I start with a book about one of my favourite investors: Charlie Munger. Charlie Munger: The Complete Investor is packed full of Munger quotes, cleverly weaved together by Tren Griffin. For anyone new to Charlie Munger, or for those who simply want a refresher in his unique brand of common sense, this book is well worth reading.
Munger is almost unshakeable:
Being a true contrarian takes supreme courage and implacable calm. Buffett talks constantly about the “emotional framework” Graham provides; […] I like to use a word from ancient Greek philosophy to describe this: ataraxia, or perfect imperturbability. You see it when Socrates goes on trial, when Nathan Hale is hanged, when Buffett invests in Goldman and when Charlie buys Wells Fargo the day before the bottom tick in March 2009.
—JASON ZWEIG, EMAIL TO AUTHOR, OCTOBER 2014
Be prepared to react to falling share prices with equanimity.
Be both patient and aggressive:
Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.
—CHARLIE MUNGER, WESCO ANNUAL MEETING, 1996
Be rational and objective.
Munger and Buffett deliberately spend much of their day reading and thinking.
Investors need to be “learning machines”, and should “go to bed every night a little wiser than they were when they got up”.
Munger’s children describe him as a “book with legs sticking out.”
“If you cannot write it down, you have not thought it through.”
It’s 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. There must be some wisdom in the folk saying, “It’s the strong swimmers who drown.”
—CHARLIE MUNGER, WESCO ANNUAL REPORT, 1989
If you cannot value a company, then move on.
Learn from the failures of others and from your own mistakes:
I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.
—CHARLIE MUNGER, BERKSHIRE ANNUAL MEETING, 2011
Fix your own mistakes quickly.
“Seek out wise people who are not afraid to disagree with you.”
Don’t think all problems are solved in the same way:
You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems.
—CHARLIE MUNGER, WESCO ANNUAL MEETING, 2000
The more models you understand, the better your decisions are likely to be.
Minimise the need to make difficult decisions. Stick to your circle of competence. “You have a limited amount of time and talent and you have to allocate it smartly.”
Think about opportunity costs.
To solve a problem, invert it. In order to achieve success, look at how others have failed.
Make a bipolar Mr. Market your servant rather than your master.”
Margin of safety is simply “the difference between the intrinsic value and the current market price.” Redundancy in engineering is an example of the margin of safety principle.
Risk to Munger and Buffett is: “1) the risk of permanent loss of capital, or 2) the risk of inadequate return.”
Having a concentrated portfolio or practising “focus investing” reduces the number of decisions to make.
Buy Charlie Munger: The Complete Investor on Amazon (affiliate link)