How Warren Buffet's Right Hand Man Achieved Astounding Success

Image by S K from Pixabay

Charlie Munger's ideas on investing and success

“Spend each day trying to be a little wiser than you were when you woke up. Day by day, and at the end of the day if you live long enough-like most people, you will get out of life what you deserve.” ― Charles T. Munger, Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger

Warren Buffet's right-hand man, Charlie Munger, has achieved astounding success.

He was a lawyer in war II before he became an investor. His rise to success is attributed to his stance on investing and how he manages risk.

A key point that came out of the Berkshire Hathaway Annual Meeting this year was that "it's not what you don't know that hurts you; it's what you know that ain't so."

This quote highlights the importance of being flexible when making decisions about your business by acknowledging your own personal biases and taking them into account while assessing all available information.

Assume risk

Charlie Munger's success has been attributed to his ability to acknowledge and assume risk while limiting the downside.

He is always seeking undervalued investments that might bring a higher return than other options out there in the market.

His mindset towards investing can be summarized by one of Warren Buffet's favorite quotes: "Price is what you pay, value is what you get."

It's All About The Margin of Safety

Charlie Munger has always advocated for a margin-of-safety approach to investing.

He takes time to understand all aspects of the underlying business and uses this information as preventative measures against mistakes.

By understanding where he can make improvements on the business, he is able to avoid making mistakes that could potentially cost him millions.

“Risk comes from not knowing what you're doing… If investing is like boxing, then you want to have a boxer's temperament-a cool head in the midst of chaos." -Warren Buffett

Munger's long term approach to investing

Investors like Charlie Munger are not concerned with short-term success.

He believes in taking the long view of things and placing his emphasis on what you can control, rather than worrying about uncontrollable factors that may impact an investment's performance.

He is quoted saying: "I don't look to jump over seven-foot bars: I look around for one-foot bars that I can step over."

The three steps of rationality and intuition

He believes in the three steps of rationality to ensure success.

  • Step One is understanding what you know
  • Step Two is understanding what you don't know
  • and finally Step Three focuses on what you need to know.

Once this process is complete, Munger believes that the best decision can be made with rational intuition.

Charlie Munger's Principles Of Investing

He has always advocated for undervalued investments and taking time to understand all aspects of a business.

By understanding where he can make improvements on the business, he is able to avoid making mistakes that could potentially cost him millions.

He has always advocated for taking the long view of things and placing his emphasis on what you can control, rather than worrying about uncontrollable factors that may impact an investment's performance.

Charlie Munger's success is attributed to his ability to read.  A lot

He makes it a regular habit of reading books and magazines, as well as newspapers.

"I just read Turbanomics in the Financial Times about how the war between China and Islam began," he commented. "It reinforces my belief that most wars have been most warlike at their outset."

Here are a few things Charlie has said about how much he truly values reading and how they have led to his (and others' success).

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero.”

“You’d be amazed at how much Warren reads – at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”

“As long as I have a book in my hand, I don’t feel like I’m wasting time.”

“I’ve gotten paid a lot over the years for reading through the newspapers.”

“I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading. I don’t think any one book will do it for you.”

“For years I have read the morning paper and harrumphed. There’s a lot to harrumph about now.”

“We read a lot. I don’t know anyone who’s wise who doesn’t read a lot. But that’s not enough: You have to have a temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them.”

“By regularly reading business newspapers and magazines I am exposed to an enormous amount of material at the micro-level. I find that what I see going on there pretty much informs me about what’s happening at the macro level.”

“Warren and I do more reading and thinking and less doing than most people in business. We do that because we like that kind of life. But we’ve turned that quirk into a positive outcome for ourselves. We both insist on a lot of time being available almost every day to just sit and think. That is very uncommon in American business. We read and think.”

“If you get into the mental habit of relating what you’re reading to the basic structure of the underlying ideas being demonstrated, you gradually accumulate some wisdom.”

“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.”

“I met the towering intellectuals in books, not in the classroom, which is natural. I can’t remember when I first read Ben Franklin. I had Thomas Jefferson over my bed at seven or eight. My family was into all that stuff, getting ahead through discipline, knowledge, and self-control.”

poor charlies almanac
Take advantage of his knowledge by reading his book, image courtesy of GoodReads 

Charlie Munger's Success Mantra

"It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent."

I think the most important part of success is finding out what talents and skills you have and where you can use them.

I always knew that I was good at math and science and so when I fell in love with coding, I went for it. When I found my niche, everything else kind of fell into place.

Once you have figured out your strengths then you are able to focus on them.

The other thing that Charlie Munger talks about is knowledge.

When you are trying to be successful, it doesn't matter what type of knowledge it may be as long as you are expanding your mind.

Being knowledgeable is key to success and it will help you as you continue down this path.

The Psychology of Human Misjudgment, A speech by Charlie Munger

In this speech, Charlie goes into detail about cognitive biases.  He writes...

An example of an irrational belief that causes procrastination is when people are in denial about when they are going to die.

How do you know you are in this situation?

When people say things like "I'll stop smoking when I'm old" or "I'll diet right after my wedding." They have a sense that they are never going to get around to doing anything because they don't want to confront their mortality.

Many of us have the so-called cognitive biases that mess with our thinking.

Here is my list of psychology-based tendencies that, while generally useful, often mislead:

  1. Reward and Punishment Superresponse Tendency
  2. Liking/Loving Tendency
  3. Disliking/Hating Tendency
  4. Doubt-Avoidance Tendency
  5. Inconsistency-Avoidance Tendency
  6. Curiosity Tendency
  7. Kantian Fairness Tendency
  8. Envy/Jealously Tendency
  9. Reciprocation Tendency
  10. Influence-from-Mere-Association Tendency
  11. Simple, Pain-Avoiding Psychological Denial
  12. Excessive Self-Regard Tendency
  13. Overoptimism Tendency
  14. Deprival-Superreaction Tendency
  15. Social-Proof Tendency
  16. Contrast-Misreaction Tendency
  17. Stress-Influence Tendency
  18. Availability-Misweighing Tendency
  19. Use-It-or-Lose-It Tendency
  20. Drug-Misinfluence Tendency
  21. Senescence-Misinfluence Tendency
  22. Authority-Misinfluence Tendency
  23. Twaddle Tendency
  24. Reason-Respecting Tendency
  25. Lollapalooza Tendency—The Tendency to Get Extreme Consequences from Confluences of Psychology Tendencies Acting in Favor of a Particular Outcome

In order to be successful, it's important for you to learn more about these biases and watch out for them in your own thinking.

Takeaways

It can be tough to find success and happiness.

All of our psychological processes, cognitive biases, and emotional responses work together to create success and happiness.

In this article, we've highlighted some of Charlie's ideas about success and happiness that you can use to get the ball rolling for your own investing and success.

These words should help give you direction in both personal and professional realms as you look for ways to increase your income or build a more successful business.

I hope these insights will be valuable for you as they have been for me!

Randy Salars

Randy Salars

Copywriter and marketing consultant. Author of ‘Stories And Recipes From The Soup Kitchen.’ Freedom lover, adventurer, and treasure hunter.
Silver City, NM, USA