Famed investor and philanthropist Charlie Munger died on Nov. 28 at a Santa Barbara, California, hospital just 34 days shy of what would have been his 100th birthday.
Best known as the right-hand man of legendary investor Warren Buffett, Mr. Munger was the longtime vice chairman of Berkshire Hathaway Inc., a multinational holding company headquartered in Nebraska. (He was also the director of Costco Wholesale Corp.)
In his decades of business and finance, he distinguished himself as one of the savviest investors of his day—and one of the most quotable.
Live Within Your Means
One of the reasons Mr. Munger became a billionaire was that he understood the value of a dollar. He once said the first step to wealth accumulation was learning to live within one’s means.“Live within your income and save so that you can invest,” he said.
This sounds simple in theory, but it’s something many Americans find difficult to practice.
Learn How to Invest
Mr. Munger didn’t advise living within one’s means just so Americans could hoard cash. He understood economizing as a pathway to saving and saving as a pathway to investing—a key to wealth accumulation.“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,” he once said. “You'd be amazed at how much Warren reads—and at how much I read.”
Learning the mechanics of trading is part of learning how to invest, of course. But Mr. Munger was speaking beyond things such as options trading, noting that understanding economics and history is imperative to sound investing.
Keep It Simple—and Be Patient
There’s no shortage of advice on investing out there, but Mr. Munger suggested that a lot of this advice is lousy, including the conventional wisdom that many receive in university courses.“One of the inane things [that gets] taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks,” he said. “That is an insane idea. It’s not that easy to have a vast plethora of good opportunities that are easily identified. And if you’ve only got three, I'd rather it be my best ideas instead of my worst.”
Unlike many stock gurus, Mr. Munger (like Mr. Buffett) stressed the importance of keeping things simple, which is why he advised managing a relatively small basket of stocks made up of proven companies.
Once one has done his homework and purchased shares in a company, the key to returns is patience.
Understand the Importance of Incentives
Perhaps Mr. Munger’s most famous quote is related to a key concept in economics: incentives.“Show me the incentive and I'll show you the outcome,” he once quipped.
“The iron rule of nature is: You get what you reward for,” Mr. Munger once said. “If you want ants to come, you put sugar on the floor.”
Manage Your Character Closely—and Reject Envy
Mr. Munger might have been a billionaire, but he was no materialist. He believed deeply in the importance of character and hard work, which he saw as essential to capitalism and a free society.“What makes capitalism work is the fact that if you’re an able-bodied young person, if you refuse to work, you suffer a fair amount of agony, and because of that agony, the whole economic system works,” he once said. “You take away that hardship and say, ‘You can stay home and get more than if you come in to work,’ that’s quite disruptive to an economic system like ours.”
Mr. Munger rejected the idea that the modern world was powered by greed; he instead pointed to a different vice as the true catalyst.
“The world is not driven by greed. It’s driven by envy,” he said. “Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?”
“Remember that reputation and integrity are your most valuable assets—and can be lost in a heartbeat,” he said.
