Investing Lessons From Charlie Munger: The Humbler Side-Kick in Warren Buffett's Success Story

Fri, Sep 3, 2021 6:27 AM on Stock Market, Exclusive,

Article by Saurav Phuyal

Poor Charlie's Almanack is a compilation of Charlie Munger's (Munger is the vice-chairman of Berkshire Hathaway, Warren Buffett's conglomerate. He is a wealthy investor, businessman, former real estate attorney, architect, and philanthropist. Munger is Buffett's closest colleague and right-hand guy, according to him.) best recommendations compiled over the course of 30 years. He gives talks on decision-making and rationality, as well as investing and how to live a successful life.

His investment philosophies, investment checklist, and several models are briefly detailed below.

Charlie Munger's Investing Philosophy

• Invert always invert

Charlie advises that we think in the opposite direction. "All I want to know is where I'm going to die," he explained, "so I'll never go there." Always begin by weeding out the riskier stocks first. We will finally identify low-risk stocks using this strategy. We utilize this method to regularly avoid making foolish mistakes, rather than attempting to be exceptionally bright and avoid risky investments.

• Because management is continuously changing, we should always remember that betting on business is superior to betting on management.

• A great business at a fair price is superior to a fair business at a greater price.

• To safeguard long-term earnings and market share from competitors, we must invest in companies with growing moats, or the ability of a corporation to maintain a competitive advantage over its competitors.

• Always be patient and wait for the proper investment opportunity.

Charlie’s investment checklist

The Checklist aids in investor discipline.

• Risk

We should always prioritize risk above return. if we lose 50% of our principal, we must make a 100% recovery to get back to the beginning. so, never lose money. Always keep in mind that equities plummeting 50% are less risky than they were previously.

• Be self-sufficient.

When it comes to investing, there are instances when our instincts contradict the advice of brokers, agents, counselors, and gurus, which is fine and can lead to large rewards.

• Enhance and plan for the future.

We must ask numerous questions before investing in any stock. Why? Why am I putting money into this business? Why is this business superior to others? Why is it feasible to benefit handsomely from this stock? Why? Why? Why?

• Every day, go to bed a bit wiser, and your knowledge will grow exponentially over time.

• When the time comes, bet large and properly allocate your assets.

Lollapalooza effect

As humans, we all have biases and habits that might influence our decisions. When several of them work together to push us to take a specific action, it's known as the Lollapalooza effect. The Lollapalooza effect has the ability to produce large-scale human behavior drivers, including blunders.

"To a man with a hammer, everything looks like a nail". In business, there are so many transdisciplinary models that need to be collected and utilized. He claims to have over 100 models ranging from history to physics to biology to psychology to economics to statistics to engineering to mathematics.

Basic arithmetic and compounding in math. Incentive caused bias, consistency principle, and cognitive misjudgment model from psychology. Advantage of the scale Wealth effect, opportunity cost, Tragedy of the commons Comparative advantage in trade and economics. Back up system model, Breakpoints, Margin of safety from engineering. Technology, Competence destruction, The Pari-mutuel system, Mr. market, Cancer-surgery formula off the market. Natural selection, Feedback loops, Modern Darwinian synthesis from biology. Checklist, patients, and trademarks from management. Along with these models accounting, normal distribution, decision tree, philosophy, and history are all elements that might aid in making an informed investment decision.

We can make more educated decisions if we keep these investing principles in mind, follow these procedures, and grasp the aforementioned models.

Article by Saurav Phuyal
Phuyal is an article writer and a second-year civil engineering student at Pulchowk Engineering College.
For the past 6 years, the author has been studying, examining, exploring, and actively engaging in equity investing and trading on the Nepal Stock Exchange.