The Story of Charlie Munger

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The Story of Charlie Munger

Warren Buffet is perhaps the most famous global investor. However, much of his success is also due to his long-time business partner Charlie Munger.

Like Buffett, Munger inherited no wealth but built a fortune on the sheer power of his will and his business acumen. Buffett does a lot of philanthropy. Munger’s philanthropy is mostly in terms of how he shares the lessons he has learned in a long life. He is now 96 and still alert as ever.

Why did Munger go into investing? “Like Warren I had a considerable passion to get rich. Not because I wanted Ferraris – I wanted the independence. I desperately wanted it. I thought it was undignified to have to send invoices to other people”.

Self-Education

Munger’s advice to investors goes beyond mere business matters. According to Munger, a key contributor to success is self-education. This means developing mental discipline to use the big ideas that really work. He advises us to read widely

  • “I met the towering intellectuals in books, not in classrooms”.
  • “I frequently like and go through life making friends with and learn more from the eminent dead than live teachers”.
  • “I am a biography nut.. and when you are trying to teach [learn] great concepts that work it helps to tie them into the lives and personalities of the people who developed them”

Munger says that “I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading. I don’t think any one book will do it for you”.

Munger says that “I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading. I don’t think any one book will do it for you”.

Advice to the young

  • You have to learn to be a follower before you become a leader. People should learn to play all roles.
  • One of Munger’s favorite quotes is from Aristotle “The best way to avoid envy is to deserve the success you get”.
  • Be independent minded “Do things that other people aren’t doing” even if this is unpopular
  • Munger says that there are a few “simple big ideas, the chief lesson is that a few big ideas really work”. These are learnable as long as people do not confuse simplicity with ease. “Keep asking why why why and relate answers to a structure of deep theory.”

Investing

  • “What you have to learn is to fold early when the odds are against you or if you have a big edge, back it heavily because you do not get a big edge often.”
  • Recognize a good business. The difference between a good business and a bad business is that a good business throws up one easy decision after another while a bad one throws up painful decisions time after time.
  • Find those huge predictable patterns of irrationality. Study the psychology of human misjudgment – otherwise one can cost oneself a huge amount of money
  • “The investment game always involves considering both quality and price, and the trick is to get more quality than you pay for in price. It’s just that simple”
  • Avoid the big mistakes. “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid instead of trying to be very intelligent.”
  • Munger advocates thinking through investment problems “backwards”. Similar to Carl Jacobi (a mathematician) who said “invert, always invert”. Munger also tries to disprove and find what could destroy an investment case.

Advice to his children – applies as much to all of us:

  • “Do the best you can”
  • Never tell a lie
  • If you are going to do something, then do it and get it done
  • No one wants to hear about or is interested in an excuse – if wrong just apologize
  • Five second no – make up your mind – don’t keep people hanging.

Munger on life and living through tough times

Munger’s life has not been easy. Personally (his first son died of cancer), and professionally he has encountered repeated obstacles and problems. That is what most people in life experience, Charlie would say. Anyone who struggles to make the box of his life lager discovers that the box has walls that must be burst open.

“It’s necessary to accommodate a lot of failure and because no matter how able you are, you’re going to have headwinds and troubles. But if a person just keeps going on the theory that life is full of vicissitudes and just does the right thinking and follows the right values it should work out well in the end. So, I would say don’t be discouraged by a few reverses.”

In contrast to the 2008/9 crisis, Munger in an April 18, 2020 interview said that his main priority is to preserve cash. “I would say basically we’re like the captain of a ship when the worst typhoon that’s ever happened comes. We just want to get through the typhoon, and we’d rather come out of it with a whole lot of liquidity.”

– Kai Taraporevala

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