Charlie Munger's Advice for Striking It Rich

It's been well documented that Warren Buffett spends most of his time reading, and he attributes the secret of his success to spending most of his day hunkered down in the details of company annual reports, business periodicals, and numerous other books. The same can be said for Charlie Munger, best known as Buffett's right-hand man and co-chairman of Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) .

Describing Munger as Buffett's sidekick ignores much of Munger's talent, because Munger also happens to be a billionaire who's made a name for himself through a deadpan yet hilarious delivery of timeless investment advice. It's clear that he's had a beneficial impact on Berkshire's success, as well as that of Wesco Financial, a Berkshire subsidiary that Munger leads

Like Buffett, Munger concedes that being well-read has proved invaluable in earning superior investment results through holdings such as Costco (Nasdaq: COST  ) , where he is also on the board. In that spirit, for those interested in learning more about Munger, his enduring investment philosophies, and his views on just about everything, let's go through an overview of three key books that make the rounds during Berkshire's annual shareholder meeting in Omaha.

Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger, edited by Peter Kaufman
Now in its third edition and topping out at more than 500 pages, Poor Charlie's Almanack offers the most thorough and insightful summary you'll find on why Munger has become an investing legend. Buffett and Munger cooperated on this book as a collection of writers compiled Munger's biographical details, lectures, and public commentaries. There are also countless interviews offering a firsthand account of Munger's personal life and investment wit.

The best chapters cover a series of talks Munger gave from 1992 to 1995, collectively titled "The Psychology of Human Misjudgment," in which he summarizes 25 inherent psychological traits that frequently trip up investors. I read through the second edition recently and can't recommend Poor Charlie's Almanack enough.

Seeking Wisdom: From Darwin to Munger, by Peter Bevelin
I picked up a copy of Seeking Wisdom at this year's meeting. What drew me to the book is its overview of world-renowned thinkers who have a penchant for thinking clearly and avoiding the psychological pitfalls that cause humans to act irrationally.

Chock-full of findings from many academic disciplines, the book mirrors Munger's thinking that a combination of factors, or "Lollapalooza effects," work together in producing potentially exponential investment returns. Berkshire's holdings in Coca-Cola (NYSE: KO  ) , Wells Fargo (NYSE: WFC  ) , and Procter & Gamble (NYSE: PG  ) are prime examples of the benefits of these effects.

Influence: The Psychology of Persuasion, by Robert Cialdini
A frequent recommendation from Munger himself, Cialdini's Influence dives into the art of persuasion and the tactics that salespeople successfully employ to persuade people to buy goods. It's fascinating to see how savvy marketers effectively employ compliments, clothing, and social acceptance to get you to buy a product. Better yet, Cialdini offers a game plan to better withstand their sly advances. I can't say it will prove successful in negotiating a lower price for my next Ford (NYSE: F  ) , but the lessons the book has taught me so far are definitely eye-opening.

So if you want to learn from the investing masters, consider picking up some of these books. As Munger and Buffett would attest, sitting on your rear end cozied up with a good read has its advantages.

Berkshire and Costco are both recommendations of Motley Fool Stock Advisor. Take a look at all of the stocks we're currently recommending with a free 30-day trial.

Fool contributor Ryan Fuhrmann is long shares of Wells Fargo but has no financial interest in any other company mentioned. Feel free to email him with feedback or to further discuss any companies mentioned here. The Motley Fool owns shares of Berkshire Hathaway. Berkshire and Coca-Cola are selections of Motley Fool Inside Value. The Fool has an ironclad disclosure policy.


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  • Report this Comment On June 27, 2008, at 4:27 PM, clear1 wrote:

    Great article. Charlie Munger teaming up with Warren Buffett decades ago was another "lollapalooza effect" that is often overlooked with the notoriety of Mr. Buffett. Poor Charlie's Almanack should be required reading for anyone in Business School. There is a great article on 25 Reasons to own Berkshire Hathaway on www.summit-advisors.com You can also find some great talks given by Mr. Buffett to business school students on www.youtube.com by searching under "warren buffett".

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