Charlie Munger

Charlie Munger teaches you the investment approach and ideas about life from Warren Buffett’s business partner and billionaire Charlie Munger, which the two have used for decades to run one of the most successful companies in the world.

Just like Warren, Charlie believes a good investing approach comes from accepting your limits and sticking with what you know. If a stock analyst tries to sell you on Facebook one week, a pharmaceutical company the next, and a car manufacturer after that, all kinds of alarm bells should ring in your head.

First of all, every single industry on this planet is incredibly complex and hard to understand by now, so there are very few people who are knowledgeable about more than one.

Second, the financial nature of any single investment is pretty complicated too, so an “expert” might often try to sell you on something she herself doesn’t even fully understand.

At Berkshire Hathaway, Charlie and Warren take Benjamin Graham’s value investing approach of waiting for a great company to trade at a price that’s below what it should be. Only if they understand the core business, the company’s values and what management is up to, do they invest.

The model is simple, but not easy. It leaves them with only three buckets for potential investments. In, Out, and Too Tough. The first two are self-explanatory, the third one is for investments that might be good choices in the future, but aren’t understood well enough by Charlie and Warren right now.

Don’t try to invest in anything that moves. Stick with what you know and be patient in letting the right companies find you.

As you can guess, the above model requires one thing above all else: patience.

You might know the classic saying: “Don’t just stand there, do something!”

When it comes to investing, this is bad advice. The companies that fit Charlie’s and Warren’s investment criteria are far and few between, so he likes to say the opposite: “Don’t just do something, stand there!”

In investing as in life, a lot of your time will (and in this case should) be spent waiting. Kind of like waiting for a bus – you never know when the next one’ll show up, but you have to be ready.

Of course most people believe waiting to be unproductive, so instead of just gathering information and keeping their cool, most investors rush from one trade to the next, accumulating nothing but losses, fees and taxes, while the great investor just waits and reaps all the profits to be had from just a few trades per year, as long as they’re the right ones.