3 Investing and Life Lessons From the Late Great Charlie Munger

3 min read
27 March 2024

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 Buffett. 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 favorite of Buffett'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. Recognize 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, characterized by its scientific complexity and necessitating specialized knowledge for informed investment decisions.

A cursory glance at Munger and Buffett'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, emphasizing 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 difficulty in exercising patience as an investor, yet he champions it as the most effective 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 Buffett 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 effect — whether numerical or metaphorical — to work its magic over time, fostering a fulfilling life for oneself and those around them.


Inspired from: https://www.nasdaq.com/articles/3-investing-and-life-lessons-from-the-late-great-charlie-munger