A Dozen Things I’ve Learned from Charlie Munger (Distilled to less than 500 Words)

This is the last post in a 12 part “Dozen Things” series on Charlie Munger.  Collectively the first 11 posts are nearly as large as a book.

The intent with this post is to distill Charlie Munger’s approach to making decisions to less than 500 words.  If you don’t have the patience to read 500 words, I can’t help you.

1. STAY IN YOUR CIRCE OF COMPETENCE: Know the edge of your own competency. It is not a competency if you don’t know the edge of it.

2. MAINTAIN A MARGIN OF SAFETY: Buy assets at a bargain so your investing results can be financially attractive even if you make a mistake. Price is not always the same as value. Avoid big mistakes. Reputation and integrity are your most valuable assets. Reputation earned over a lifetime can be lost in seconds.

3. THINK INDEPENDENTLY AND WITH OPPORTUNITY COST IN MIND: Markets and crowds are not always wise. Allocate your time and other resources to your most attractive opportunities. The highest and best use of a resource is always measured by the next best use.

4. BE INTELLECTUALLY HUMBLE: Recognize that the world is genuinely complex and that what you know is a fraction of what you still don’t know. Wait for what you expect rather try to forecast timing. Think about second order and above impacts of anything.

5. BE SMART BY NOT BEING STUPID: Tune out stupidity. The greatest and most important risk is permanent loss of capital, not just volatility in price. Only accept risk when you are properly compensated for assuming that risk. Activity for its own sake is not intelligent.

6. BE PATIENT, BUT AGGRESSIVE WHEN IT IS TIME: Great opportunities do not appear that often, but when they do appear they won’t last long so you must be aggressive when the time is right. When the odds of success are very substantially in your favor, bet big.

7. BE PREPARED: Great investments are hard to find but by consistently working hard you might find a few of them. You only need to find a few great investments in a lifetime.

8. KEEP IT SIMPLE: Apply organized common sense when solving a problem or when doing an analysis of an opportunity. Think more and calculate less. Avoid false precision and unnecessary transaction costs. Try not to interrupt interest that is compounding. Focus on being a business analyst, not a macroeconomic forecaster. Pay attention to the business cycle, but don’t try to predict it.

9. ACCEPT CHANGE: Avoid master plans since change is the only constant in life. Adapt. Look for evidence that would dis-confirm your own ideas. Understand arguments from all sides. Face your problems.

10. THINK BROADLY: Use multiple models from many disciplines in doing an analysis. Borrow the great ideas of the best thinkers in every discipline. The antidote to man with a hammer syndrome is a full set of tools.

11. AVOID HUBRIS: Try to avoid fooling yourself, which is hard since it is easy to do. Understand that more of success in life is luck than you imagine.

12. KEEP LEARNING: Be a learning machine. Never stop reading. Be curious. Surround yourself with smart people. Set aside time to read and think.

Warren Buffett: “There’s no successor to Charlie Munger. You’re not going to find anyone like him. He’s got a real fan club, but for good reason. I’m a member, too.” http://www.rbcpa.com/Munger_FT_20090712.html

10 thoughts on “A Dozen Things I’ve Learned from Charlie Munger (Distilled to less than 500 Words)

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  5. My boss is a money manager with nearly $300M in assets under management.

    He sends out a bi-weekly newsletter via email to clients (approximately 200) about the market and his investment outlook. He often includes links to articles he thinks his clients may find valuable, interesting or amusing.

    He would like permission to link to this blog post in a future newsletter.

    He does not receive compensation for the newsletter, though it is part of his general communication and value-added marketing strategies. He would not reproduce, excerpt or even comment on the article; he would simply like to include a general description and the link to the page within the body of his digital newsletter.

    Please reply with permission to link.

    Thank you for your consideration.

  6. I just discovered your site and love all of the Munger stuff. Buffett is great too, but I’ve always thought Munger is the real brain of the operation. Perhaps Buffett confirmed this, just a little bit, on page 26 of the 2014 Berkshire letter:

    “From my perspective, though, Charlie’s most important architectural feat was the design of today’s
    Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.”

    Anyway, I’m looking forward to making my way through your material.

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