5 valuable philosophies you can learn from the late investing legend Charlie Munger

Having reached the grand old age of 99, Charlie Munger passed away on 28 November 2023.

Vice-chairman of Berkshire Hathaway, Munger enjoyed a long and varied career. And made his first fortune before he met his future business partner, Warren Buffett.

Often thought of as Buffett's "right-hand man", Charlie Munger was an investment legend in his own right.

At the time of his death, Munger had amassed a personal fortune of more than $2.2 billion and Berkshire Hathaway has a market capitalisation of more than $780 billion.

Buffett credits Munger with teaching him some of his most important investing lessons. Following news of Munger’s death, Buffett said “Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation.”

Part of Munger’s legacy will be a wealth of knowledge and wisdom about investing. Read on to discover some of the key philosophies when it comes to investing.

1. Live life backwards

According to CNBC, Munger once advised Warren Buffett to “live life backwards”. 

In other words, start by thinking of the kind of life you want to live, and then take actions that will help you achieve your goal.

Since money is purely a tool for helping you to achieve the lifestyle that you’d like, the advice applies to investing as much as it does to life. 

So, before investing, it’s helpful to have a clear idea of what you want to do with your money once you have accumulated wealth. 

The reason this is so helpful is that your goals and time frame may influence the way you decide to save and invest. For example, if you want to invest so you can retire early you’ll likely make different decisions than if your primary goal is to build a nest egg to gift to your children after you pass away.  

As a result, understanding your end goal and working backwards can be a helpful mantra to keep in mind for many different areas of your life.

2. Be wary of predictions

Throughout the year, but especially at the start or end of a year, you’ll see lots of articles talking about predictions for what might happen to the stock markets and the economy in the coming 12 months. 

Charlie Munger advised to treat such predictions with caution. Not least because there are, some more reliable ways to make investment decisions. 

As he explained: “I don’t make money predicting accurately. We just tend to get into good businesses and stay there.”

Munger’s philosophy was to seek out good businesses to invest in. By investing in businesses that are well-run and profitable, you’re more likely to see long-term success. Almost certainly more so than attempting to beat the market with predictions.

3. Compound your way to wealth 

In her biography of Munger, Janet Lowe’s Damn Right!: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger revealed that Munger firmly believed the only way to build wealth was to live within your means.

By doing so, you can save, and saving even a small amount allows you to invest. Then, you can start to benefit from one of the biggest powers of investing: the ability of your money to compound over decades.

And Munger was right: today, you can invest as little as £25 a month and enjoy the benefits of pound cost averaging that come with regular investing.

Read more: 5 reasons regular investing can be a great investment strategy

Munger was passionate about compounding, pointing out that money to be made in the stock market is not through the buying or the selling, but in the waiting.

By this, he meant that it’s possible to gain increasing returns if you hold onto an investment, with the same amount of work.

Buffett and Munger’s partnership is legendary. One key factor in their phenomenal success is that they both understood the true power of compound interest, and the part patience plays in success. 

4. Take a long-term view of your investments

One of the most important factors in Munger’s investing success was his patience and persistence in holding on to stocks and shares. 

“Warren and I don’t focus on the froth of the market. We seek out good long-term investments and stubbornly hold them for a long time.”

This is a helpful guideline to apply to your own investing strategy. As you’re probably already aware, attempting to time the market rarely produces the desired effect. Instead, riding out the fluctuations you’ll inevitably see on the stock market during your career is much more likely to help you grow your money. 

Read more: Why time in the market, not timing the market matters for your wealth

The graphic below illustrates the power of patience and how keeping a calm head and remaining invested could make a significant difference to your investment returns.

Source: Refinitiv Eikon, 03/01/00 - 20/11/23. Figures based on £10,000 starting investment (excluding charges and inflation). 

Remember: Past performance isn’t a guide to the future.

5. Never stop learning

An enthusiastic advocate of continuous learning and self-improvement, Charlie Munger often had a book in his hand.

“In my whole life, I have known no wise people who didn’t read all the time—none, zero. You’d be amazed at how much Warren reads—and how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”

Munger believed it was vital to understand how to approach problems from a range of different perspectives. After all, “to a man with a hammer, everything is a nail”. 

Reading widely can help you add more tools to your armament. Learning can give you a broader understanding of how to approach challenges, and help you to make sensible choices.

Get in touch

If you're interested in learning more about how we can help you work towards your long-term goals by investing sensibly, in line with the philosophies that great investors like Charlie Munger teach, please get in touch.

Email enquiries@alexanderpeter.com or give us a call on +44 1689 493455.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.