Charlie Munger Investment Advice – 10 Actionable Tips
Charlie Munger is the business partner of Warren Buffett and the vice-chairman of Berkshire Hathaway. Munger’s investment philosophy closely mirrors that of Buffett – he believes in investing in strong businesses with a long-term mindset.
This article will take a closer look at Munger’s investment history and share ten pieces of investment advice he’s offered to investors. Let’s get started!
Charlie Munger Investment History
Charlie Munger began his career as a real estate attorney but switched to managing investments in 1962. He formed the investment firm Wheeler, Munger, and Company and generated annual returns of over 19% until leaving the firm in 1975.
Munger joined Warren Buffett’s Berkshire Hathaway as vice chairman in 1975 and continues to hold the position today. He also became CEO of Wesco Financial Corporation in 1984, an investment firm that is now a subsidiary of Berkshire Hathaway.
Munger is worth an estimated $2.4 billion.
Charlie Munger Investment Advice
Charlie Munger has offered a tremendous amount of advice for stock market investors over his long career through books and many interviews. He shares Warren Buffett’s investment strategy, meaning he is a staunch believer in long-term value investing.
Let’s take a look at 10 of Munger’s top pieces of advice for an excellent investing strategy.
1. Look to Fundamentals
Munger’s investment philosophy is based entirely on fundamental value and competitive advantages. He has gone so far as to declare that “all intelligent investing is value investing.”
For investors, things like financial statements, product moats, and other factors that determine a business’s long-term success are far more critical than day-to-day share price movements. Stock prices should be viewed primarily concerning the underlying company they represent.
2. Value Doesn’t Mean Cheap
Another one of Munger’s investing tips for investment success focuses on value. While Munger believes in value, he stresses that it doesn’t necessarily mean cheap. According to Munger, “a great business at a fair price is superior to a fair business at a great price.”
Investors should put a company’s quality first when making investment decisions and consider value only after finding a company worth investing in.
3. Intangibles Matter
While Munger believes most investors and business partners need to look at companies’ financial statements, market data, stock prices, and balance sheets, he argues that there’s more to a business than just the hard numbers. “People calculate too much and think too little,” says Munger.
It’s just as important to look at intangibles like the management team’s vision, the company’s culture, and its competitive moat.
4. Understand Your Investments
Munger, like Buffett, believes that you should be able to understand how any company you invest in makes money. So start by looking at past performance and future performance of investments. According to Munger, Berkshire Hathway has “three baskets for investing: yes, no, and too complicated.”
That means that you should focus mainly on market sectors you know. It also means that if you can’t understand how a business operates or why it’s valued the way it is, you should pass on it.
Before you invest significant sums in any venture, consider its fair value. Also, protect your investment from human error, misfortune, and extreme volatility. If you want to buy stocks, do so at the market price below their intrinsic value.
5. Know Your Limits
Munger also cautions investors to know their limits. “Knowing what you don’t know is more useful than being brilliant,” he says.
What you don’t know can hurt you when it comes to investing. So it’s important to seek out advice from people who might know more than you, especially when an opportunity looks too good to be true. Also, as an investor, read financial news and stay up to date with the securities and exchange market.
6. Trust in Compounding Returns
One of the keys to Munger’s success has been patience. “The big money is not in the buying or selling,” he says, “but in the waiting.”
Seeing a return on investment takes time, which is why Munger believes in investing for the long run. Returns compound over time, so the longer you hold onto a winner, the better your eventual payoff. So, stop trying to get rich quickly, and play the long game.
7. Be Prepared When Opportunity Arrives
One of the many mistakes most people make in business is failing to recognize investment chances. Opportunities rarely arrive and don’t last long, so you need to be ready to take advantage of them. That’s why Munger recommends keeping a pile of cash in reserve, prepared to throw at your best ideas, but not everything that comes your way.
For many investors, that means resisting the temptation of putting money into the market even when there aren’t any great opportunities. Munger notes that “it takes character to sit with all that cash and to do nothing.” But, he says, “I don’t get to where I am going” by chasing “mediocre opportunities.”
8. Think From a Different Perspective
Munger encourages investors not to think only about the case for why their investment idea is correct but also about the case for why it could be wrong. “You must force yourself to consider opposing arguments,” he says, “especially when they challenge your best-loved ideas.”
Sometimes, success means looking for second opinions and putting as much work into challenging your investment thesis as you put into bolstering it. Also, ensure you understand the outlook of the underlying business, especially for companies bought because of short-term price movements.
9. Find Productive Ways to Move on From Losses
Like many great investors, Munger believes that emotion has no place in investing. “Generally speaking,” he says, “envy, resentment, revenge, and self-pity are disastrous modes of thought.”
If you take a loss or an opportunity that doesn’t work out, it’s essential to move on quickly. The faster you can let things go and focus on the next investment, the better you’ll perform over the long run.
10. Knowledge is a Worthwhile Investment
Munger encourages investors to “spend each day trying to be a little wiser than you were when you woke up.” He points out that even a little bit of learning each day can add up over a whole lifetime.
So, make it a point to read a little bit or seek advice every day. Munger also believes investors should cast a wide net on subject matter since you never know what topic will inspire a new idea.
Finally, businesses should never compromise on quality. Identify high-quality businesses, say no to complicated investments, and avoid excessive diversification.
Conclusion: Charlie Munger Investment Advice
Charlie Munger has spent over 45 years at the right hand of Warren Buffett as the vice chairman of Berkshire Hathaway and is one of the most successful investors in modern history.
Munger takes a long-term view of investing and uses a value-driven approach to choosing investments. Above all else, Munger encourages investors to closely study the companies they want to invest in and to stick to investing in high-quality companies.