3 Fundamental Things About Investing and Life Charlie Munger Can Teach You

These three key investing principles will not only serve to educate you, but should also lead to a more reflected investment approach and likely higher investment returns in the long term.

Sep 1, 2014 at 2:05PM


Source: Wikimedia Commons.

Charlie Munger is Vice-Chairman of Berkshire Hathaway and a close friend of Warren Buffett. Buffett has earned a reputation as a super-successful value investor with a contrarian touch, but Charlie Munger is also an avid follower of the value investing philosophy.

He previously ran his own investment partnership in the 1960s and 1970s and later became chairman of Wesco Financial Corporation, now part of Buffett's Berkshire Hathaway corporate empire.

What makes them so alike is how they approach the complex topic of investing. Their approach to value investing is refreshingly sound and easy to emulate. That's right: Everyone can read up on investing, learn about the importance of understanding financial statements when valuing businesses, and follow classic value investing principles such as "staying away from trading" and "investing in quality companies."

Let's take a look at three crucial things Munger can teach us.

1. Read a lot, read intentionally
Sometimes it can be as simple as that: If you want to expand your knowledge base and increase your circle of competence, you've got to read a lot, proactively seek out new ideas, and be willing to be proven wrong. Education is a constant process, and if you enjoy reading in the first place, the thirst for knowledge should serve you well.

Reading does not only pertain to annual and quarterly company reports, but also industry research, newspapers, magazines, and books of a wide range of topics.

Or take it from Munger himself, who stated: "In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time -- none, zero. You'd be amazed at how much Warren reads -- at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out."

2. Be a contrarian, sometimes
There are really only two positions you can take when it comes to investing: With or against the crowd.

Most people go with the crowd (that is why its called crowd in the first place) and buy stocks everybody else buys. However, successful investors have no problem going against the flow and taking a controversial stance.

If you are actively investing, you need to discount the obvious and make a bet on the unexpected. This is how money is ultimately made in the stock market -- although, of course there is always going to be the risk that you're wrong. But when you've got a powerful thesis that the market is undervaluing, there is opportunity.

Munger phrased it differently, but nonetheless hit the nail on the head: "And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple."

3. Work for people you admire
Of all the information I have gathered about Munger and his way of thinking, this piece of advice clearly stands out.

If you are looking for success in investing or in any other area of your life, you've got to work for people you admire and you would want to be like. If you seek out a certain group of people, you will eventually gravitate in the same direction they do.

In Charlie Munger's original words: "Avoid working directly under somebody you don't admire and don't want to be like."

Munger's willingness to share his investing wisdom as one of two super-investors of Berkshire Hathaway is a big win for investors who look for straightforward investing guidance and who want to emulate his investment success.

The Foolish bottom line
In a world of constant noise and pressure to be active, it is refreshing to see people like Munger and Buffett, who stay true to their beliefs -- the buy-and-hold, value investing philosophy.

Investors can learn a lot from Munger and his calm, reflected, and common-sense approach to investing as well as life. Remember: You don't have to be a billionaire to invest like one.

How to get even more income during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Kingkarn Amjaroen has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers