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What I Learned from a Billionaire: Part 1

Warren Buffett and Bill Gates have referred to this individual as the smartest man they know. He may be best known for his book of witty remarks and sage advice called “Poor Charlie’s Almanac.” Of course, I am alluding to Charlie Munger.

Munger is the long-time business partner of Warren Buffett. Together, this team has grown their conglomerate, Berkshire Hathaway, into one of the world’s most respected businesses. Below are some observations from “Charlie Munger: The Complete Investor” that should help you in your own financial, professional and entrepreneurial journey.

Solve Hard Problems by Using a Checklist

Munger is a proponent for using checklists to get your most important tasks done. He states that “I’m a great believer in solving hard problems by using a checklist. You need to get all the likely and unlikely answers before you; otherwise it’s easy to miss something important.”

Similarly, Buffett has said that “if you haven’t written it down, you haven’t thought it through.”

Take the checklist approach to help solve a problem or design a plan for your next goal. Be thoughtful and deliberate in the process.


Be Mindful of the Price You Pay

Charlie Munger is a long time value investor who subscribes to the principles set forth by Benjamin Graham, Warren Buffett’s professor. One of the key components for a Graham style investor is to create a margin of safety when investing.

Ben Graham’s definition of margin of safety is “a favorable difference between current price and intrinsic value.” Simply put, intrinsic value is the appraised value of an investment or business. In other words, look for opportunities to invest when price is at a discount to its true value.

For example, during a bear market stock prices will be lower.  Buying shares of quality companies during a bear market can have the potential to offer long-term value to investors.


Learn About Multiple Disciplines

Becoming well-rounded will serve you well as an investor. Your perspective and breadth of knowledge will allow for you to have a better understanding of how the world is intertwined as well as minimize the impact of useless information in your decision making process.

Both Munger and Bufffett set aside plenty of time each day to just think and read. Munger adds “people calculate too much and think too little.”

Take time to read, think, and learn new subjects. Doing so will expand your mind in intellectual, psychological, as well as physiological ways.


Learn from Others

If you are able to observe others and learn from their mistakes you will accelerate your learning path greatly. Or, as Munger would say, “I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it up yourself. Nobody’s that smart.” Think broadly and learn from others to gain wisdom necessary for success.


Invest in Businesses You Can Understand

Munger advises that you invest in something you understand. Investment opportunities could present themselves from your industry of work or a part of the world with which you are familiar.

Otherwise, if you cannot understand the business you will not be able to identify what you do right and wrong when investing. As a result, you will not learn from mistakes which will create more risk and you will not be able to build a sound strategy around your area of expertise.


Control Your Emotions

Investing, in particular, can be an emotional roller coaster if you let your basic survival responses drive your decision making process. Munger has observed that “most investors, no matter how smart, won’t succeed because they have the ‘wrong temperament’.” What he is implying is that we have behavioral and psychological biases that will create impediments on our path to investing success.

Instead, Munger advises that we develop a “trained response” after you have learned to overcome certain behaviors that drive poor decisions. Take time to observe and reflect on your emotional responses to certain situations. Learn from your mistakes and create processes to avoid emotional pitfalls.


As always, if you have questions or comments, feel free to send me a message. Thanks for reading.


John

 wealthinwordsblog@gmail.com



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