5 Smart Money Lessons from the Investing Life of Charlie Munger

Last week, the great investor, Charlie Munger, who is a long-time partner of Warren Buffett died at the age of 99. The first thing you must have noticed is that he lived long. And if you are familiar with him, you'll notice that it isn't just because he had money for the best healthcare. He was a very practical and cheerful soul. He and Buffett were good at cracking jokes and laughing their brains out.

There were a few things that made him a legendary investor that we can all learn from. Here are 5 of them:

1. Have a Strategy and Stick to It

Mike Tyson has a famous saying that everybody has a plan until they get punched in the face. The discipline to stick with your strategy when everybody is making more money. That is very rare in today's investing world.

The big problem of investing without a strategy is that when things go south, you panic like everyone else. You begin to follow the crowd. And when you begin to follow the crowd, you start losing.

There are 3 hedges in investing to stand out. You either be first, be best or be different. Hedge funds invest millions of dollars into being first. They want the fastest tech so that when something starts moving, they can jump in first. If you are not on that level, you can't be first. Just forget it.

The second is to be best, which is mostly based on track record. Very few people can boast of that. And of course, Berkshire Hathaway, which Charlie Munger was second in command was considered the best in the last few decades. But before then, they were different.

Their investing strategy was to buy good companies that would stand the test of time and never sell. They stuck to that strategy and it made them super-rich. Maybe the long-term view also gave them a long life.

The lesson here is not to copy their investing strategy but to have your strategy and stick to it. Sit down to craft a strategy that will work for the long term and stick to it.

2. Understand What You Are Investing In

Berkshire Hathaway buys businesses. I like how they don't call them "companies" or "startups". They didn't invest in Apple (for example) until they understood the business. Many would say that they were late on that. But I think they got in at the right time.

Today, there are people investing in REITs, crypto, ETFs, and so on, who don't know what they are buying. They don't understand what they are investing in. There are people who own bonds and don't understand how the bond market works.

Many people don't know that bonds are paid with taxes. So if you own a lot of bonds and you are against the government boosting their revenue through taxes, you are contradicting your finances. Yes, it is possible to boost government revenue without taxes, but the world has gone too far in the opposite direction.

Know what you are buying. Know what you are selling. Charlie Munger knew what he was buying. And he rarely bought anything to sell it.

3. Don't Copy Others

There will always be a new thing. There will always be a new trend. There will always be the latest shiny object making millions for investors. If you don't have a process or strategy for dealing with such things, you will lose money.

Charlie Munger was known to always bash bitcoin. It was the stance of Berkshire Hathaway. And while lots of young people don't like him for that, that attitude of not jumping blindly into something new is what made him super rich.

Both he and Buffett don't get why bitcoin is the way it is. And hence, they stay away. Also, they understand the power of their endorsement for such a financial instrument. Bitcoin also threatens the financial system on which the whole of their wealth is built.

They stick with what they know. They keep buying good businesses and turning a profit. It doesn't matter if the trending thing making others easy cash. Also, bitcoin doesn't line up with their goal of steady returns over time. Wild swings in prices for something that doesn't pay a dividend or yield is not their area at all.

When someone tells you what is making money for them, that is not a surety that you should jump in. In fact, you shouldn't. Copying others might make you some money in the short run. But in the long run, you lose big.

And worse of all, you panic when you start losing. This makes recovery 100 times harder. Stick with your philosophy of investing (as long as it is working).

4. Make Great Partnerships

Charlie Munger was a great investor by himself. But he became a legend when he teamed up with Warren Buffett. Sometimes, being number 2 can be much better than being number 1.

I have shared many times that it is better to have 2% of 100 billion than to have 100% of 1 million. And this is something that holds a lot of people back from realizing their highest potential.

Many times, the desire to be number 1 is driven by ego. Charlie was number 2 to Warren Buffett for most of his life. And that was good enough for him. We never hear him fighting his partner or trying to take the number 1 spot.

People like Charlie today are rare finds. And we need more people like that. The world will be a horrible place if everybody tries to be number 1. For every big star you see in the world today, there are lots of people who have relegated themselves to number 2 to help number 1.

Sometimes, the best thing that can happen to you financially is to become number 2 to someone. I have seen people at fulfilling number 2 roles try to become number 1 and they fade out completely.

Great partnerships are rare finds. But one great partnership is worth 1,000 do-it-yourself projects. If you have a great partner today, hold on tight.

5. Be Easy to Work With

Warren and Charlie don't lord their authority over the companies they own. In fact, business owners are happy to sell their companies to Berkshire Hathaway and continue being the CEO. This is because they are so easy to work with.

They are straightforward, practical, and are very transparent. They have a great sense of humor too. They would spend hours answering shareholder questions. Everybody wanted to be associated with them.

You get the sense that they don't take life too seriously. And this is a lesson, especially to the young generation who are being trained to be easily offended by any slight thing. I don't ever recall seeing Charlie Munger get involved in a media brawl with anyone. He is just "happy-go Charlie" all the way.

Be easy to work with. It will open doors for you in business. A few years back, the first guy I worked with when I started writing online reached out to me. He was starting a new venture and wanted me to write for him. I told him I couldn't as I had become busy with my own thing. But I recommended someone else we had both worked together under him who I know was looking for a job at that time. And he said he would prefer not to work with that person again ever. This person never knew she missed an opportunity.

Be easy to work with.

Conclusion

5 smart money lessons from the investing life of Charlie Munger that we can all learn from:

1. Have a strategy and stick to it

2. Understand what you are investing in

3. Don't copy others

4. Make great partnerships

5. Be easy to work with

Stay rich.

P.S. Read why stocks and bonds did great in November 2023