When it comes to the world’s best investors, Charlie Munger (Trades, Portfolio) is in a league of his own. For most of his career, Munger has been the right-hand man of Warren Buffett (Trades, Portfolio), which has, to some degree, limited his impact on the world of investing (although not by much). When people think of Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), it is Buffet, not Munger, who first comes to mind.
But that does not mean Munger has no investment skill. Indeed, before he joined Berkshire, he ran his ownq partnership where returns we as good as, if not better than, those of Buffett.
Still, for the past several decades, Munger has been known as Buffett’s right-hand man, so it is extremely likely he has had more influence on Buffett’s strategy than anyone else.
With this being the case, I gathered some of Munger’s most informative quotes about investing and shaping an investment process. Hopefully, these pointers will help you form your own strategy and run a portfolio that works for you.
Munger on the benefits of using checklists to find potential investments:
“You need a different checklist and different mental models for different companies. I can never make it easy by saying, ‘Here are three things.’ You have to derive it yourself to ingrain it in your head for the rest of your life.”
Do not be overoptimistic. Learn your limits:
“Most people who try [investing] don’t do well at it. But the trouble is that if even 90 percent are no good, everyone looks around and says, ‘I’m the 10 percent.’”
The market is efficient, but there’s scope for outperformance if you work hard enough:
“I think it’s roughly right that the market is efficient, which makes it very hard to beat merely by being an intelligent investor. But I don’t think it’s totally efficient at all. And the difference between being totally efficient and somewhat efficient leaves an enormous opportunity for people like us to get these unusual records. It’s efficient enough, so it’s hard to have a great investment record. But it’s by no means impossible. Nor is it something that only a very few people can do. The top three or four percent of the investment management world will do fine.”
Wait for the best opportunities:
“Move only when you have an advantage. It’s very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor. We just keep our heads down and handle the headwinds and tailwinds as best we can, and take the result after a period of years.”
When considering an investment, look not at what could go right, but what could go wrong:
“Invert, always invert: Turn a situation or problem upside down. Look at it backward. What happens if all our plans go wrong? Where don’t we want to go, and how do you get there? Instead of looking for success, make a list of how to fail instead. Tell me where I’m going to die, that is, so I don’t go there.”
To be successful at investing, you have to understand your own nature. If you try to play by someone else’s rules, you will not succeed:
“How do you learn to be a great investor? First of all, you have to understand your own nature. Each person has to play the game given his own marginal utility considerations and qqin a way that takes into account his own psychology. If losses are going to make you miserable and some losses are inevitable, you might be wise to utilize a very conservative pattern of investment and savings all your life. So you have to adapt your strategy to your own nature and your own talents. I don’t think there’s a one size fits all investment strategy.”
And finally, some people are just not designed to be good at investing:
“How do some people get wiser than other people? Partly it is inborn temperament. Some people do not have a good temperament for investing. They’re too fretful; they worry too much. But if you’ve got a good temperament, which basically means being very patient, yet combine that with a vast aggression when you know enough to do something, then you just gradually learn the game, partly by doing, partly by studying.”
Disclosure: The author owns no stocks mentioned.
The original article is written by Rupert Hargreaves and appears on gurufocus.com. It is available here.