5 Lessons Charlie Munger Can Teach You

January 1 would have been Charlie Munger’s 100th birthday.

But it wasn’t meant to be.

He passed away November 28.

Munger has had a profound impact on my life.

Not only with investing … but on how to live a fulfilled and productive life.

I’ve shared Munger’s lessons and insight with my children for years.

So much so, that one of my boys thought Uncle Charlie was part of our family.

In today’s update, I’d like to share five lessons that impacted me the most from Munger. And how these lessons will help you become a better investor and a more productive human being.

#1: Learning Machine

“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than when they got up and, boy, does that help — particularly when you have a long run ahead of you.”

This is something anyone can do. No special skills. I read this early in my career.

I knew I wasn’t always going to be the smartest, richest or best connected person in the room.
But … I could be the one that comes into the room every day a little smarter. And that’s what I did.

I made sure to not go to bed each night without reading at least one annual report about a company I knew nothing about.

Over time the laws of compounding took over.

Each day I added to my database of knowledge. So in due time, I’ve built up a database in my head of different business models, CEOs and industries that have helped me spot new opportunities.

While researching Google, I also learned about Google back in the early 2000s. I saw an interesting story on Google’s first angel investor.

Andy Bechtolshiem seeded them with a $100,000 investment. This funding allowed them to incorporate Google and kick-start their operations.

About a decade later I saw the growth of cloud computing when I was researching Microsoft and Amazon.

The company that was at the sweet spot of cloud was Arista Networks (NYSE: ANET). It gave me even more confidence in the company when I found out Bechtolsheim was one of the co-founders!

Since we added Arista to my Alpha Investor portfolio in 2020, shares are higher by close to 460%.

If I didn’t learn about those businesses, I might not have found Arista right before it was about to soar higher.

#2: Reading

“One of the reasons that I was as economically successful as I was is because I read so damn much all my life — starting when I was six years old. I don’t know how to get smart without reading a lot.”

“There is no better teacher than history in determining the future… There are answers worth billions of dollars in a history book.”

I spent most of my childhood in the Homecrest Library a few blocks from my house. At 12 years old, I was on a first-name basis with all the librarians. This was back when the Dewey decimal system was used to look up books.

The librarians liked me so much, they’d put aside books for me so I didn’t have to look them up. I started with history, then biographies, then science fiction and then everything else.

On average I read one book a week … and I try to find time to read even more.

One of Munger’s lessons was to become friends with the “eminent dead.” I learned more about Wall Street from reading about John D. Rockefeller, Andrew Carnegie and J.P. Morgan than a four-year business class in college.

#3: Avoid Stupidity

“All I want to know is where I’m going to die, so I’ll never go there.”

“Avoiding stupidity is easier than seeking brilliance.”

A lesson I continually try to drill into my children’s heads as well as anyone I know. It’s much easier to avoid trouble than to try to get out of it.

I’ve lived my life hitting the ball to the center of the court … and not trying to go for the corners.

I might’ve become wealthier if I had, but I’m way ahead with the trade-off: a good reputation and I sleep better at night.

#4: Investing

“Investing is where you find a few great companies and then sit on your ass.”

I learned from Munger not to make a simple game harder. It’s much easier to find great businesses, buy them at a good price and then wait.

The biggest thing I’ve learned is not to interrupt the compounding process.

Great businesses compound money at high rates. I make sure to stay out of the way and not be tempted to sell and take a few points off the table. The big money is in waiting.

Here’s an example from the Alpha Investor portfolio …

It didn’t take much work on our part to have open profits of 200% on Marvell Technology (Nasdaq: MRVL), or 188% on KKR & Co. (NYSE: KKR), or 190% on HCA Healthcare (NYSE: HCA).

There were times the stocks shot up and it was tempting to take some money off the table. If I had done that, I would’ve certainly missed out on some of the gains … and be stuck with a big tax bill.

Instead, I shared with my subs when to buy more, and then we sat on our butts.

Because the big money is made, as Munger said: “Not in the buying and the selling — but in the waiting.”

#5: Simplicity

“There is an old two-part rule that often works wonders in business, science, and elsewhere: (1) Take a simple, basic idea and (2) Take it very seriously.”

This is the best lesson of all. Simple ideas, taken seriously.

That’s how we’ve built Alpha Investor and our other research services.

They all follow a very simple idea: buy stocks the way you would buy a private business as a passive investor.

I look for a quality business, in a mega-trend industry, run by a rock-star CEO and buy it when it trades at a great price.

No more magic to it than that. I don’t have to guess on the latest technology, where interest rates are headed, or the average rainfall in the Sahara Desert.

Trying to figure out the unknown unknowns is a waste of time and brainpower.

Instead, I spend my time thinking about a company’s competitive advantage, the CEO and how they are going to increase profit margins. I clear the deck and focus on what is simple and knowable.