If you want to be successful in investing, it is essential to learn the investment philosophy of great investors.
One of the best investors ever is Charlie Munger, who combined his business experience with the unique logical framework of the field of psychology and turned that into an investment approach that led him to outperform broader markets by a staggering amount.
So, without wasting more time, let’s learn from the investing lessons from Charlie Munger in the hope to fill you with immense knowledge about financial investments.
A Brief About Charlie Munger
There is no doubt that Charlie Munger is yet the best and the greatest investor in the world.
His life is more like an American drama movie set on a roller-coaster.
From being a 19-year-old college dropout to becoming Harvard alumni, a great businessman, and a great business partner of Warren Buffett at Berkshire Hathaway, Charlie has paved his life to the greatest success.
All the credit behind his success goes to his investment methods, opportunistically seeing statistics and graphs, making decisions to invest in, and getting out of it in the right way. At present, Charlie Munger is about to reach his century, and at the age of 98, his net worth is near USD 2.2 Billion.
Most importantly, from his life story, you cannot neglect his honesty, hard work, and positive attitude towards dealing with complex life challenges. Isn’t it fascinating, motivating, and inspiring? Yes, it indeed is.
Therefore, it becomes important to learn something from his principles, confidence, persistence, and attitude toward work and use it to make our lives as wealthy as we desire.
Now, let’s move to the influential investment lessons from Charlie Munger’s Philosophy.
The Investment Philosophy of Charlie Munger
Now that I am speaking of investment philosophy, let’s state some quotes and beliefs stated by Charlie Munger:
- We, humans, are programmed to think in the opposite direction, so while strategizing the investment, you should first focus on the risks involved in the stock. Once you develop this habit of finding faults, at some point, you will end up finding low-risk and better-returning stocks.
- Being an investor, you should always focus on the performance of the business rather than its management work.
- Investing in an honest business is always the best practice to gain higher profits.
- While thinking up to investing in a stock for the long term, you should identify the business with near-to-consistent growth to double up your profits and save your share from getting into your competitors’ hands.
- Investment is something uncertain, which demands focus, 100% anticipation, trust towards the brand, and your research. So, have some faith in your research, be patient and wait for the right opportunity to snatch the maximum profits.
Six Important Investment Lessons From Charlie Munger’s Investment Philosophy:
Charlie Munger believes that being honest with yourself and your partner is the first step to achieving the success you want.
Here, honesty can be referred to in terms of life or business. No matter from what perspective you see the investment, you should always be honest with the choices you make, your opinions, and every person you deal with.
Regarding the stock market, being honest with your instincts is the key to getting better returns.
Not just that, for the best investment, you also have to find an honest company to invest in to guarantee favourable returns.
In this case, of financial investment, if the company you’re investing in is not honest to investors, the projected returns can be manipulative or in simple terms, lead to false turns.
Charlie Munger’s investment philosophy recommends growing investors be persistent on their path to success in their stock market journey.
Life and the stock market both are full of uncertainties where you don’t know what will come next and ruin our projections, and in which dealing with such uncertainties and challenges is also part of the process of becoming better.
If you correlate the attitude to dealing with challenges, it directly implies your personality and decides your position, either as a winner or loser.
And in the scenario of the stock market, the only personality that can stand still, until the end is the winning one with the greatest confidence.
So, how can you make your personality the winning one?
Of course, by being a persistent stock market player, either by being the bull of the market or bear of the market.
Whatever personality you choose while dealing with the stock market, always intend to be persistent in your personality, goals, honesty, and principles.
During this big journey as a market leader and successful investor, Charlie Munger always hated self-pity.
As you know, in the stock market, nothing is certain. Sometimes you earn a lot, and occasionally you lose the most. In the negative scenarios, many people tend to get on track of wrong influences, such as developing drinking habits, smoking habits, etc.
On the dark side of the stock market, it is obvious to people to feel self-pity, lose confidence, and develop many other wrong habits.
In his dark times in the stock market, Charlie Munger had never played the victim part and self-pitied himself. Instead, what he did was analyze his mistakes, his blind spots in his projections, and make his base stronger, to not see that time once again.
About this event, Charlie said, “If anyone can help you through your difficult times….it’s you.”
Self-pity always intends to be the victim card and get empathy and attention from people. Seeing the downside of self-pity, Charlie concluded that self-pity for an individual leads to the worst level that can corrupt the person either emotionally or financially.
Therefore, Charlie says that all traders and investors should have a glance at the positive point in the case of equity trading rather than seeing off the pity side.
Then, he continued, if you get profit from your investment, celebrate, but if not, move on to another investment or refresh yourself because sticking to one thing will not give you any conclusion rather than wasting your time and energy.
Charlie Munger once stated the three pillars of stock market investment, including Honesty, Ethics, and Discipline. These three pillars are not only limited to stock market investment but can be referred to business and personal life scenarios.
About the business, honest and disciplined routine practice in an ethical manner can help a lot to grow a business, delivering wealth, smartness, greater infrastructure, and much more.
Using these three principles, any investor and trader can deal with the high bar of the stock market and find ease in the dynamics of the market.
5. A Positive Approach towards Learning New Strategies:
Whether it is about investing in the stock market or any other financial or non-financial matter, a positive attitude towards learning new approaches to deal with issues and solving problems should be anticipated.
In that process, you might be reading countless books, watching videos of subject-matter experts, and reading best practices-related blogs.
You should always keep an attitude of innovation and learn new things.
Charlie Munger says that there are countless solutions available to a single problem, from which, some solutions you already know.
But some you might not know which could be an ideal solution or the best way to deal with the problem as compared to the one you already know. Therefore, in this matter, you’ll have to keep yourself grounded and give other solutions a try by keeping your known ones aside.
The same approach applies to investment strategy. You can’t always use the same approach to strategies for different investments.
In simple terms, every new investment demands a new approach to strategies, and in doing so, you as an investor should anticipate.
6. Make a Checklist:
As an investor, you should set some goals and benchmarks for yourself while planning to invest in any stock or equity.
According to Charles, an investment checklist, keeps investors in discipline, and it’ll include the following parameters:
- Risk: Target stocks with lower risks to protect or recover your investment from going down.
- Self-Reliance: In the domain of investment, every investor, mentor, agent, and counselor has a different opinion, and having a mindset conflict with them is natural. Therefore, you should follow your learning and pave your path to finding success in the investment.
- Questing for better future sustainability: Before investing in any stock, you should do thorough research on the stock, like:
- What makes it a reliable stock investment option?
- How much risk is involved?
- What is the return or investment recovery ratio?
And many other similar questions.
Charlie Munger once said –
“Always take the high road, it’s far less crowded!”
Today, when people are searching for the best deal to get something at the best price but okay to compromise on quality experience, you as an investor should follow the less crowded path where only long-term thinkers are present.
So, in conclusion, what I can say is, investment is something that can’t be thought of for a shorter span. To go most safely, long-term observations and plans are necessary to get the projected results.
Keeping it short, I will say, be informed, active, self-reliant, and strategic to be the best investor like Charlie Munger.