Charlie Munger´s Principles For Life And Investing

Charlie Munger’s principles encompass a mixture of rationality, psychology, and curiosity. Their applicability extends well beyond investing and into many facets of life. At the heart of Munger´s philosophy is scepticism about the all-too-common search for an easy recipe for instant wealth. His core thinking boils down to four words: preparation, discipline, patience, and decisiveness. While each attribute is commendable in its own right, Munger famously believed that a person must have them all to achieve a dynamic critical mass for driving a cascade of positive results. 

Focus On Your Field of Expertise And Think For Yourself

Munger’s approach to investing hinged on his belief that there were only a few truly good opportunities. He therefore focused on taking advantage of these opportunities at a fair price. 

According to Munger, it is important to focus on investments in businesses operating in industries of whose competitive environments you have a profound understanding. This so-called “circle of competence” can be cultivated only through years of study and hands-on experience.

The key to identifying good investment opportunities, according to Munger, is independent thinking. Refrain from blindly following the crowd; instead, do your own research and draw your own conclusions. “All I want to know is where I’m going to be wrong,” he used to say.

Let The Money Grow And Incorporate a Margin Of Safety

To accumulate wealth, Munger espoused a strategy of making good investments early and allowing returns to accrue over time. Avoid getting entangled in the market’s short-term fluctuations.

Munger loved businesses with “economic moats,” sustainable competitive advantages that protected them from their rivals. These moats can take many forms, such as strong brands, network effects, or regulatory barriers. Businesses with such “moats” are more likely to generate high returns on capital over the long term.

Munger acknowledged, however, that even the most skilled investors are prone to making mistakes. Therefore, it is crucial to incorporate a margin of safety when making investment choices. Doing so typically involves acquiring stocks at a considerable discount to their intrinsic value, ensuring that profitability persists even if your analysis proves incorrect.

Be Willing To Learn And Concentrate On Your Goals

Munger was a lifelong learner who recognised the importance of continually broadening his knowledge and comprehension of the world. This practice not only enhances your skills as an investor but also contributes to your personal growth.

Acknowledging what you do not know can be very rewarding. Cultivate curiosity and strive to become a little wiser every day through, for example, a habit of reading. And be eager to spread your knowledge; one of the most meaningful things a human being can do is help another one know more. 

Charlie Munger used to say that you can control your character, your work ethic, and your willingness to learn. Things outside your control are not worth fretting about. Don’t get distracted from achieving your goals. If you fulfil your commitments, work hard, and keep learning, you can aim for a goal and eventually achieve it.

Finally, don’t set arbitrary standards for investment success; simply aim to beat the competition. Remember the classic anecdote about the two men sleeping in a tent who were awakened by a bear. One began lacing up his running shoes, and the other asked if he thought he could outrun the bear. The answer was: “I don’t have to outrun the bear – I just have to outrun you!”