14 lessons Charlie Munger taught us

Posted on December 12, 2023

By Robin Powell

The word legend is overused. But in the case of the  businessman, investor and philanthropist Charlie Munger, the description is entirely apt.

Munger, who died on 28th November, just a few weeks short of his 100th birthday, is best known as the vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett.

Munger was effectively Buffett’s right-hand man, and between them they built what started as a small textiles firm into a vast multinational holding company with a market capitalisation of more than $770 billion.

As well as for his business acumen, Munger was renowned for his generosity in sharing advice on investing, money, business and life in general with a large group of devoted followers and fans.

Here are 14 lessons he taught us.



Stay humble

Charlie Munger viewed humility as a crucial character trait for investors. Arrogance leads to overconfidence, which in turn leads to mistakes. Humility, on the other hand, makes for better decision-making.

“It is astonishing how much long-term advantage people like (Warren Buffett and I) have gotten by trying consistently not to be arrogant,” he once said.

The key, he argued, is to know what you don’t know. Recognise your limitations and never stray beyond your circle of competence. “We have three baskets for investing,” he explained. “Yes, no and too tough to understand.”


Keep it simple

A common misconception about investing is that successful strategies, almost by definition, must be complex.

For Munger the very opposite was true. “We have a passion for keeping things simple,” he said. ‘If something is too hard, we move on to something else. What could be more simple than that?”

For Buffett and Munger, risk comes from not knowing what you’re doing. ”If you’re not a little confused about what’s going on,” said Munger, “you don’t understand it.”


Ignore forecasts

Charlie Munger had little time for market forecasters. “The trouble with making all these pronouncements,” he said, “is people gradually begin to think they know something. It’s much better to think you’re ignorant … If people weren’t so often wrong, we wouldn’t be so rich.”

Munger said that forecasting the markets is as hit-and-miss as forecasting the weather, and you should carry on investing regardless.

““I don’t pay much attention to macroeconomic trends,” he told the Australian Financial Review in July 2022. “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.”


Beware of salespeople

Charlie Munger was never afraid to criticise what he viewed as unethical behaviour in the investing industry.

Although he wasn’t the strident advocate for low-cost index funds that Buffett is, he was deeply distrustful of asset managers, consultants and advisers selling complex active strategies.

“If I had to name one factor that dominates human bad decisions,” he said in February this year, “it would be what I call denial… Take the world of investment management. How many managers are going to beat the indexes? All costs considered, I would say maybe 5%… Everybody else is living in a state of extreme denial.

“They’re used to charging big fees for stuff that isn’t doing their clients any good. It’s a deep moral depravity.”


Be patient

For Munger, another vital character trait for successful investors is patience. “The big money is not in the buying and selling,” he said, “but in the waiting.”

Again, it has to be said that, despite his disdain for most of the active fund management industry, Munger was an active investor himself.

But instead of regularly trading, he believed in buying and holding them for the long term, allowing plenty of time for the market to reflect their intrinsic worth.

He and Buffett would avoid impulsive decisions and would only buy or sell a stock after careful research, and only if they felt the time was right.


Stay calm and rational

One of the simplest ways for investors to outperform their peers, Munger argued, is to stay calm and rational when others are acting on emotions.

Stock market crashes are part and parcel of investing, and, very occasionally, markets will halve in value. Investors, he said, should stay the course.

“If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century,” Munger declared, “you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get.”

You shouldn’t try to be brilliant, he said, but simply avoid stupid mistakes. “You have to be aversive to the standard stupidities,” he said in 2016. If you can keep them out, you’ll get a good result.”



Know what you want

Charlie Munger was one of the wealthiest people in America. Despite donating a significant part of this wealth to charity and passing much of it on to his family, he still had a net worth of around $2.6 billion when he died.

But money was only a means to an end for Munger, not an end in itself. He believed strongly in the importance of having a purpose in life. “A majority of life’s errors,” he said, “ are caused by forgetting what one is really trying to do.”

Munger’s own purpose was to share his knowledge. “The best thing a human being can do,” he once remarked, “is to help another human being know more.”

He also believed that the true definition of wealth is the freedom to do what you want. “Like Warren,” he explained, “I had a considerable passion to get rich. Not because I wanted Ferraris. I wanted the independence.”


Avoid overspending

One of the biggest financial mistakes people make, Munger warned, is that they spend more money than they should.  For example, they buy a bigger and fancier house than they need or can afford. Munger himself lived in the same house for 70 years.

“Having a basic house really helps you,” he said in an interview with CNBC shortly before he died. “Having a really fancy house is good for entertaining 100 people at once. (But) it’s a very expensive thing to do. And it doesn’t do you that much good.”

A major reason why people overspend, he said, is that they’re envious of others’ wealth. Speaking last December at the annual meeting of the Daily Journal, of which he was chairman for many years, he said: “The world is not driven by greed. It’s driven by envy. I have conquered envy in my own life. I don’t envy anybody. I don’t give a damn what someone else has. But other people are driven crazy by it.”



Learn from others

Charlie Munger, as we’ll see later, was a voracious reader. He particularly liked biographies because he recognised the value of learning from very intelligent and knowledgeable people.

“I believe in the discipline of mastering the best that other people have ever figured out,” he said. “I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.”

But even the smartest people do dumb things, and Munger claimed that one of the main reasons why Berkshire Hathaway was so successful was that he and Buffett made a point of learning from other people’s mistakes. As he once rather colourfully put it, “You don’t have to pee on an electric fence to learn not to do it”.


Be willing to change your mind

Business leaders need to be decisive, but, argued Munger, they also have to be willing to change their mind when required to.

In a lecture he gave at Harvard University in 1995 called The Psychology of Human Misjudgment, Munger said that the human mind is like the human egg, which shuts down when a sperm gets in so the next one can’t. Once an opinion gets in, the human mind shuts itself off to other opinions. So we stick to the conclusions we’ve already reached, even at the cost of being wrong.

Success in business, and in life in general, Munger said, means being open to the fact that you might be wrong and to changing course, no matter how painful it is.

“Part of the reason I’ve been a little more successful than most people,” he said in an interview with the Wall Street Journal in 2019, “is I’m good at destroying my own best-loved ideas… And most people aren’t.”


Do the right thing

Charlie Munger always stressed the importance of integrity, honesty and a sense of fairness in running a business.

“Always take the high road. It’s less crowded,” he said at the Daily Journal shareholders meeting in February 2020.

For him, doing the right thing as a business wasn’t just a moral imperative, but a commercial one too. “Good businesses are ethical businesses,” he said.  “A  business model that relies on trickery is doomed to fail.”

He believed in treating customers fairly. The golden rule of business, he said, was “to deliver to the world what you would buy if you were on the other end”.

Munger urged business owners to take the long view, focusing on sustainable growth and value creation over quick profits. He also spoke out against excessive executive pay and poorly designed incentive systems that encourage unethical behaviour.



Avoid self-pity

“Everybody struggles,” Munger told CNBC shortly before he died. “The iron rule of life is that everybody struggles.”

Munger faced big struggles of his own. At age 29, he divorced after eight years of marriage and lost everything to his wife, including his house. The pain of that experience was compounded by the loss of his son from leukaemia.

Years later, cataract surgery in his left eye left him with pain so severe that he eventually had the eye removed. But he refused to drift into self-pity.

“You should never, when facing some unbelievable tragedy, let one tragedy increase into two or three through your failure of will,” he said.

“If you soldier through, you can get through almost anything. And it’s your only option. You can’t bring back the dead, you can’t cure the dying child. You can’t do all kinds of things. You have to soldier through it… You can’t quit.”


Read, read, read

Charlie Munger enjoyed nothing more than reading books. Right until the end of his life he would read around 500 pages a day.

“Lifelong learning is paramount to long-term success,” he once said. “In my whole life, I’ve known no wise person over a broad subject matter area who didn’t read all the time.”

Reading, Munger maintained, is like compound interest: its benefits grow exponentially over time.

“I constantly see people rise in life,” he said, “who are not the smartest (or) even the most diligent, but they are learning machines. They go to bed every night a little wiser than when they got up and wake up every morning able to attack the problems they faced the day before.”


Have a role model

Finally, Munger believed in the value of having a role model. His own role model was the American polymath Benjamin Franklin.

“He was a prodigy. How could a man who taught himself everything go into so many different fields and be the top guy in the whole country?” Munger mused in that final interview with CNBC.

“There is no reason to look only for living models,” he said. “The eminent dead are, in the nature of things, some of the best models around.”

So who is your role model? If you don’t already have one, I suggest the late Charlie Munger would make an excellent choice.


ROBIN POWELL is the editor of The Evidence-Based Investor. He works as a journalist, author and consultant specialising in finance and investing. He is the co-author of two books, Invest Your Way to Financial Freedom and How to Fund the Life You Want, and his company Regis Media provides high-quality video content for advice firms and other financial businesses.