Charlie Munger, vice-chair of Berkshire Hathaway and Warren Buffett’s “right-hand man” passed away in November 2023 at the age of 99.
He was a key figure in the investment world for decades and leaves behind a legacy of “worldly wisdom” that continues to inspire and guide investors today.
Here are five investment lessons you can learn from Charlie Munger, whether you have years of experience or you’re a complete beginner.
1. Never stop learning
Munger was an avid reader and believed that the key to success in all areas of life, including investing, is to continually seek out new opportunities to learn.
He said: “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero”.
Yet, according to research published by IFA Magazine, three-quarters of people in Britain struggle with financial literacy, which could affect their confidence in making investment decisions.
Furthermore, without adequate knowledge to guide you might be more prone to making costly mistakes.
So, if you’re struggling to get to grips with your investment strategy, educating yourself could be a useful way to move closer to your financial goals.
2. Soldier on through the tough times
Munger was more than a businessman and investor. He was deeply philosophical and much of his investment wisdom could be applied to life in general.
He recognised that there will be periods of hardship throughout life and the only way to thrive long term is to “soldier on through the rough”.
This is a salutary lesson for all investors.
It might feel hard to keep your nerve in volatile markets, especially if you’re new to investing. But it’s important to remember that short-term fluctuations are inevitable.
Adopting a long-term strategy could help you to weather the storm, “soldier on” and stay positive during times when your investments might not be performing as you’d like.
3. Know your circle of competence
Whether you’re a novice investor or you have years of experience, there are likely to be gaps in your knowledge.
Munger stressed the importance of understanding the limits of your knowledge and staying within this circle of competence.
He advised investors to identify which stocks, businesses, and industries they have a good understanding of and avoid putting their money into those they know little about. For example, generalist investors might feel less confident investing in specialist industries such as biotechnology.
If you’re keen to expand your circle of competence, adopting Munger’s lifelong learning approach to investing and potentially seeking guidance from a financial expert could help develop your understanding of unfamiliar industries.
4. Prioritise high-quality stocks
Munger believed in quality over quantity.
Throughout his career, he prioritised investing in strong brands with competitive advantages, rather than focusing solely on price and opting for the most affordable stocks.
He recognised that high-quality businesses compound best and, for Munger, it wasn’t buying and selling shares frequently that earned him billions but understanding the power of compounding.
Compound returns are the returns you make on both your initial investment and the profits you make, and on things like dividends if you reinvest them.
When you first start investing, compounding may seem to make little difference to the overall performance of your portfolio. However, when compound returns are added year after year, it could quickly snowball resulting in higher returns in the long term.
5. Live within your means
While this may not seem like an investment lesson at first glance, living within your means could free up more funds that you can invest.
Despite his considerable fortune, Charlie Munger lived a relatively frugal life. He lived in the same modest family home for many years, drove an old-model car and generally avoided a consumer lifestyle.
Even if you have aspirations to live a more extravagant life than Munger, living within your means could help you to build your wealth over time by investing for the long term and reaping the benefits of compounding interest.
Read more: 10 of the best investment tips from Warren Buffett, the “Oracle of Omaha”
Get in touch
If you’re eager to learn more about investing, either to buy your first stocks or to find out how to level up your portfolio performance, a financial planner can help.
Our financial planners can provide the expertise and guidance you need to boost your investment strategy.
To find out more, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
