Lessons from Charlie Munger
The late Charlie Munger, right hand man of Warren Buffett and Vice Chair of Berkshire Hathaway was very generous with his advice on investing, money and life in general.
He was born in 1924, on New Years’ Day and to mark what would have been his 100th year, here are some gems he shared with the world:
Keep it simple
A common misconception about investing is that successful strategies must be complex, requiring great knowledge and insights.
For Munger the very opposite was true. “We have a passion for keeping things simple,” he said. ‘If something is too hard, we move on to something else. What could be more simple than that?”
Stay calm
Munger often argued that one of the simplest things investors can do to outperform is stay rational and calm while others are acting on their emotions.
Stock market crashes are standard feature of investing, and, very occasionally, markets will even halve in value. Investors should stay the course according to Munger:
“If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century,” Munger declared, “you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get.”
Avoid overspending
Probably the biggest single mistake that we make, Munger warned, is spending more than we need to. For example, they buy a bigger and more luxurious house than they need or can afford. Munger himself lived in the same house for 70 years.
“Having a basic house helps you,” he said in an interview with CNBC shortly before he died. “Having a really fancy house is good for entertaining 100 people at once. (But) it’s a very expensive thing to do. And it doesn’t do you that much good.”
A major reason people overspend, is that they’re envious of others’ wealth he said. “The world is not driven by greed. It’s driven by envy. I have conquered envy in my own life. I don’t envy anybody. I don’t give a damn what someone else has. But other people are driven crazy by it.”
Avoid self-pity
“Everybody struggles,” Munger told CNBC shortly before he died. “The iron rule of life is that everybody struggles.”
Munger faced huge struggles of his own. At age 29, he divorced after eight years of marriage and lost everything to his ex-wife, including his house. And that pain was further compounded by the loss of his son from leukaemia.
Years later, cataract surgery in his left eye left him with pain so severe that he eventually had the eye removed. But Munger resisted the urge to drift into self-pity.
“You should never, when facing some unbelievable tragedy, let one tragedy increase into two or three through your failure of will,” he said.
“If you soldier through, you can get through almost anything. And it’s your only option. You can’t bring back the dead, you can’t cure the dying child. You can’t do all kinds of things. You have to soldier through it… You can’t quit.”
Munger was a man of depth and experience, and his views on life generally informed his financial success considerably. Let’s take the opportunity to reflect on his lifetime of wisdom and resilience as the New Year begins.
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