5 Charlie Munger Quotes That Will Make You a Better Investor

Had Warren Buffett never been born, there's a good chance we'd award the "world's greatest investor" honor to his right-hand man, Charlie Munger. Not only is Berkshire Hathaway's (NYSE: BRK-A  ) co-chairman a phenomenally talented investor, but he'd probably school almost anyone in a debate about philosophy, biology, physics, or just about any other topic. The man's disturbingly smart.

I'd continue this introduction, but as Munger might bluntly say, "Nobody would listen." Without further ado, here are five Munger quotes you should study before making another investment decision.
 
1. "This is really crucial: Warren [Buffett] is one of the best learning machines on this earth. The turtles who outrun the hares are learning machines. If you stop learning in this world, the world rushes right by you."

Investing is so much more than a game of numbers. If you've mastered Microsoft (Nasdaq: MSFT  ) Excel and can tear apart an annual report like it's no one's business, you're on the right track, but that's hardly the end of the road. You're probably just as likely to catch Munger reading the biography of a Roman emperor as you are The Wall Street Journal. Why? Because he's intently curious about all aspects of life. He wants to learn everything. It's his and Buffett's intense desire to probe into everything they find -- to ask, "Why is that? Tell me more!" -- that ultimately drives their quest to find spectacular investments

2. "I think that one should recognize reality even when one doesn't like it -- indeed, especially when one doesn't like it."

There's a big difference between not swaying into the madness of crowds and not realizing when the facts have changed and adjusting accordingly. Unfortunately, it's incredibly hard to come to terms with this when your investments are gushing red ink. Not to pick on a battered soul, but Crocs (Nasdaq: CROX  ) provides a good example. Its raging popularity and surging stock price were nearly impossible to ignore, especially in the wake of soaring inventory levels and expectations a Romanian gymnast couldn't keep up with. The reality was that Crocs was a good company with a dramatically unrealistic stock price. Those who didn't recognize reality paid dearly.

3. "To me, it's obvious that the winner has to be very selective. It's been obvious to me since very early in life. I don't know why it's not obvious to very many other people."

It's easy to get caught up in grandiose dreams about successful investments, which typically leads to rushing out and putting your hard-earned money to work as soon as possible. But think about it: If, every time you sat down at your computer in search of a winning investment, you actually found one, the good ideas would quickly be exploited and outsized returns would never exist. The big winners -- like buying Amazon (Nasdaq: AMZN  ) after the dot-com crash or Google (Nasdaq: GOOG  ) on its IPO day -- come around very, very seldom.

4. "Mankind invented a system to cope with the fact that we are so intrinsically lousy at manipulating numbers. It's called the graph."

Got that, chartists? If the past were a road map to the future, your high school history teacher wouldn't be driving a 1979 Volvo wagon. To pull a quote from Buffett, "I realized that technical analysis didn't work when I turned the chart upside down and didn't get a different answer." Seems simple enough, but the amount of people trying to foretell the future with squiggly lines is downright bewildering. When Devon Energy (NYSE: DVN  ) shot up almost 40% in the last year, it had nothing to do with its 200-day moving average. When Sirius XM Radio (Nasdaq: SIRI  ) fell 55% in the past 9 months, it had nothing to do with a "head-and-shoulders" pattern. Honestly. It didn't.

5. "Some people seem to think there's no trouble just because it hasn't happened yet. If you jump out the window at the 42nd floor and you're still doing fine as you pass the 27th floor, that doesn't mean you don't have a serious problem. I would want to address the problem right now."

This quote reminds me of one thing: investors who know darn well a stock is overvalued, but insist on holding it because "it's still going higher." I guess it's only natural: The thought of selling something, only to watch it climb ever higher, can be a miserable one. The problem is that you'll never know for certain exactly when a stock either bottoms out or tops out. Those who hold out for the last drops of success are the ones who end up getting slaughtered.

Check back next week for five more Munger quotes that will make you a better investor. Until then, check out:

Crocs is a Motley Fool Hidden Gems Pay Dirt selection. Microsoft and Berkshire Hathaway are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Berkshire Hathaway and Amazon are Motley Fool Stock Advisor picks. The Fool owns stock in Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Morgan Housel owns shares of Berkshire. He once had his picture taken with Charlie Munger, only to have him lean over to a staff member and yell, "Somebody tell me how many more of these damn pictures we have to do." The Fool's disclosure policy has never had such a problem.


Read/Post Comments (4) | Recommend This Article (20)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 30, 2008, at 9:37 PM, Fredlee009 wrote:

    Another meaningless Sirius throw in on an article that has nothing to do with it. There were a lot of stocks this year that fell MORE than 50 percent, and it was not also a TA reason. OMG, you guys are great. How much do you get from the Sirius shorts to mention the stock in a negative manner. Because at this point, it is not mathematically impossible for it to be a coincidence. I can show you the numbers if you want. Email me.

  • Report this Comment On August 30, 2008, at 9:38 PM, Fredlee009 wrote:

    I meant it is now mathematically impossible....

    not not

  • Report this Comment On September 05, 2008, at 3:17 PM, Azfang wrote:

    Technically, he didn't say anything bad about Sirius. He merely used it as an example of a stock which fell dramatically. In fact, if you want to be cute about it, you could say it was a positive remark, since it was a fall that couldn't have been foreseen.

  • Report this Comment On May 12, 2009, at 11:58 AM, miteycasey wrote:

    <i><b>This quote reminds me of one thing: investors who know darn well a stock is overvalued, but insist on holding it because "it's still going higher."</b> I guess it's only natural: The thought of selling something, only to watch it climb ever higher, can be a miserable one. The problem is that you'll never know for certain exactly when a stock either bottoms out or tops out. Those who hold out for the last drops of success are the ones who end up getting slaughtered.</i>

    Please differentiate between this and market timing.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 717599, ~/Articles/ArticleHandler.aspx, 12/20/2014 8:13:17 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement