The investment philosophy of the gurus

Views 32KMar 8, 2024

Charlie Munger: The wise man behind the light, the shimmer is just as dazzling

I read the news early this morning: Charlie Munger passed away on Tuesday (November 28) local time at the age of 99, just one month until his 100th birthday.

Since then, the world has lost a legendary investor, a wise elderly person, and a lifelong learner who loves to read.

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While mourning, I also seem to have developed some connections and expectations in my heart. Perhaps “death is not the end; forgetting is; the real death is when no one in the world remembers you”, and the wise Charlie Munger will definitely be remembered by people for a long time.

The wise man behind the light

When it comes to Charlie Munger, it seems like everyone associates themselves with Buffett. If Buffett is someone standing under a magnesium lamp, then Charlie Munger is the wise man behind that light.

One very classic scene is the interaction between Buffett and Munger at the Berkshire annual meeting. Buffett often asks Munger after speaking, “Would you like to say a few words?” Munger's classic answer is, “I have nothing to add.”

So much so that later, when Munger didn't come, Buffett made a cardboard with a picture of Munger printed on it. After speaking, Buffett looked back and asked, “Do you have anything to say?” Buffett then pressed the recorder himself, and a voice came from the recorder: “I have nothing to add.”

Munger always seems to have been by Buffett's side for over 60 years in this relatively behind-the-scenes character. But as Buffett said in his statement: “Berkshire Hathaway would not have been where he is today without Charlie Munger's inspiration, wisdom, and participation.” Buffett also said, “Berkshire was 'built according to Charlie's blueprint'.”

As can be seen, although Munger's contribution to Berkshire may not be that obvious, it must have been a major contributor. Buffett was also persuaded by Munger to abandon pure value investing (buying average or good companies at cheap prices) and instead buy excellent companies at higher valuations. Buffett and Munger, the golden pair, set the best investment record in history. Over the past 30 years, Berkshire's stock has risen 165 times.

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The fact that Buffett chose Munger as his partner is also enough to show Munger's wisdom. Buffett had a few conditions when choosing a partner: he must be smarter and more intelligent than himself; be able to praise Buffett's achievements and accept Buffett's mistakes; be a generous person, invest his own money, work hard regardless of reward; be able to travel together for a long time and bring happiness, which makes Buffett inexhaustible.

It seems like a very demanding condition, but in Buffett's opinion, Munger meets these requirements. Furthermore, Buffett believes that only Munger fits!

Smart old people also have a cute side

In fact, Munger's wisdom isn't just reflected in his investments. If you've listened to his speeches, talked to him, or read related text or video recordings, you probably have a similar feeling: I think he is not only a big investor, but also a wise man and philosopher.

Bill Gates once said, “He really is the most profound thinker I've ever met. From the principles of doing business to the laws of economics, from the design of student dormitories to the design of yachts, he has no rival.”

Where did Munger's wisdom come from? Perhaps in addition to his natural traits and rich life experiences, he also received a lot of nourishment from books. Munger loves to read, and there's a prime example. When Munger dates her friends, she usually arrives early and then sits down and reads a book. If friends also arrive early, Munger doesn't pay attention to their friends, but instead continues to read books until the agreed time is up, and doesn't start talking to them on time.

His son David Boswick once described his father like this: “Night after night, he always sits in his beloved chair, studying something, and deaf to the noise of the kids around him, the noise of the television, and the sound of his mom shouting at him for dinner. “Even when he's not reading, Dad often falls into contemplation while driving Molly and Wendy to Pasadena. Had it not been for Mom to loudly remind him of the correct freeway exit, he would have driven to San Bernardino.”

For Munger, success in investing is probably just a way of life where he insists on lifelong learning and putting results into practice. He believes that “real value investing starts at age 40,” because the accumulation of knowledge, experience, and wealth at a young age may not be enough for us to understand the principles of value investing and actually engage in value investing.

What's even more rare is that behind Munger's wisdom and persistence, she often reveals a different kind of humor and cuteness!

Buffett once told a story. He and Munger went to New York to attend the board of directors of Solomon Brothers. They walked out of this building and talked on the sidewalk, but suddenly he found himself talking to himself. He discovered that Munger had already climbed a taxi and went straight to the airport without saying goodbye. It seems that in Munger's world, he can't see certain things; he always has things he is more concerned about.

Munger also often makes people think it's very interesting when describing some things. For example, he called Bitcoin a “rat poison,” and compared trading cryptocurrencies to a “transaction dung.” When discussing the intelligence of future generations, he said it was like buying a “genetic lottery.” Speaking of venture capitalists, he called them “not even as good as people who play the piano in.”

Munger, who is not afraid to speak the truth bluntly, may make people around him feel cheerful and funny. But it is probably because of this characteristic that he was so successful.

Face the end of life with confidence

Following Munger's death, Berkshire's statement read: Munger's family advised that Munger passed away peacefully at a California hospital on Tuesday morning. One can't help but imagine how he spent his last days.

Although Munger's life has been very successful in our opinion at the moment, in reality he has also gone through a rather miserable period in his life.

Munger, who loves to read, actually had dyslexia as a child. He was also sent to work in Alaska, which is close to the Arctic and is extremely cold. He is shrouded in darkness and has been numbingly doing the job of a weatherman he doesn't like all day long. He enjoys missing his wife and children and playing bridge cards. He was also attacked by college bullies at Caltech. He felt that he would never be able to compete with those physics professors, didn't have a bachelor's degree, and ended up walking through the back door to Harvard.

