Charlie Munger - Most Wit and Wisdom Investor

Charlie Munger is the vice-chairman of Berkshire Hathaway Corp., the diversified company chaired by renowned investor Warren Buffett. Buffett has described Munger as his partner and "right-hand man." He is also chairman of the Daily Journal Corp., based in Los Angeles, and a director of Costco Wholesale Corp. 

The early life of Charlie Munger

Both Buffett and Munger are from Nebraska, where Charlie was born in Omaha in 1924. Munger worked at a local food shop as a teenager, which Warren Buffett's grandfather owned.

Munger then began his higher education at the University of Michigan, where he studied for a degree in mathematics. But, just after his 19th birthday Munger left university to serve in the U.S. Army Air Corps. Munger was one of only a few soldiers to be commissioned as an officer without holding a degree.

Following his service, Munger completed several advanced courses through various universities, even entering Harvard Law School without an undergraduate degree, where he graduated magna cum laude in 1948.

The early career of Charlie Munger

In 1962, Munger founded the real estate law firm Munger, Tolles & Olson, which is still a renowned practice today. Although investing was never far from his mind, as between 1962 and 1975, he ran his investment partnership, which generated compound annual returns of 19.8 percent over this period. Munger and Buffett met at an early stage within their investment careers in 1959, with the friendship gradually developing into an investment relationship.

The relationship between Charlie Munger and Warren Buffett

The budding friendship between the pair led to Munger leaving a successful career in law, to join forces with Buffett to run Berkshire Hathaway BRK.B.

The pair have been working together for a number of years and have established a great rapport between both themselves and the shareholders. Buffett is known for his useful insight, while Munger uses his quick wit to bring a touch of humor to the annual meetings. A brilliant example from 2005 is shared by Morningstar when the pair were discussing the compensation of a variety of board directors.

Munger's investment philosophy

Munger is known for being an investor of strong businesses with a variety of competitive advantages. In his multiple speeches, Munger introduced the concept of elementary, worldly wisdom and its relationship to business and finance.

Munger believes that any business which relies on trickery is destined for failure, a good business should be an ethical business. Munger uses great levels of knowledge and business ethics within his investing principles, where he purchases undervalued stocks based on their business quality, rather than just focusing on how cheap they are.

Charlie Munger's hunger for reading makes him a better Investor

Spending most of his time reading, learning, and thinking, Charlie Munger attributes a lot of his success to the time he spends poring through books.

He also seeks to continually identify where he might be wrong – and not fall in love with ideas. He once said: "…Warren and I are very good at destroying our best-loved ideas. 

His unique worldview, a self-developedMultiple Mental Models', consists of borrowing big ideas from a number of disciplines and collecting information. Being self-taught, he is convinced that his own patient, organized and focused approach has worked.

Charlie Munger is clear that reading and self-reflection is the source of his success. Without the book, there is no way forward, he feels.

Lessons we can learn from Munger

How budding investors should gain worldly wisdom to achieve success when it comes to picking stocks? Munger believes the key lies in understanding a variety of subjects rather than limiting investments to a few narrow topics. By improving levels of knowledge, investors begin to understand the economics of multiple industries and stay focused on long-term success, where others fail due to short-sightedness.

Constant Renewal describes Munger's approach to investment as rather unique when compared to most top executives. Although he holds a similar educational background, he doesn't share any radical new philosophies or promises to change the world. Instead, he maintains a low profile and adheres to a simple philosophy to avoid stupidity rather than trying to be very intelligent.

Understanding your competencies

Munger doesn't encourage others to seek out brilliance; instead, he believes we should avoid making mistakes. Both Munger and Buffett follow the same rule, which they call the 'circle of competence', which describes how each person should stick to their area of knowledge. For example, neither Munger or Buffett invested in Google or Amazon, as technology is out of their circle of competence.

According to this theory, we are all amateurs once we step outside our circle of confidence, but many of us do not have the humility to admit it. Munger believes that to stay ahead, and investments should be made conservatively to outlast the competition. Expectation management is also an integral part of any investment.

Despite never taking a course in anything relating to investment, Munger has still thrived in his career. Munger has used his levels of knowledge to build a latticework of powerful mental models. 

The complexity of the world around us can be difficult to understand with its thousands of variables, making every investment situation impossible to predict. By continually striving to improve our knowledge and challenging ideas, it is possible to build new mental models, which we can rely upon to provide a framework to approach a problem with both caution and insight.

Charlie Munger Quotes

"If you skillfully follow the multidisciplinary path, you will never wish to come back. It would be like cutting off your hands."

"Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless, you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve."

"It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent."

"Just because you like it does not mean that the world will necessarily give it to you."

"I try to get rid of people who always confidently answer questions about which they don't have any real knowledge."

"I always say I want to know where I would die so I can never go there."

"The iron rule of nature is: You get what you reward for. If you want ants to come, you put sugar on the floor."

"We're just not interested in taking a substantial chance of taking a lot of very decent people back to "Go" so we can have one more zero on our net worth."

"I think Warren and I know the edge of our competency better than other people do."

"I paid no attention to the territorial boundaries of academic disciplines, and I just grabbed all the big ideas that I could."

"Take a simple idea, and take it seriously."