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5 Investment Lessons From Berkshire's Charlie Munger

5 Investment Lessons From Berkshire's Charlie Munger

By    |   Thursday, 03 December 2015 07:54 AM

Charlie Munger isn't as well known as his wealthier colleague, Warren Buffett, but that doesn’t mean he lacks insights on smart investing.

The vice chairman of Berkshire Hathaway has plenty of advice on how to build wealth, writes Nicholas Vardy, chief investment officer at Global Guru Capital, on the Seeking Alpha blog.

Munger graduated second in his class at Harvard Law School and is estimated to have a net worth of $1.2 billion, compared with the $63 billion of Berkshire CEO Buffett.

“Munger's thinking is eclectic, drawn from a wide range of disciplines and insights,” Vardy writes. “Since he never has written these down, you need to tease them out of his occasional speeches to graduating law school and business school classes.”

5 Investing Lessons From Munger
  • Ignore the Propeller Heads of Modern Finance: “Munger disdains the army of academics who created the discipline of modern finance. Like Buffett, Munger was weaned on the mother's milk of Ben Graham's philosophy of value investing.” But Munger “transformed Graham's idea of a value-based "margin of safety" into the idea of a "moat" — a sustainable competitive advantage over time.”
  • Avoid Difficult Decisions: “By limiting yourself to investing in the most simple and straightforward investment ideas, you are much more likely to be successful,” Vardy writes.
  • Don't Trust Wall Street: “Munger disdains what he terms Wall Street's "locker room culture," which puts winning above everything else. This culture of greed and envy — two sins you should work hard to avoid, says Munger - are the source of much of the financial industry's problems.”
  • The Importance of Trust: “Berkshire invests in companies with sound and ethical managements who are motivated more by the compulsion to do a good job than by mere financial rewards.”
  • Understand the "Psychology of Human Misjudgment": “As with his other insights, these appear only sporadically in his speeches and writing. But it'll be a while before behavioral economists start writing on the impact of ‘envy’ on your investment returns. That's not the kind of research that's going to get you tenure at an elite university.”
Meanwhile, Buffett is showing cracks in his image as the avuncular guy who built his fortune with hard work and a keen eye for opportunities.

Critics say that façade hides a hypocrite who “gets to play by his own set of rules,” according to The Wall Street Journal.

The latest attack came from Bill Ackman, the activist hedge-fund manager who this week blasted Buffett for owning shares in Coca-Cola Co., which has caused “enormous damage to society” by selling sugary drinks that lead to obesity and diabetes.

His criticism was in response to Munger who last month chided Ackman for investing in “deeply immoral” drugmaker Valeant Pharmaceuticals Inc.

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Charlie Munger is famously not as well known as his wealthier colleague, Warren Buffett, but that doesn't mean he lacks insights on smart investing. The vice chairman of Berkshire Hathaway has plenty of advice on how to build wealth, writes Nicholas Vardy, chief investment...
Munger, Buffett, Berkshire, investing
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2015-54-03
Thursday, 03 December 2015 07:54 AM
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