In the world of investing, there are few names as highly regarded as Charlie Munger. As the long-time business partner of Warren Buffet. Munger has made a significant impact on the investment world. His wisdom and insights are sought by many aspiring investors, with his philosophies providing much-needed guidance for those seeking the path to wealth. This article offers a comprehensive overview of Charlie Munger’s advice for those who aspire to become wealthy. The advice is gleaned from Munger’s various speeches, shareholder meetings, and interviews. His practical wisdom serves as a blueprint for wealth creation and success.
Life-long Learning is a Habit of the Wealthy
“The…. great secret is that we’re good at lifelong learning. Warren is so much better in some ways in his 70s and 80s than he was younger that it’s almost awesome. If you keep learning all the time, you have a huge advantage. And we both just like it.” says Charlie Munger.
Buffett interjects “And we have a wonderful group of friends, really wonderful.”
“From whom we can learn a lot.” Charlie Munger adds.
You Must Deserve Wealth
“Well, luckily, I got at a very early age the idea that the safest way to try and get what you want is to try and deserve what you want. It’s such a simple idea. It’s the golden rule, so to speak. You want to deliver to the world what you would buy if you were on the other end. There is no ethos, in my opinion, that is better for any lawyer or any other person to have. By and large, the people who’ve had this ethos win in life, and they don’t win just money, just honors, and monuments they win the respect, the deserved trust of the people they deal with. And there is huge pleasure in life to be obtained from getting deserved trust. And so, and the way to get it is to deliver what you’d want to buy if the circumstances were reversed.” – Charlie Munger
Know Your Circle of Competence and Edge
“One of these guys at the Berkshire meeting from one of the foreign publications said why do a couple of guys in a little place in Omaha do so much better than all these powerful minds and great institutions? And I said, ‘Well, I think Warren and I know the edge of our competency better than other people do.’ And that’s humility in the umbrella sense. And that is a very important thing to know. I say over and over again, It’s not a competency if you don’t know the edge of it. You are a disaster if you don’t know the edge of your own competency.” – Charlie Munger
“Warren frequently says, ‘I’d rather deal with a guy with an IQ of 130 who thinks it’s 125 than a guy with an IQ of 180 that thinks it’s 200.’ That second guy will kill you. And so, it is very important to know the edge of your own competency.” – Charlie Munger
Reject the Victim Mindset
“It’s not my nature when you get little surprises as a result of human nature to spend much time feeling betrayed. I always want to just put my head down and adjust. So, I don’t allow myself to spend much time ever with any feelings of betrayal. So, you’re asking the wrong person because if some flickering idea like that came to me, I’d get rid of it quickly. I don’t like any feeling of being victimized. I think that’s a counterproductive way to think as a human being, and I am not a victim. I’m a survivor.” – Charlie Munger
Focus on the Big Picture: Mental Models and Thinking Frameworks
Charlie Munger said, “I listened in law school when some wag said, ‘A legal mind is a mind that, when two things are all twisted up together and interacting, it’s feasible to think responsibly about one thing and not the other.’ Well, I could see from that one sentence that that was perfectly ridiculous. And it pushed me further into my natural drift which was into learning all the big ideas and all the big disciplines, so I wouldn’t be a perfect damn fool who was trying to think about one aspect of something that couldn’t be removed from the totality of the situation in a constructive fashion. And what I noted since the really big ideas carry 95% of the freight, that wasn’t at all hard for me to pick up all the big ideas in all the disciplines and make them a standard part of my mental routines.”
“Once you have the ideas, of course, they’re no good if you don’t practice. If you don’t practice, you lose it. So, I went through life constantly practicing this multi-disciplinary approach… Well, I can’t tell you what that’s done for me. It’s made life more fun; it’s made me more constructive, it’s made me more helpful to others, it’s made me enormously rich. You name it, that attitude really helps.”
How to Choose a Business to Invest In
“We have to deal with things that we’re capable of understanding. And then, once we’re over that filter, we have to have a business with some intrinsic characteristics that give it a durable competitive advantage. And then, of course, we would vastly prefer a management place with a lot of integrity and talent. And finally, no matter how wonderful it is, it’s not worth an infinite price. So we have to have a price that makes sense and gives a margin of safety considering the natural vicissitudes of life.”
