really trying to do,” he said.
His big driving force when it came to wealth accumulation was seeing it as providing the freedom to do what you want.
He was a firm believer in focusing on your own aims and intentions, and not worrying about what others were doing. To him, “A major reason why people overspend is that they’re envious of others’ wealth. I don’t give a damn what someone else has. But other people are driven crazy by it.”
5. “I believe in the discipline of mastering the best that other people have ever figured out.”
Both Munger and Buffett were unashamed advocates of learning from other people’s mistakes.
Munger put it rather colourfully when he said, “You don’t have to pee on an electric fence to learn not to do it”.
He also wasn’t afraid to follow John Maynard Keynes’s suggestion that “when the facts change, I change my mind.”
In an interview with the Wall Street Journal in 2019, he admitted that: “Part of the reason I’ve been a little more successful than most people is I’m good at destroying my own best-loved ideas, and most people aren’t.”
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