10 Lessons from an Investing Genius, Berkshire Hathaway's Number Two, Charlie Munger

In this column, which appears every two weeks, we give you concrete ideas for investing.

He was much less well-known than Warren Buffett, but Charlie Munger, Berkshire Hathaway’s number two, was also a savvy investor. And inspiring.

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Mr. Munger, who died on November 28 at the age of 99, was Berkshire’s vice chairman for more than 45 years. Before he became Mr. Buffett’s right-hand man in 1978, the trained lawyer had already made several investments that made him a millionaire at a relatively young age.

“Without Charlie’s inspiration, wisdom and involvement, Berkshire Hathaway could not have achieved its current size,” Warren Buffett, 93, said on the day of his death.

Charlie Munger was known for his insightful and impactful statements. Here are 10 of his best quotes about investing.

1. Don’t spend more than you earn

Like Mr. Buffett, Mr. Munger led a much more modest lifestyle than his fortune allowed (he was worth more than $2.5 billion). “Live within your means and save so you can invest,” he once said. That is the basis.

2. Strive for independence

Ambition and unwavering motivation are helpful if you want to achieve great things. “Like Warren, I had a great passion for getting rich,” Charlie Munger said in 1995. “Not because I wanted Ferraris, but because I wanted independence.”

3. Don’t look for deals at any price

Inspired by his mentor Benjamin Graham, Mr. Buffett initially excelled at finding ways to invest in struggling companies at good prices. It was Mr. Munger who convinced him to change his philosophy. “Charlie’s most important achievement is the current architecture of Berkshire,” Warren Buffett said in 2015. The model he gave me is simple: “Don’t try to buy decent companies at fantastic prices.” Instead, buy fantastic companies reasonable prices.”

4. Focus on quality

In 2009, Charlie Munger was even more outspoken. “Invest in a company that even an idiot could run, because one day an idiot will run it,” he said. If a company can’t handle a little mismanagement, it’s not worth much.” In short, we need to focus on quality, on companies whose intrinsic value is solid.

5. Be patient

“The big profits are not achieved by buying and selling, but by waiting.” This credo is that of Berkshire Hathaway, which has long been outperforming the indices with long-term holdings in resilient companies such as Coca-Cola, American Express and Apple.

6. Stay cool

“If you are not willing to respond calmly to a 50% market decline two or three times a century, you are not worthy of being a shareholder and you deserve the mediocre result you will get.” Mr. Munger may have been a bit too strong here, but we must remember the underlying message: If you choose to invest in individual securities, expect ups and downs and even significant losses.

7. Have strong beliefs

“Many people think that they are more professional if they own stocks in 100 different companies than if they only hold four or five stocks. For me it’s crazy,” said Charlie Munger. This is how you become very rich: by investing heavily in a handful of projects that you strongly believe in. As Mr. Munger said, “It is wisest when life gives them the chance.” When the odds are on their side. And the rest of the time they don’t. As simple as that.”

8. Be careful about diversifying

Mr. Munger was even more vehement in his opposition to diversification when it came from fund managers. “Academic circles have done a great disservice to intelligent investors by glorifying the idea of ​​diversification,” he claimed. I think the concept is crazy. It ensures that you are satisfied when your investment results do not deviate too far from average.”

9. Invest in index funds

However, Charlie Munger recognized the benefits of diversification for ordinary people, provided they pay reasonable fees. “Most people probably shouldn’t do anything other than have index funds. […] That’s a completely rational thing to do for someone who doesn’t want to think about it too much and has no reason to think they have any particular advantage when it comes to stock picking. Why would this person try to choose their own titles? She doesn’t design her own electric motors or her own whisk.”

10. Always learn

“Lifelong learning is essential for long-term success.” Mr. Munger spent much of his life reading about all sorts of topics. His scholarship has helped him lead a rewarding life, both financially and personally.

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