How to invest, by the late, great Charlie Munger

The past week saw the death of investing legend, Charlie Munger, who alongside Warren Buffett ran the US investment conglomerate, Berkshire Hathaway. Munger, was often dubbed Buffett’s ‘right-hand man’, but was also a very successful investor in his own right.

Today, Berkshire Hathaway has a market capitalisation of more than $780bn, and by the time of his death Munger had amassed a fortune of more than $2.2bn himself.

But Charlie Munger won’t be remembered only for his immense wealth, instead he’ll be remembered for his clear thinking when it came to picking stocks and his sage investment insight.

Over a career and partnership with Warren Buffett that spanned more than half a century, he produced thousands of nuggets of investment wisdom that were collectively called ‘Mungerisms’.

Here are some of Charlie Munger’s most important philosophies when it comes to the art of investing.

1. Compound your way to wealth

Munger famously said in a biography of him by Janet Lowe, ‘Damn Right!: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger’ that the only way to build wealth was to live within your means.

If you did this, then you could save, even a small amount, that would allow you to invest. The power of investing is that it allows your money to compound over decades.

Of course, he was right – today you can start investing with as little as £25 a month by setting up a direct debit.

Munger was passionate about compounding, he pointed out that money to be made in the stock market is not through the buying or the selling, but in the waiting.

He meant that you could gain increasing returns if you hold onto an investment, with the same amount of work.

The alchemy between Buffett and Munger is legendary. But the key to their success is they both understood the true power of compound interest, and the part patience plays in success.

Here’s how powerful patience and staying invested can be.

Staying invested versus missing the best 10 days in the UK stock market

Scroll across to see the full chart.

Past performance isn’t a guide to the future. Source: Refinitiv Eikon, 03/01/00 - 20/11/23. Figures based on £10,000 starting investment (excluding charges and inflation).

2. Quality over quantity

In 2014, Warren Buffett credited Charlie Munger with devising Berkshire Hathaway’s investing approach, which can be neatly summed up as, “Forget what you know about buying fair businesses at wonderful prices, instead buy wonderful businesses at fair prices.”

He’s credited with steering Buffett away from buying cheap companies looking for small profits. Munger’s qualitative approach to investing is why Berkshire Hathaway’s top stock holdings include blue chip names like Apple, Bank of America, American Express and Coca-Cola.

Munger believed that good investment opportunities were few and far between and once he owned a quality company, he held onto it for the long term.

3. Lifelong learning  

“It’s much better to think that you’re ignorant.” – another important nugget from Charlie Munger.

This highlights Munger’s humility and knack for a pithy turn of phrase, but also how he dedicated his life to continuous learning. He did this because he believed that there was no one formula for success in investing or business.

Munger had a profound sense of how little he knew, however, it’s worth noting that he was an attorney, chairman, newspaper publisher and an architect. He’s also quoted as saying that playing poker when he was in the army honed his business skills because it taught you to fold early when the odds are against you.

Charlie Munger will be sadly missed at Berkshire Hathaway, but his investment philosophy will live on. Rather than try and outsmart everyone, his spectacularly successful career was built on solid and straight forward principals, rooted in common sense.

This article isn't personal advice. If you're not sure what's right for you, ask for financial advice. Investments rise and fall in value, so you could get back less than you invest.