Bottomline | Money and life lessons from Charlie Munger

An embodiment of wit and wisdom, Charlie Munger was not just Warren Buffett’s partner in crime, but also helped reshape the investment philosophy of the Sage of Omaha. And while the investing and life lessons to be drawn from the long and eventful life of Charlie Munger are many, we have tried to capture five each here and contextualise them for Indian investors today using quotes mostly from his last interview with CNBC that was to be aired on Munger’s 100th birthday in January next year. Read on.

CHARLIE MUNGER: Knowing your circle of competency. And that kept me away from those businesses totally (that he knew others were far more competent at). But I am not all that pleased. I could have done a lot better if I had been a little smarter, a little quicker.

Charlie Munger was very quick to admit his failings and that there were some things he was not too good at. Wisely, he chose not to wade into spheres where he lacked competence. The first lesson for investors who do not understand the subject, therefore, is to opt for advice or an investment manager to handle their funds. Here, the investment advisor you choose becomes extremely important, but how to pick one is a subject for another day.

Investing is one thing, trading is another, and more harmful to your financial health. While SEBI has published a paper clearly indicating that for most futures & options trading is a loss-making exercise, this doesn’t seem to have deterred retail interest in this segment. Clearly, unless you are a very seasoned and informed trader, this is something you should best stay away from. For most, this amounts to no less than gambling, as they lack the information and knowledge that most institutional and seasoned players in the segment have. Brokerages pushing trading ideas to clients to drive up their volumes isn’t helping the cause either.

CHARLIE MUNGER: I saw immediately that Benjamin Graham was wrong. The real money was in the really great companies, which carried you up, and up, and up, and up, and up. I did not anticipate when Warren and I were starting with our little, piddly start that we would ever get to $100 million, much less several hundred billion. It was an amazing occurrence.

Charlie Munger was convinced that there was more money to be made in buying good or great companies and staying invested in them. This is also the philosophy that has seen Berkshire Hathaway compound returns at an astounding pace. This opposed to looking for not-so-good companies that offer current market price versus intrinsic value arbitrage—a strategy Warren Buffett practiced in his early days. Hence, when someone asks you to put money in a stock because its asset value is multiple times its current price, think again.

This philosophy also spotlights the value versus growth investing fallacy. Potential value must be derived from future earnings or cash flows or asset value and hence while computing value you can’t ignore growth. Similarly, investing in growth without the anchor of valuation is a sure way to lose money.

CHARLIE MUNGER: The great home runners do not remotely swing at every pitch. They wait for one that they can really handle. And that’s what great stock traders do too.

When making investments, it pays to be patient and to look for the right investment opportunities. You rather sit on cash rather than invest in a stock that you believe will not offer the kind of returns you are looking for. So, don’t say you want to invest a specified sum in the market and go out and buy whatever is available the very next day. Take your time to pick your bets.

CHARLIE MUNGER: If you take out of Warren Buffett’s life the ten most important trips to the pie counter, there were – his whole record would look like dung.

Only a handful of big opportunities in life come, and you must take them and make the most of them. The same holds true for investing. Even for the greatest investors, what has made them successful is that they took bold decisions to invest big in attractive opportunities when they presented themselves. And most such investors got only a handful of them, but these profitable investments made up for all their other indiscretions.

CHARLIE MUNGER: Well, my worst trade was buying a block for the Munger family in Alibaba, which is a pretty good company. But I think it got over-hyped. And Jack Ma was – made mistakes in dealing with the Chinese government. I had some bad – everybody has some bad ones. You have an off day. The greatest tennis player goes out there some days to the center court and has a bad day. It happens.

Everyone makes mistakes, period. But that should not stop you from doing what you must. Stay the course.

CHARLIE MUNGER: Having a basic house really helps you. Having a really fancy house, it’s good for entertaining 100 people at once. It’s a very expensive thing to do. And it doesn’t do you that much good. (Munger lived in the same house for 70 years, Buffett in the same for 60 years)

Like many older generation Indians, Munger believed in saving and investing, not spending. He also pointed to how a lavish lifestyle could have shaped the lives of his children, not for the better.

CHARLIE MUNGER: I drink Diet Coke. I’m sure Diet Coke shortens my life a little. But I don’t give a damn if they – the last week of lying there unconscious is the way It’s only the good part of life I want anyway. And Diet Coke may be helping me skip it. But who knows? It’s helping me skip the last month, not the first month.

There are a lot of things that are good and a lot that are bad. Your decisions must be taken knowing the consequences of your actions. Know the price you might pay!

CHARLIE MUNGER: Everybody struggles. The iron rule of life is everybody struggles.

There are no free lunches!

CHARLIE MUNGER: 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’s son died of leukemia)

You must soldier on, come what may. Everyone has their share of adversities and setbacks in life, but you can’t quit. You have to grind through them and keep moving on. Stay focused on your goals.

CHARLIE MUNGER: Not like Warren. More than half of Munger money has already been passed to the descendants. So, I made exactly the opposite, it’s a smaller amount of money, but I made exactly the opposite decision for the majority of our money. The majority of his money he gave away. And now he didn’t exactly give it away. It goes to Buffett Foundations that go on for another 100 years.

Quite contrary to the philanthropic pledges that several wealthy are taking today, Munger in his ever-candid way has no qualms in stating that he has passed on a large part of his money to his family. Here one must note that Munger’s contributions to charity are no less, he has given huge sums during his lifetime to build universities and student housing.

So, to each his own.

Charlie Munger was a quick wit. Beyond the lessons he offered, his many retorts send out important messages. Here is a small sampling for your reading pleasure.

"If you’re not a little confused about what’s going on, you don’t understand it."

“To the man with only a hammer, every problem looks like a nail.”

“You don't have to pee on an electric fence to learn not to do it.”

“If something is too hard, we move on to something else. What could be more simple than that?”

"I am personally skeptical of some of the hype that has gone into artificial intelligence. I think old-fashioned intelligence works pretty well."

“We now have computer algorithms trading with other computers. And people buying stocks who know nothing, being advised by people who know even less. It’s an incredibly crazy situation ... All this activity makes it easier for us.”

"Now about 95% of