3 Major Tips From Charlie Munger on Investing

This article is an excerpt from the Shortform book guide to "Poor Charlie's Almanack" by Charles T. Munger. Shortform has the world's best summaries and analyses of books you should be reading.

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Why should you listen to Charlie Munger on investing? What are Munger’s recommendations on investing?

You should listen to the recommendations of Charlie Munger on investing because he along with Warren Buffet successfully built Berkshire Hathaway from a textile mill into a massive conglomerate. Their success has made them legendary in the investment community. Munger’s advice to investors is to always wait patiently for great opportunities, and be decisive when those opportunities come along.

Read on to discover the recommendations of Charlie Munger on investing in the stock market.

Charlie Munger On Investing

Poor Charlie’s Almanack doesn’t explore Berkshire Hathaway’s decisions much, but the book does share the general investment philosophies and practices of Charlie Munger on investing in the stock market that have made him and Warren Buffet successful over decades. In this chapter, we’ll discuss the key recommendations of Charlie Munger on investing.

Be Patient But Decisive

Warren Buffett and Charlie Munger make successful investments because they’re able to wait patiently for great deals. Unlike many investors, they don’t mind staying inactive, even for years at a time, when they don’t see great opportunities. However, when they do see great opportunities, they bet big. 

When Warren Buffett lectures at business schools, he’s known for saying that everyone would make better investments if they were given a punch card with twenty slots in it and were restricted to only twenty investments throughout their entire lifetime. Once they punched all twenty holes, they would be able to make zero additional investments. Under these conditions, investors would be much more discerning about which investments to pursue, and they’d bet big on the few investments they found.

Wait for the Great Opportunities

Munger waits for business deals that aren’t just good opportunities, they’re so obviously good that they’re “no-brainers.” The rest of the time, they don’t do anything.

This makes life easier by simplifying how much you need to know. One major piece of advice by Charlie Munger on investing is that you don’t need to know how to do everything in every business and have a hundred valuable insights in your life. Instead, you just need to have two or three very important insights and bet big on them. Munger notes that Berkshire Hathaway was really built on the top ten decisions they’ve ever made.

Being patient has practical benefits too—when you make fewer transactions, you pay less in broker fees, you pay less in taxes (presumably through less frequent realization of capital gains), and you can tune out a lot more noise about irrelevant details.

Be Decisive When You See Great Opportunities

The third tip by Charlie Munger on investing in the stock market is that when you do see a great opportunity, then bet big on it. Don’t bet tepidly, what Munger calls “buying with an eyedropper” what they should be buying in volumes. And even worse, don’t sit on your hands and do nothing. Munger states that the biggest errors in Berkshire’s history were “mistakes of omission”—they saw the opportunity, but didn’t act on it, and so lost billions in value.

This often means countering the common ethos of the time. When markets plunge, the herd mentality is often fearful, when in reality this is when things are cheapest and the deals at their best. In these situations, Munger and Buffett buy more of a stock they like as the prices keep dropping.

3 Pro Tips From Charlie Munger on Investing

Joseph Adebisi

Joseph has had a lifelong obsession with reading and acquiring new knowledge. He reads and writes for a living, and reads some more when he is supposedly taking a break from work. The first literature he read as a kid were Shakespeare's plays. Not surprisingly, he barely understood any of it. His favorite fiction authors are Tom Clancy, Ted Bell, and John Grisham. His preferred non-fiction genres are history, philosophy, business & economics, and instructional guides.

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