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7 Words of Wisdom from One of the World’s Most Revered Investors

A long time ago in an economy far, far away a young Warren Buffet worked in an Omaha, Nebraska grocery store owned by his grandfather. During his stint in the family business, Buffett became good friends with a co-worker named Charlie Munger. Buffett, of course, went on to become one of the world’s richest and most revered investors as Chairman of the wildly successful holding company, Berkshire Hathaway.

But whatever happened to good ol’ Charlie Munger? Pretty much the same thing. As Vice Chairman of Berkshire Hathaway, the 95-year-old Munger has long been Buffett’s partner and confidant. Munger, too, is a billionaire whose insights are much sought and highly regarded.

Despite years of top tier education – Michigan, Cal Tech, Harvard – Munger says he bases his professional and personal decisions on simple truths, what he calls Elementary Worldly Wisdom.

Here are seven examples of Munger’s Elementary Worldly Wisdom gleaned from a recent CNBC interview.

On beating the market average – Munger says it’s currently very difficult to beat the market average by picking individual stocks, certainly much harder than when he and Buffett started investing and valuations were very low. But, Munger adds, that doesn’t’ mean that the golden age of investing is over. Valuations rise and fall. There are always times when a smart investor can reap returns that outpace the market average. One such window was 2009 in the wake of the financial crisis.

On the current state of the market – While Munger did offer CNBC a passing comment on the end of 2019’s bear market, I guarantee he would never answer any question about the market’s daily performance. He would probably reply with something like “I don’t follow it.”

Munger’s long-term focus reminds me of another legendary investor, Vanguard founder John Bogle. Once while interviewing Bogle, I made the mistake of asking how the market would perform in the coming year. Bogle ferociously reminded me that “anything less than 10 year is just speculation!”  He made me feel guilty for even bringing it up!

That’s hard wisdom to swallow. Sure, it’s easy to take the long view when, like Munger, you are known as one of the greatest investors of all time; you’re best buddies with Warren Buffett, and you have a net worth of almost $2 billion. For the rest of us, the world is too scary to just stick our portfolios in a drawer and hope all goes well for the next ten years.

But if you have confidence in your long-term strategy (as Munger does), have reasonable expectations for your money, and don’t overspend your retirement savings then you, too, can escape day-to-day worries about the market’s performance and extend your mental time horizon. Investing is often referred to as a marathon, but that’s not quite right. Saving for your retirement is more like the Iditarod, the 900-mile dog sled race from Anchorage to Nome Alaska that takes place in sub-zero conditions. The Iditarod lasts eight or nine days. A marathon you can finish before lunch.

On Qualitative Easing – Munger says the qualitative easing undertaken by central banks in the wake of the financial crisis was necessary and helped the economy overall.  Munger acknowledges those actions certainly “helped the rich” and lead to an increase in economic inequality. But, Munger adds, that unfortunate outcome was an unintended consequence of necessary actions and wasn’t a conspiracy against the poor. He believes that inequality won’t accelerate much more now that qualitative easing is over. But that rise in inequality over the past decade, he notes, helped create the populist fervor that currently roils our politics

On Politics – While our two-party system can be frustrating, it’s still better than the one-party rule, says Munger. And even if we had just one political party, it would likely have opposing factions and extremists. So the system of checks and balances we learned about in 3rd-grade social studies is still the only way to operate. But wouldn’t it be better if both parties hated each other less?  There’s not much we can do about the divide except acknowledge that it exists and express our desire for things to get better. That’s one small way each of us can turn the negative tide.

On the biggest threat we face. Nuclear war, not global warming, is the worst possible disaster facing humanity. Global warming we can solve, nuclear war would be a complete disaster.

On economics – Economies and economic policy are difficult to master.  An ancient Greek philosopher noted that a man never steps into the same river twice; the man is different and so is the river when he goes in the second time.  That describes economics. The same policy can lead to different results because the economy is never the same.

On living a long and happy life – Munger says these six simple rules are the foundation for a joyous life:

  1. Don’t have a lot of envy.
  2. Don’t have a lot of resentment.
  3. Don’t overspend your income.
  4. Stay cheerful in spite of your troubles.
  5. Deal with reliable people.
  6. Do what you’re supposed to do.

Charlie Munger isn’t as famous as his pal Warren Buffett, and my guess is that Munger likes it that way. Still, Munger has much insight to share – on both money and life. I hope he stays in the spotlight and continues to share his wisdom.

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