He had problems with his marriage, and his daughter said, “Even blind people can see they are unhappy” and “there is no couple in the world who are more unfit than them.” Shortly after the divorce, my beloved son contracted leukemia again, and in the end, it didn't save my son's life. On the streets of Pasadena, he walked and cried.

However, as we all know later, his career was very successful. Apart from Berkshire, which he co-managed with Buffett, he also held important positions in other companies. For example, Daily Journal, which he bought in 1977 and became its chairman. From 1987 to now, the company's stock trend has been excellent. As of November 28, 2023, the stock price has risen from around $10 to $317, an increase of 30 times.

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Of course, his success was not limited to his investment or career. In life, he likes to fish, play cards, and golf. He designs his own house and yacht. He has a wonderful friendship, marriage, and family. Out of love for his wife, he donated all the schools and places where he worked. Each donation was millions or tens of millions of dollars. And his investment philosophy and wisdom in life have been praised over and over again by the world.

Life has reached the point where he is still one month away from the age of 100, which may be a bit disappointing in terms of time, but I believe that for Munger, the life he experienced was not unfortunate.

Munger once said at a conference that once you have reached a certain level of success in life, your main goal should be not to mess things up. He also said, “The best protective armor for old age is a period of time spent carefully before it.”

People are about to die, and they may evaluate the life they have spent. If you are satisfied with yourself, you may be able to reach the end of your life without regret or guilt. Perhaps Munger has already obtained this set of armor and has reached the end of his life without regret.

Let wisdom continue to shine

But as I said at the beginning of today, death isn't really the end. Just like the last words Munger said at the University of Southern California graduation ceremony, “My sword is passed on to those who can wield it,” if we can practice Munger's wisdom in our investments and lives, then his wisdom and life will continue to shine.

Munger's wisdom can't be summarized in a simple article, but I've organized it a little bit here, and I hope to encourage everyone.

1. Keep learning for a lifetime

There is no need to say more about this one.

Munger said at the University of Southern California graduation ceremony that gaining wisdom is a moral responsibility; you must stick to lifelong learning, otherwise you won't be able to get far in life. He also said that people can master many fields as long as they master and keep applying all the obvious and easy to learn principles.

2. Building a model for multiple thinking

The multivariate mindset model is highly recommended by Munger.

Someone once said, “If we try to understand something that seems to exist independently, we'll discover that it is connected to everything else in the universe.” Munger believes that a single discipline provides a single solution; this kind of singularity is insufficient when faced with a complex world. It is like “the world looks like a nail in the eyes of a person with a hammer”, so it is necessary to be able to skillfully use multiple ways of thinking from different disciplines.

These subjects include economics, psychology, mathematics, engineering, biology, physics, chemistry, statistics, etc. He believes that we don't need to know everything; we just need to absorb the most outstanding ideas in each subject. You need to know how they influence each other, otherwise you won't be able to play your cards well.

For example, you need to master mathematics, be able to handle numbers and quantity problems, know the principles of compound interest, and master the basic principles of arrangement and combination. You must master accounting and have sufficient understanding of it, so that you can also understand its limitations.

If you want to have universal wisdom, psychology is too important. How human sensory organs, cognitive functions, etc. work, how they can be misled, etc., all of this information is very important. He also mentioned more than 20 principles of misjudging psychology. In the book “Poor Charlie's Collection,” you can read more if you are interested.

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(Picture from “Poor Charlie's Collection”)

He himself has a habit of two-track analysis. While rationally looking at what factors actually control the interests involved, he also notices what subconscious factors the brain automatically forms.

3. Draw out your circle of abilities

The circle of ability is also a concept that Munger values very much.

He said, “You have to figure out what your skills are. If you're going to play games that others play so well that you don't know anything about, then you're bound to lose. That is definitely something that must be said. You have to figure out where your strengths lie, and you have to compete within your circle of ability.”

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In investing, he will go through a very comprehensive screening to select mainstream industries that not only have room for development and competitive advantage, but are also easy to understand, and fall within his circle of competence. In this process, he will make a very detailed assessment, taking into account internal and external factors and the state of the industry in which the company is located.

4. Investment Principles Checklist

Munger also has a list of principles when it comes to investing.

This list includes measuring risk, thinking independently, being prepared, being humble, rigorously analyzing, properly configuring, being patient, having determination, learning to change, and staying focused.

For example, in terms of measuring risk, he believes it is necessary to measure credit risk, measure safety margins, avoid trading with people with moral quality problems, demand appropriate compensation for predetermined risks, always remember the risks of inflation and interest rates, avoid making big mistakes, etc.

Preparation includes extensive reading, developing curiosity, proficiency in the thinking models of various university subjects, etc.

And being humble is not only about admitting one's ignorance; it is also about acting within the circle of ability, resisting the desire to pursue fictitious accuracy and false certainty, and remember that you are the most likely to be fooled by yourself.

He believes, “Wise people can wait patiently, let time pass, and experience the beauty of it. Most people are always blind and busy.” His own example is: “I read Barron's and I've been reading it for 50 years. For 50 years, I've only found one investment opportunity. Through this opportunity, I made $80 million with almost no risk.”

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Munger's wisdom goes far beyond what has been said above. Maybe one day, when we encounter a specific situation in our investments or life, we will suddenly remember what kind of words this wise old man once said, and at that moment, the impact happened.

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.