On November 28, 2023, the investing world
mourned the loss of Charlie Munger, the
esteemed vice chairman of Berkshire
Hathaway and longstanding collaborator
of Warren Bufett. Munger, a luminary in
the realm of investing for decades, was
celebrated for his sharp wit, profound
insights, and enduring wisdom.
In light of his legacy, here are three
enduring lessons drawn from the illustrious
Charlie Munger, applicable not only to
enhancing one’s investing prowess but also
to enriching life in general.
1. EMBRACE CONTINUOUS
LEARNING
Munger championed the ethos of
perpetual learning. He believed in the
imperative for individuals striving for
success in any field, be it investing or
otherwise, to go to bed each night a little
wiser than they had awakened. Central to
this philosophy was the habit of reading:
‘In my lifetime, I have encountered no wise
individuals (across a broad spectrum of
subjects) who weren’t voracious readers
– none, zero. You’d be astounded by the
amount Warren reads – and by how much
I read. My children jest at me; they regard
me as a book with a pair of legs sticking
out.’
For those seeking to enhance their
investing acumen, consistent reading
remains paramount. This may entail
perusing Securities and Exchange
Commission (SEC) filings of companies
of interest, delving into historical business
literature, or immersing oneself in the
works of investing luminaries like Benjamin
Graham’s ‘The Intelligent Investor’ (a
personal favourite of Bufett’s). While the
journey of mastering investing, finance,
and business may appear daunting
initially, by adopting Munger’s methodical
approach and maintaining consistency,
one can gradually amass substantial
knowledge.
2. RECOGNISE YOUR CIRCLE OF
COMPETENCE
Another invaluable lesson from Munger
applicable to all investors is the principle of
staying within one’s circle of competence
– in other words, understanding one’s
limitations.
Remaining within this circle entails
identifying stocks, businesses, and
industries beyond one’s expertise and
refraining from venturing into them with
investments. A pertinent example, often
relevant to many investors, is the realm
of biotechnology and pharmaceuticals,
characterised by its scientific complexity
and necessitating specialised knowledge
for informed investment decisions.
A cursory glance at Munger and Bufett’s
investment portfolios over the years reveals
a consistent pattern: a focus on sectors
within their sphere of deep understanding,
such as consumer products, financials/
banks, and energy. With steadfast
adherence to this principle, the duo seldom
strayed beyond their areas of expertise.
Beyond investing, this principle holds
relevance in choosing a profession. While
one may lack musical aptitude, they may
excel in a trade like electrical work. Munger
advocates for aligning one’s profession
with their areas of expertise to thrive, as he
did with professional investing.
3. CULTIVATE PATIENCE
Munger often lamented the pervasive
impatience among investors. Many
succumb to the temptation of hasty
buying and selling or seek rapid wealth
accumulation. He advocated for patience
in investing, emphasising the importance
of betting on long-term outcomes:
‘It takes fortitude
to hold onto cash
and refrain from
action. I didn’t reach
where I am by
pursuing mediocre
opportunities.’
Munger underscores the difculty in
exercising patience as an investor, yet
he champions it as the most efective
means to wealth accumulation. Investors
subscribing to Munger’s philosophy exhibit
patience, awaiting opportune moments
to make substantial investments over time,
perhaps only once per year. This approach
avoids over-diversification, ensuring
focused investments rather than scattering
funds across numerous ventures.
This principle extends to the realm of
compound interest, where gradual wealth
accumulation often yields substantial
returns over time. As Bufett famously
stated, ‘Nobody wants to get rich slowly,’
yet it remains one of the surest paths to
wealth. Munger’s wealth accumulation
was a testament to his extraordinary
patience.
This principle of patience transcends
investing, permeating various aspects of
life, from skill acquisition in one’s profession
to nurturing relationships with loved ones.
Munger contends that embracing patience
allows the compounding efect – whether
numerical or metaphorical – to work its
magic over time, fostering a fulfilling life for
oneself and those around them.
ISSUE 4
CHARLIE MUNGER
3 LIFE LESSONS
Inspired from: https://www.nasdaq.com/articles/3-investing-and-life-lessons-from-the-late-great-charlie-munger
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