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Investing like Charlie Munger: 5 valuable tips
As Vice-Chairman of Berkshire Hathaway, Charlie Munger partnered with Warren Buffett for more than 50 years to build the company into a global benchmark, now valued at more than USD 1 trillion. Under his co-leadership with Buffett, Berkshire Hathaway has grown at an average annual rate of about 15% over the last 50 years, outperforming the S&P 500 Index’s 8.4%.
Munger has left a legacy that goes far beyond numbers. Over the course of his career, he shared a number of fundamental lessons that continue to inspire investors of all generations.
Who is Charlie Munger?
Charles Thomas Munger was born in 1924 in Omaha, an American city known for its community spirit and social diversity. He learned the value of work from an early age, starting his career in a neighbourhood grocery store owned by Warren Buffett's grandfather, where he earned just two dollars for ten hours of work..
He studied mathematics at the University of Michigan and, after serving in the Air Force during the Second World War, entered Harvard Law School, where he laid the foundations for a highly successful career.
He began working with Warren Buffett at Berkshire Hathaway in 1964. Together they transformed the company into one of the world's most valuable corporations. While Buffett was the public face of Berkshire, Munger preferred to stay out of the limelight and was known for his pragmatism and critical thinking – qualities that earned him the nickname "the abominable no-man”.
Charlie Munger died in November 2023, leaving behind a priceless legacy and eight children.
Charlie Munger: 5 investment lessons to keep in mind
There is no magic formula for investing like Charlie Munger. However, some of his key strategies can help any investor make more informed decisions.
1. Achieve financial independence through knowledge
Munger believed that knowledge and the ability to think for oneself were the basis of success. Rather than accept the opinions of others or "conventional wisdom”, he and Buffett, both self-taught, constantly sought out reliable information. For Munger, it was important to know the opinions of respected thinkers, but also to maintain a critical spirit and defend investors with different points of view.
He also advocated a disciplined approach to personal financial management, reinvesting whenever possible to maximise capital growth.
What to do:
• Spend time studying and understanding investments based on sound financial analysis, not just trends;
• Make reinvestment a priority to help grow your capital;
• Be inspired by famous investors, but always question their strategies and advice.
2. Define your circle of competence
Charlie Munger believed that an investor should have a clear understanding of his/her strengths and trade only in that area. He divided his investment decisions into three groups: "yes”, "no” and "too hard to understand”. By investing only in businesses he understood, he avoided taking unnecessary risk and was able to identify the best opportunities.
Although he appreciated the importance of intellectual humility and lifelong learning, he distinguished between knowledge (the basic understanding of various subjects) and competence (the more limited areas of an investor’s strengths).
What to do:
• Identify the areas and sectors in which you have in-depth knowledge and focus your investments there;
• Keep learning, but avoid areas where you only have a superficial understanding of the subject;
• Keep your investment decisions simple and based on criteria you can easily understand.
3. Avoid wasting time trying to predict the future
Munger believed it was pointless to try to predict the future and avoided following the "froth of the market”. Instead, he looked for good long-term investments, arguing that it was easier to identify successful and understandable companies than to anticipate macroeconomic trends, as the sheer number of variables made this task almost impossible.
His principle was simple: invest in good, reasonably priced companies and hope for sustainable growth over time.
What to do:
• Pick well-established companies with a solid business model that you understand, rather than trying to predict what will happen in the short term;
• Stick to a long-term strategy and don’t get carried away by the latest fads;
• Avoid making emotional decisions and stick to a consistent plan for building wealth.
4. Wait for the best opportunities
Munger’s greatest virtue was perseverance. He believed that investors should save their capital so that they could invest only when exceptional opportunities arose. As he used to say: "The big money is not in the buying and selling, but in the waiting.” Indeed, he believed that one of Berkshire’s competitive advantages was its management’s ability to "stay sane while others go crazy”.
He also believed that an investor should be prepared for major crises throughout their life, such as the bursting of the technology bubble in the 2000s or the financial crisis of 2008. The key to succeeding in such times lies in having the discipline and liquidity needed to seize the best opportunities.
What to do:
• Avoid impulsive investments and focus on long-term capital growth;
• Before investing, identify companies with sustainable growth potential;
• Be patient and wait for the best opportunities.
5. Buy excellent companies
Munger encouraged investors to look for quality rather than low prices, challenging the traditional value investing approach of buying undervalued companies. He persuaded Buffett to adopt a new philosophy: to focus on acquiring quality companies at fair prices, rather than looking for seemingly "cheap” opportunities.
This principle is evident in Berkshire Hathaway’s investment decisions in companies such as Coca-Cola. The company first invested in Coca-Cola in 1988 and today it is one of the most successful investments it has ever made. Today, Berkshire still owns about 400 million shares of Coca-Cola, representing 9.1% of its total portfolio.
Coca-Cola share price performance (last 45 years)
Source: Yahoo Finance
What to do:
• Make the acquisition of exceptional companies a priority, even if the price is not the lowest;
• Analyse the company’s ability to generate consistent payouts over time;
• Be prepared to invest in solid companies, even if the returns aren’t immediate;
• Re-evaluate your investment decisions as you learn and grow financially.
Make strategic investments with the best tools and solutions
Charlie Munger taught us that success in investing requires knowledge, patience and careful decisions. At Banco Carregosa, we put these principles into practice with solutions that allow you to be an informed and effective investor.
With GoBulling, our advanced trading platform, you have access to the financial markets and can put your strategies into practice. We also offer a wide range of investment solutions, from funds and asset management to specialist advice, to help you find the best opportunities for your profile and objectives. Invest with confidence. Contact us.