The Top 5 Investment Lessons from Charlie Munger

The Top 5 Investment Lessons from Charlie Munger

Charles “Charlie” Munger, the esteemed Vice-Chairman of Berkshire Hathaway and a significant figure in the world of investments passed away recently, leaving behind a legacy revered across the globe.

Berkshire Hathaway has remarkably averaged a 19.8% annual return since 1965, a feat notably surpassing the S&P 500’s 9.9%. Munger, pivotal since joining the firm in the mid-1970s, was unequivocally instrumental in this achievement. Warren Buffett aptly acknowledged Munger’s pivotal role, stating, “Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom, and participation.”

While characterised by his understated demeanour, Munger’s insights on investing and life resonate profoundly. Alongside Berkshire Hathaway’s success, his personal net worth was estimated at $2.7 billion. In honour of his legacy, I’ve distilled five of his most compelling investment insights.

1. Embrace the Long Term. “The big money is not in the buying or the selling, but in the waiting.” Investing necessitates a long-term perspective, where the most successful stocks often take time to realize their potential. The focus should not waver to short-term fluctuations.

Consider the narrative of investors who acquired shares in a quality company years ago and, through a buy-and-hold approach, now witness its substantial value appreciation. For instance, Berkshire Hathaway’s significant holding in Apple (NASDAQ: AAPL) saw its value surge from US$19.86 in November 2013 to US$190.40 today. Even amidst price fluctuations, holding such investments reaps dividends alongside capital appreciation. Similarly, CSL (ASX: CSL) stands at $256.88/share presently, up from $67.30/share a decade ago, consistently yielding dividends.

2. Tune Out the Noise, Focus on Fundamentals. “Like the weather, I just ignore the weather. I just try to invest whatever capital I have as best I can and take the results as they fall. I just seize whatever opportunities I can and I hope I get my share.” Amid market volatility, a well-managed company’s fundamentals persist. Short-term market shifts needn’t dictate selling decisions if the core value proposition remains intact.
3. Continual Learning and Persistent Effort. “Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Slug it out one inch at a time, day by day.” Methodical and informed decisions, coupled with ongoing education, benefit both investing and life choices.
4. Avoid Investment Pitfalls, No Need to ‘Outsmart’ the Market. “Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Slug it out one inch at a time, day by day.” Staying grounded in investing basics, relying on proven companies rather than speculative maneuvers or unfamiliar techniques, can mitigate risks. A cautionary note against impulsive actions, such as following hot tips without thorough understanding.
5. Acknowledge Limits and Seek Expertise. “Acknowledging what you don’t know is the dawning of wisdom.” Understanding one’s expertise boundaries is pivotal. Seeking specialised guidance when unfamiliar with certain sectors or assets, or delegating investing tasks to experts, is a prudent strategy.