Following up on my recent book review of Poor Charlie’s Almanack; The Wit and Wisdom of Chares T. Munger, below is an excerpt of some of my favorites from the Charlie Munger Investment Principles Checklist. The point of these isn’t their novelty (most of them should be familiar to you), but their fundamental soundness; as Charlie says, “it is better to remember the obvious than to grasp the esoteric”…
On Risk:
– “All investment evaluations should start by measuring risk, especially reputational”
– “Avoid dealing with people of questionable character”
– “Avoid big mistakes; shun permanent capital loss”
On Independence:
– “Only in fairy tales are emperors told they are naked”
– “Remember that just because other people agree or disagree with you doesn’t make you right or wrong – the only thing that matters is the correctness of your analysis and judgment”
On Preparation:
– “Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day”
– “More important than the will to win is the will to prepare”
On Intellectual Humility:
– “Identify and reconcile disconfirming evidence”
– “Resist the craving for false precision, false certainties, etc.”
– “Above all, never fool yourself, and remember that you are the easiest person to fool”
On Analytic Rigor:
– “Determine value apart from price; progress apart from activity; wealth apart from size”
– “It is better to remember the obvious than to grasp the esoteric”
– “Think forwards and backwards – invert, always invert”
On Allocation:
– “Proper allocation of capital is an investor’s number one job”
– “Good ideas are rare – when the odds are in your favor, bet (allocate) heavily”
On Patience:
– “Resist the natural human bias to act”
– “Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily
– “Enjoy the process along with the proceeds, because the process is where you live”
On Decisiveness:
– “Be fearful when others are greedy, and greedy when others are fearful”
– “Opportunity doesn’t come often, so seize it when it does”
On Change:
– “Continually challenge and willingly amend your ‘best-loved ideas'”
– “Recognize reality even when you don’t like it – especially when you don’t like it”
On Focus:
– “Keep things simple and remember what you set out to do”
– “Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat”
– “Face your big troubles; don’t sweep them under the rug”
If these strike you as useful and relevant to your world, the book includes several more principles, and supports each of them with a wealth of real-world examples from Charlie’s experience as a Berkshire Hathaway partner and as Chairman of WESCO Financial.
Great blog and great post. I have a Charlie Munger category on my blog, so I am definitely a fan of his thinking process. And I will be back to your site, for sure.