Charlie Munger’s legacy shines through his investment philosophy and life wisdom. We can learn how he lived a successful life through the six important lessons he left behind. This article introduces how we can also live and invest more wisely by following Munger’s teachings.
1. Consider What Not to Do
Munger emphasized “inverting” as a way to solve complex problems. He believed that thinking about “what not to do” first could help avoid many mistakes. Particularly in investing, Munger stressed the importance of avoiding the most foolish decisions.
2. Understand Cognitive Biases
Munger emphasized the importance of understanding cognitive biases that can cloud our judgment. He advocated for curiosity and considering alternative perspectives in the decision-making process. He also advised actively reviewing opposing opinions before making critical decisions to reduce cognitive biases.
3. Develop Your Circle of Competence
Understanding and expanding one’s abilities is another crucial lesson from Munger. He emphasized the importance of knowing your strengths and maximizing them. Munger particularly stressed focusing on areas you know well to make efficient decisions.
4. Harness the Power of Reading and Learning
Munger valued expanding knowledge through reading and continuous learning. He believed that accumulating knowledge across various fields greatly helps in solving complex problems. For example, he emphasized learning from books that provide a deep understanding of historical events.
5. Practice Long-Term Thinking in a Short-Term World
Munger believed that maintaining a long-term mindset is key to successful investing. He emphasized the importance of setting long-term strategies without being swayed by short-term fluctuations. This lesson is applicable not only to investing but to all aspects of life.
6. Compare Capital Allocation with Opportunity Costs
Munger always considered opportunity costs by comparing the relative merits of investment ideas. He believed that asking “Compared to what?” could lead to better decisions. This approach offers valuable lessons that every investor can follow.
Conclusion
Charlie Munger’s wisdom extends beyond simple investment principles into a philosophy of life. His teachings offer us ways to live better lives. By following Munger’s lessons, you can upgrade both your life and investments.
Source: Lawrence A. Cunningham, “Buffett partner Charlie Munger kept these rules about investing and life that you can use too”