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4 Investment Lessons to Learn From Charlie Munger

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Key Takeaways

  • Charlie Munger was known as much for his words of advice to younger investors as he was for his business acumen.
  • Munger was known for his extreme buy-and-hold approach, selecting only companies he felt were a sure bet and then holding on to them for years.
  • He felt it was preferable to find “wonderful businesses at fair prices,” which led him to have an extremely non-diversified portfolio of just a handful of companies at any given time.
  • One of Munger’s approaches involved weeding out opportunities that were bad or only decent. He believed that great investment opportunities would only come a few times in an investor’s career.

Billionaire Charles (Charlie) Munger died in Nov. 2023 at 99 after many decades alongside Warren Buffett at the helm of the massive holding corporation Berkshire Hathaway (BRK.A, BRK.B).

Together, Munger and Buffett grew Berkshire from a small textiles firm into a massive and diversified conglomerate with a market capitalization of about $780 billion at the time of Munger’s passing.

Munger was known both for his impressive business acumen and for his generosity in sharing investing advice with a large group of devoted followers and fans. Below, here are four investing lessons from his life that are applicable to investors of all kinds.

“The Big Money Is Not In the Buying and Selling, But In the Waiting.”

Munger and Buffett shared a belief that investment opportunities with true potential are both few and far between as well as worth waiting for.

“The whole secret of investment is to find places where it is safe and wise not to diversify,” Munger had said.

In terms of portfolio management, this means that Munger was not active in daily buys and sells. Rather, he worked hard to identify positions he felt were as close as possible to a sure thing and held them, often for years at a time.

Buffett, famous for maintaining some of the positions in his portfolio for decades, shares this philosophy. At the time of his passing, Munger reportedly held shares of just three stocks in his personal investment portfolio: Berkshire Hathaway, Costco (COST), and Daily Journal Corp. (DJCO).

“Buy Wonderful Businesses at Fair Prices.”

A core component of Munger’s approach to investing was a belief in the strength of the value investing philosophy.

He is known to have said “Forget what you know about buying fair businesses at wonderful prices. Instead, buy wonderful businesses at fair prices.”

Munger shunned stocks that other investors might pick up simply because they seemed to be a good deal. Instead, he opted for investments in companies he felt were rock solid as businesses first and foremost.

Buying these companies and then planning to hold them for a long period would give time for the market to reflect their intrinsic worth over many years.

Great Opportunities Are Rare.

Munger made investment choices under the belief that “life is not just bathing you with unlimited opportunities.” Following that perspective, he aimed to weed out as many average or bad investing ideas as possible. Only those ideas surviving strict scrutiny would be considered for implementation.

A related aspect of Munger’s approach to investing is to make significant moves in those rare moments in which a tremendous opportunity does present itself. Munger was fond of quoting his grandfather, who had said “When you get a lollapalooza, for God’s sake, don’t hang by like a timid little rabbit.”

This extreme selectiveness—coupled with a tendency to buy big when he did go in on a new investment—led Munger to maintain a portfolio extremely lacking in diversity by most modern standards.

Indeed, even holding more than a small handful of names seemed to be too much for him. If truly great investment opportunities are vanishingly rare, the thinking goes, over-diversification of a portfolio suggests that the investor is buying into some names that represent only decent opportunities.

“Good Businesses Are Ethical Businesses.”

One of Munger’s favorite axioms was that “good businesses are ethical businesses,” and, conversely, that “a business model that relies on trickery is doomed to fail.”

Munger and Buffett developed a reputation for closely analyzing the operations of businesses they were considering making investments in, looking for businesses with both excellent growth potential as well as those that they felt had models that were fair, even-handed, and ethical.

Munger was fond of saying that investors should look to businesses that even a fool could run, with the idea being that if you hold a stock for long enough, eventually the leadership at that company will, indeed, make some foolish decisions.

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