Skip to main content

Lessons from Charlie Munger

Yesterday's post, "Lessons from Warren Buffett", highlighted some of Buffett's shared wisdom on business and investing.

In today's post, we will learn from Buffett's long-time friend and business partner, Berkshire Hathaway Vice-Chairman, Charlie Munger.

While Charlie Munger is not as well known as Warren Buffett, his thoughts on investing, education, and life are highly prized by those who have followed his investment career. Shareholder meetings for Berkshire Hathaway and Wesco Financial Corporation, of which Charlie is the chairman, have yielded many valuable insights from Mr. Munger over the years.

Charlie Munger Caltech videoThis video conversation with Charlie Munger (click #1 in the iTunes playlist or watch on YouTube), filmed at Caltech in March of 2008, is testament to his unique thinking. Here, Munger shares his thought process with students and viewers, and challenges us to think across disciplines. 

Some important points made by Munger in this discussion: 

· Humility was a problem for Munger, especially as a young man. He still recognizes this as a character flaw. Still, he and Warren are very good at recognizing what they don't know. As Charlie says, know the edge of your own competency in a given area. This was an important factor in Berkshire's success. 

· Studying folly. "I was very lucky in my own life because every place I looked, at the pinnacle there was somebody better than I was". Charlie knew he could succeed by studying folly and using common sense (which is uncommon) to avoid it. This was his great advantage. 

· Invert, always invert. Tackle problems by inversion. 

· Charlie always liked finding big ideas which held a great deal of instructive power. He searches through disparate fields of study for these concepts, and uses them with no regard for the territorial boundaries of academic disciplines. He uses these ideas in his daily life, to solve problems and educate himself. 

· Munger likes to collect inanities and learn from them. There is never a shortage of inanities, and he finds them amusing and instructive. 

· Integrating ideas. Munger is interested in integrating ideas taken from seperate disciplines. 

He likes to do this in his head, sorting out ideas that may conflict by learning more or trying to figure out the synthesis for himself. He works to find some explanation for conflicting ideas, rather than retreating to the safety of one's own orthodoxy or discipline, which is what most people do.

· If you understand the main ideas of all the disciplines, you are, by definition, a man in possession of many tools. You are therefore unlikely to commit the inanities made by others, especially those who are more limited in their understanding of the issues. 

· With his expanded base of knowledge and bag of "mental tricks", Munger feels he is able to enter new areas and can sometimes solve problems that might have stumped people who are more experienced or eminent in those fields. 

This gives him the flexibility and confidence to operate in areas outside his own. He notes, "this is a very dangerous attitude to have in ordinary social discourse, but it's a very good way to make money". 

· Charlie idolizes Benjamin Franklin for his very wide range of knowledge, and the competency which he showed over the full range. He notes that Franklin was also self-educated and a wise observer of human nature. A thirst for learning and knowledge of human psychology are often attributes of successful investors. 

· Focus on the big ideas and use common sense to pick up the obvious finds. Charlie uses a gold mining anology: he would rather look for the big nuggets of gold than spend his time placer mining and sifting through gravel, trying to uncover small pebbles. 

There is plenty more to hear and learn in this discussion, so be sure to bookmark this post and view the whole clip when you have time. Enjoy the lessons, and apply them as you see fit! 

 

Related posts:

1. Lessons from Warren Buffett.

2. Lessons from Market Wizard, Ray Dalio.

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean