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Applying Charlie Munger’s investment principles for long-term success

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By Capital Partners Markets and Investments

“How can smart people so often be wrong? They don’t do what I’m telling you to do: use a checklist to be sure you get all the main models and use them together in a multimodular way.”

– Charlie Munger

Investing can seem daunting and complex.

But it doesn’t have to be.

In the world of finance, few individuals possess the wisdom and insight of Charles T. Munger, Warren Buffett’s business partner and a renowned investor in his own right.

Munger’s approach to investing is not only brilliant but also refreshingly straightforward.

Peter Kaufman has put together some of the best lessons on how to invest wisely into a fantastic book.

It’s called “Poor Charlie’s Almanack,” and it’s a collection of speeches and talks given by Charlie Munger.

How you can apply these timeless lessons to your investment strategy?

Needless to say, investors can learn a thing or two from what Charlie has to say.

1. Risk

All investment evaluations should begin by measuring risk, especially reputational.

  • Before you invest in something, consider how risky it is.
  • Make sure you’re being safe with your investments.
  • Be careful when dealing with people of questionable integrity.
  • Ask for a fair reward if you’re taking a risk.
  • Keep an eye on the impact of inflation and interest rates.
  • Avoid significant mistakes that could result in permanent financial loss.

2. Independence of thought

“Only in fairy tales are emperors told they are naked.”

  • Objectivity and rationality require independence of thought.
  • Sometimes, going along with the crowd doesn’t lead to the best results.
  • What matters most is whether your thinking is right, not whether everyone agrees with you.

3. Continuous preparation

“The only way to win is to work, work, work, and hope to have a few insights.”

  • Keep learning throughout your life by reading and staying curious.
  • Being ready is often more important than wanting to win.
  • Always ask “why” to understand things better.

4. Intellectual humility

Acknowledging what you don’t know is the dawning of wisdom.

  • Being wise starts with knowing what you don’t know.
  • Stick to what you understand well.
  • Look for information that goes against what you believe.
  • Don’t pretend to be certain when you’re not.
  • Remember, it’s easy to fool yourself.

5. Analytical rigour

Use of the scientific method and effective checklists minimises errors and omissions.

  • Use a careful method and checklists to avoid mistakes.
  • Tell the difference between what something is worth and what it costs.
  • Focus on analysing businesses, not just markets or numbers.
  • Think about all the risks and effects.
  • Try looking at problems from different angles.

6. Capital allocation

Proper allocation of capital is an investor’s number one job.

  • Deciding where to put your money is the most important part of investing.
  • Always compare your best option with the next best one (opportunity cost).
  • Good ideas are rare—when the odds are greatly in your favour, bet (allocate) heavily.
  • Don’t get too attached to one investment; be flexible.

7. Patience

Resist the natural human bias to act.

  • Fight the urge to make quick decisions.
  • Let your investments grow over time; don’t interrupt compounding.
  • Avoid unnecessary taxes and costs – or taking action for the sake of it.
  • Be ready for opportunities that come unexpectedly.
  • Enjoy the process as much as the results.

8. Decisiveness

When proper circumstances present themselves, act with decisiveness and conviction.

  • Be fearful when others are greedy, and greedy when others are fearful.
  • When the right opportunity comes, make a decision with confidence.
  • Grab opportunities when they appear because they don’t last long.
  • Success often happens when you’re ready for it.

9. Embracing change

Live with change and accept unremovable complexity.

  • Accept that the world changes, and adapt to it.
  • Be willing to rethink your beliefs.
  • Face reality even when it’s not what you want.

10. Focus and simplicity

Keep things simple and remember what you set out to do.

  • Keep your investment strategy simple and stick to your goals.
  • Your reputation and honesty are important and can be lost quickly.
  • Watch out for overconfidence and boredom.
  • Don’t get lost in details, and cut out unnecessary information.
  • Deal with big problems instead of ignoring them.

Charlie Munger’s checklist for successful investing is a timeless resource for both novice and experienced investors. By following these principles, you can improve your investment strategy and increase your chances of financial success.

Remember, investing is a journey and mistakes will happen along the way.

However, with guidance, you can navigate more effectively and, over time, achieve your financial goals.

As ever, it’s not about chasing quick riches but building lasting wealth. Reach out to our team if you’re ready to jump off the investment rollercoaster.


This article was written by Sam Instone with permission to publish.

The information provided on this site is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if these strategies and products are right for you.

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