“That’s a very simple set of ideas. And the reason that our ideas have not spread faster is they’re too simple. The professional classes can’t justify their existence if that’s all I have to say.” – Charlie Munger
Trust is the Foundation of Business and Economics
We have this system where we translate very trustworthy people and give them enormous trust. And as they practice that trust, they get more confirmed in being trustworthy. And eventually, we’ve got this seamless web of trust which is incredibly efficient and very useful.
“And by the way, this is not just my doctrine. There’s a doctrine in economics that tries to explain why firms come into existence. And firms come into existence because a lot of people who trust one another operating within a firm are more efficient than they would be if they were a bunch of independent proprietors.” – Charlie Munger
Study History and Multiple Disciplines to Achieve a High Level of Competence
“I’m really following a very key idea of the greatest lawyer of antiquity, Marcus Tullius Cicero. And Cicero is famous for saying, ‘A man who doesn’t know what happened before he’s born goes through life like a child.’ Now that is a very correct idea of Cicero’s, and he’s right to ridicule somebody so foolish as not to know what happened before he was born.”
“But if you generalize Cicero, as I think one should, there are all these other things that you should know in addition to history. And those other things are the big ideas in all the other disciplines. And it doesn’t help you just to know them enough so you could prattle them back on an exam and get an A.”
“You have to learn these things in such a way that they’re in a mental latticework in your head, and you automatically use them for the rest of your life. If you do that, I solemnly promise you that one day you’ll be walking down the street and you look to your right and left, you’ll think, My heavenly days, I’m now one of the few most competent people of my whole age cohort.” – Charlie Munger
Practice Your Edge With Discipline Over the Long Term
“Warren and I have not made our way in life by making successful macroeconomic predictions and betting on our conclusions. Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. But by and large, we don’t much bother with trying to predict the tides because we plan to play the game for a long time.”
“I recommend to all of you exactly the same attitude. It’s kind of a snare and a delusion to outguess macroeconomic cycles. Very few people do it successfully, and some of them do it by accident. When the game is that tough, why not adopt the other system of swimming as competently as you can and figuring that over a long life, you’ll have your share of good tides and bad tides.” – Charlie Munger
Practice Resilience and Perseverance
“Life will have terrible blows, horrible blows, unfair blows. It doesn’t matter, and some people recover and others don’t. There, I think the attitude of Epictetus is the best. He thought that every missed chance in life was an opportunity to behave well, every missed chance in life was an opportunity to learn something, and your duty was not to be submerged in self-pity but to utilize the terrible blow in a constructive fashion.” – Charlie Munger [1]
Key Takeaways
- Lifelong learning is not just an advantage; it’s a necessity. Continuous self-improvement can lead to incredible results over time.
- The safest way to get what you want is to deserve it. Offer to the world what you’d wish to receive.
- Know the edge of your competency. Overestimating your abilities can lead to disaster.
- Learn to respond constructively to failures and betrayals. Don’t wallow in victimhood; instead, be a survivor.
- Apply a multidisciplinary approach to life and business. This enhances your understanding and gives you a broader perspective.
- Price matters. No matter how attractive a business or investment is, it’s not worth an infinite price.
- Trust is a valuable asset. It can create an efficient, seamless web of collaboration.
- Understanding the past is essential. One must learn history and major ideas from all disciplines to navigate life better.
- Predicting macroeconomic cycles is less important than honing your skills and swimming as competently as you can.
- Every missed chance is an opportunity to behave well and learn something. Use every setback as a stepping stone to greatness.
Conclusion
Charlie Munger’s wisdom provides an insightful roadmap for anyone on the journey to wealth creation. His emphasis on lifelong learning, personal integrity, awareness of one’s competence, constructive reaction to failures, and multidisciplinary approach are all potent principles that drive not only financial success but also personal growth.
Munger accentuates the significance of trust in professional relationships, the necessity to comprehend history, and the idea of embracing every missed opportunity as a learning experience. His principles underscore the belief that amassing wealth extends beyond monetary gain, revolving around intellectual growth, personal development, and ethical conduct. These values set a solid foundation for long-lasting success and prosperity.