The investing world mourns the loss of Charlie Munger. Warren Buffett’s right hand man at Berkshire Hathaway leaves behind a legacy of advice and insight that will echo from one generation to another.
Ultimately, Munger’s success came from a few key principles. Those of us who are left trying to figure out how best to invest right now would do well to digest them and use them to guide our investing.
Buy quality
Possibly the thing Charlie Munger is most famous for is convincing Warren Buffett that it’s worth paying a slightly higher price for shares in a better-quality business. This is arguably the most important principle.
It was this shift in thinking that caused Buffett to seize the opportunity and buy shares in Apple in 2016. Regardless of the share price, it was the strength and prospects of the company that really decided the issue.
Munger’s CostCo investment demonstrates this principle in action. A couple of years ago, with the stock at a price-to-earnings (P/E) ratio in excess of 30, he recommended it as a good buy for the long term.
Be patient
Another of his central principles involved being patient, both by waiting for opportunities and when holding stocks for the long term. Investing well isn’t the result of buying or selling, it’s the result of waiting.
This showed itself in his management of the stock portfolio at the Daily Journal. After buying shares in a number of US banks, Munger went quarter after quarter with barely any transactions.
According to him, this is one of the easiest ways for investors to separate themselves from the crowd. While others are moving in and out of positions, the patience to wait and let investments develop is a big advantage.
Seize the opportunities
Equally though, Munger believed in being decisive when buying opportunities presented themselves. This goes with the principle of being patient.
He maintained that investors can’t expect to get more than a few really great opportunities. And success comes from being ready to seize these when they appear.
This is the principle behind some of Berkshire’s most successful investments, including Coca-Cola and American Express. Being able to take advantage of rare opportunities leads to outsized returns over time.
Applying these principles
When it comes to applying Charlie Munger’s principles, I’d start by making a list of the highest-quality companies I can think of. In the UK, I think that would include Diploma, Halma, and Rightmove.
Identifying these also helps with being ready to seize opportunities. When a company’s share price falls suddenly, I stand a better chance of being ready to take advantage if I’ve already looked at the stock carefully.
From there, it’s a matter of being patient. Waiting for opportunities to develop in the stocks I want to buy and avoiding the temptation to change strategy and sell them if things don’t work out immediately.
Richer, wiser, happier
To say that Charlie Munger collected a lot of wisdom over 99 years is an understatement. And his terrific success in the stock market makes him someone worth listening to for those of us still investing.
Munger might be with us no longer. But his talks, writings, and interviews are an invaluable resource for a richer, wiser, happier world.
