Charlie Munger is probably best known as the partner of Warren Buffett and their highly successful company - Berkshire Hathaway.
Charlie Munger was born in Omaha, Nebraska as long ago as 1924.
He studied mathematics at the University of Michigan but his degree was interrupted by World War II. After the war he studied at Harvard Law School.
He met Warren Buffett in the early 1960s at which time he ran a partnership for a group of investors generating financial returns of 20% compared to 5% for the Dow Jones Index for the same period.
Charlie Munger learned value investing from Benjamin Graham. It is therefore not surprising that Charlie's methods are not too disimilar to those of Benjamin Graham.
Charlie learned four basic principles from Graham and put his own interpretation on them.
In his book, 'Charlie Munger - The Complete Investor' Tren Griffin breaks down Graham's four basic principles with the intention of making them more understandable to the average investor (that's you and ourselves).
Here are Charlie's (learned from Graham) four basic principles:
Tren Griffen took these 4 principles and created a framework to make them easier to understand. His framework was in two parts: firstly, he identified x attributes that make up a successful investor, and secondly, he reckoned that value investors should create their own methodologies - he called these 'variables.'
Here are the attributes:
And here are the variables:
Charlie Munger was a disciple of Benjamin Graham, so all of Benjamin Graham's rules would be abided by Munger.
However, like all serious investors (and that includes you and ourselves), we need to construct a set of our own rules - even if these are not far removed from those of Graham, Buffett, Munger and all the other gurus.
In his book, 'Poor Charlie's Almanac,' Charlie gives a 10 point checklist that is common sense, but as we keep saying - common sense is not so common.
Read Charlie's book (see below) - better still buy it. You'll be glad you did. Here's Charlie's checklist:
1. Measure Risk. Give yourself a wide margin of safety and avoid dealing with people of questionable character. Only take on risks when you are sure the rewards are in your favour. Better still, in our opinion, never take risks and if you do, only do so with profits already made.
2. Be Independent. Stockbrokers get paid for the amount of activity you do (overtrading?). Do your own research and pick your own stocks.
3. Prepare Ahead. Charlie Munger does his due diligence. He is curious about everything he does in life. He asks questions. He's willing to go the extra mile (and a half).
4. Have Intellectual Humility. A lot of Charlie's success has come from him not straying from his comfort zone. He's not afraid to admit to acknowledge what he doesn't know.
5. Analyze Rigorously. Munger likes to estimate a stock's worth, even before looking at the price. He focuses on the value of the business and nothing else. He opts for simplicity not complexity.
6. Allocate Assets Wisely. A lot of investors divide their capital by say, 10. Meaning that they intend to have 10 investments and invest equally in them. But occassionally, there comes along a special company. When you find an exceptional investment, don't be afraid to spread your capital more in favour of that one investment.
7. Have Patience. Charlie Munger, and his partner Warren Buffett, are true life examples of "time in the markets." They know that true fortunes are made from being in the markets with quality companies and not in and out of companies. There are exceptions to this rule but Munger and Buffett like their "forever" stocks.
Their mantra is that it is "time in the markets" and not timing the markets that's important.
8. Be Decisive. Charlie and Warren have made their billions by not following the herd. One of their special quotes is: "The time to be greedy is when everyone else is fearful. And the time to be fearful is when everybody else is greedy."
9. Be Ready for Change. Investing success means that we need to accept changes. Charlie Munger hated railroads for decades but times changed and he, and his partner, invested billions in railroads.
10. Stay Focused. Keep things simple. Buy good companies at good prices, hold them, and only sell them when they are fully priced.
Remember what it was that you first set out to do and stay with it.
Charlie Munger The Complete Investor by Tren Griffin
We've not consumed a book as well written as this one for some time. And we read many books - at least one per week.
This is one of those books that you want to read in one sitting. And then read it again to ensure you grasp all the points.
We've read some books three, four, even more times. This book by Tren Griffin is going to be one of those.
Charlie Munger Summary
Tren Griffin's book 'Charlie Munger - The Complete Investor' is a must
read if you want to know more about one of the best investors of his
generation - and you should.
In about 50 pages get the gist of what Charlie Munger
thinks about investing and in particular, all he learned from Benjamin
Graham in this summary guide.
The Tao of Charlie Munger
Authored by David Clark - who is the co-author of the Buffettology series (the other author being Mary Buffett).
The book is a witty collection of quotes by Charlie Munger on life, wealth creations, and investing.
Poor Charlie's Almanack
In this book Charlie gives an in-depth explanation of his 10 point checklist.
His success, he says is down to fully understanding the basics and then keeping things simple. He goes on to say: "I observe what works and what doesn't and why."
Damn Right - Behind the Scenes with Charlie Munger by Janet Lowe
Into The Minds of Warren Buffett and Charlie Munger by Daniel Pecaut
Every generation has its legends. Warren E Buffett and Charlie Munger are certainly qualified for our generation. Between them they have well over 130 years of experience in investing.
Of course, what makes them legends is not just their years in the markets but the proof that they are both BILLIONAIRES!
Common sense and logic musn't apply to the investing world, if they did, everyone would invest like Charlie Munger, and those wise enough to do so, would be wildly successful.
But they're not. Why not?
We're fairly sure that it is because people want instant gratification. They want to see instant profits. They're impatient. They obviously haven't read Charlie Munger and other similar works.
We used to fall into that category until we started to read Warren E Buffett and others like him. Quick kills and 'ten baggers' rarely exist. The best policy is get rich long.
Grab yourself copies of books about Charlie Munger and start to put some of that common sense and logic into your investing.