The best investors became the best investors for a reason. Of course, we sometimes think that trading and investing is similar to the play live casino online game. In fact, everything is much harder. Investors’ analytical and strategic skills have allowed them to achieve impressive results. We are often inspired by their stories and strategies to improve our investment results. And today, we’re going to talk about Charlie Munger’s investing principles.
Who Is Charles Munger?
Charles Munger is known as one of the most influential and oldest investors of our time. At the time of his death, the investor’s capital was estimated at $2.2 billion.
Charlie’s first activity was connected with advocacy. He founded his own law firm and successfully developed it until he met the legendary investor Warren Buffett. It was Buffett who convinced Munger to get involved in investments.
Charlie founded his own investment company, which brought in an almost 20% annual return. Thanks to his outstanding results, Munger joined Berkshire Hathaway, where he became vice-president and Warren Buffett’s right-hand man. Charlie Munger worked for the company until his last days, making it one of the most expensive investments in history.
Charles Munger’s Strategy
In many respects, the principles on which Charles relied are similar to Buffett’s views. It isn’t for nothing that the partners worked successfully side by side for so many years. Munger preferred long-term investments, as well as a value-based approach when choosing investment instruments. The investor preferred to buy large stakes in selected companies and hold them for as long as possible. Munger was not in favor of broad diversification; he believed that many instruments are only necessary for someone who does not understand what he is doing.
Here are the basic principles that formed the basis of Charles Munger’s investment strategy:
- Think of stocks as a stake in the business. Charlie believed that if you can’t envision yourself owning a company for a few decades, there’s no point in buying even a small fraction of it. An investor always wanted to evaluate a company for himself, so he would only choose a business to invest in that he knew enough about.
- Make a decision independently of the opinions of others. The investor is sure that you cannot get the right opinion about a company by agreeing or arguing with other people. Only analysis and your own conclusions are important.
- Be adaptive and be able to change. According to Munger, a valuable quality of an investor is the ability to abandon his ideas if they have lost relevance. The market does not stand still, if an investor wants to keep up with the trends, he needs to keep his nose to the wind and update his strategy if necessary.
- Be patient. Frequent trades increase transaction costs. That’s why Charles Munger rarely bought and sold assets. More often than not, he waited for the right moment to maximize the benefits of each transaction. And sometimes he had to wait for a long time. In addition, long-term investing allowed Charles to benefit from compound interest.
- Prepare well for each trade. Value investing, favored by Charles Munger and Warren Buffett, was based on deep and thorough analysis in search of undervalued companies. In each transaction, investors balanced potential risks against prospects for returns. In doing so, they clearly delineated their area of expertise and did not make decisions that they didn’t understand.
- Watch your risks and allocate capital well. Good diversification doesn’t mean broad diversification. However, always consider long-term market fluctuations and risks when selecting assets for your portfolio. Over long periods, the price of individual assets can fluctuate markedly: up to 50%. According to Munger, this is inevitable, so at such times, it’s important for the investor to keep a cool head in order not to make a mistake and upset the balance in the portfolio.
- Be focused and decisive. An investor believes that the right moments in life don’t come along very often. And it’s foolish to miss them because of your indecisiveness. If a deal offers a great opportunity in the future, you need to make a decision quickly and firmly.
- Keep evolving. All his life, Charlie Munger preferred to communicate with people who underestimated their mental abilities. In the investor’s opinion, this is more sensible than overestimating your IQ. After all, any person has room to develop and grow. Charles believed that the brain is a muscle that needs constant strengthening. Until the end of his life, he himself tirelessly expanded the list of his competencies, preferring reading books on all ways of self-education.
Despite the huge capital, Charles Munger always remained modest and encouraged others to embrace simplicity. He didn’t boast of his fortune and didn’t revel in luxury, on the contrary, he devoted much time and effort to charity. This man was always devoted to his work, trying to simply do it as best as possible. This is what helped Charles Manger to become a responsible master of his life and his investments.