Charlie Munger's 5 best investment lessons

The world lost an investment legend overnight - Charles “Charlie” Munger, the long-time right-hand man of Warren Buffett and the Vice-Chairman of Berkshire Hathaway.

Berkshire Hathaway has returned 19.8% pa on average since 1965, compared to 9.9% for the S&P 500. Munger played no small role in that, joining the firm in the mid-1970s. No one could put it better than Buffett, who said in a press release: 

“Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation.”

While understated in his approach, investors would be wise to take note of Munger’s insights on investing (and life). After all, alongside his success with Berkshire Hathaway, his net worth was tipped at $2.7 billion. In his honour, I’ve selected five of his best investment insights.

1) Think long term

“The big money is not in the buying or the selling, but in the waiting.”

Investing is for the long-term and some of the best-performing stocks take their time to hit it big. It’s also not about focusing on short-term moves. 

This is that story we’ve all heard of the investor who picked a quality company up years ago, sat on it and now it’s highly valuable – the buy and hold approach. 

For example, Apple (NASDAQ: AAPL), one of Berkshire Hathaway’s biggest holdings is now valued at US$190.40 a share. In November 2013, it was worth US$19.86. Even if prices fell tomorrow, you’d still have gained by having held it – both in capital value but also from dividends over that period. Or locally, CSL (ASX: CSL) which is today valued at $256.88/share but 10 years ago was $67.30/share – and has consistently paid dividends in that time.

2) Ignore the noise, focus on the fundamentals

“Like the weather, I just ignore the weather. I just try to invest whatever capital I have as best I can and take the results as they fall. I just seize whatever opportunities I can and I hope I get my share.”

Ignore the volatility. A quality well-managed company will still be that even as the market peaks and troughs. A bad day in the markets is not necessarily a sign that you should sell a company if the underlying proposition still stacks up.

3) Keep learning and keep trying your best

“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Slug it out one inch at a time, day by day”

Taking a careful measured approach where you keep seeking out new information and adjusting your portfolio as you need will stand you well in investing, as with life.

4) You don’t need to ‘outsmart’ the market, just avoid investing traps

It's 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 following the basics, and investing in tried and true companies can be enough rather than trying to pick tomorrow’s winners or using sophisticated techniques – particularly those you aren’t comfortable with and know inside out. For instance, taking out a short on a hot tip might blow up in your face.

5) Know your limitations and seek help when you need it

“Acknowledging what you don’t know is the dawning of wisdom”

“The most important thing is knowing where you are competent and where you aren't. The human mind tries to make you believe you are smarter than you are. Rub your nose in your mistakes.”

If a sector, company or type of asset is not your area of expertise, go and find an expert to help you understand it and evaluate it before investing. Likewise, if investing itself is a challenge, there is no shame in outsourcing to the experts – just make sure you understand what you are paying for.

Finally, it’s worth leaving these pieces of advice that apply to life.

“Remember that reputation and integrity are your most valuable assets — and can be lost in a heartbeat.”

“To get what you want, deserve what you want. Trust, success, and admiration are earned. 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.”

Vale Charles Munger.