Charlie Munger's 5 Best Investing Tips Ever

Charles T. Munger, who served as vice chairman of Berkshire Hathaway from 1978 on, died on Tuesday at the age of 99. "Berkshire Hathaway could not have been built to its present status without Charlie's inspiration, wisdom, and participation," Warren Buffett said in a statement on Tuesday. Munger, who left his own investment firm in 1975 to join Berkshire, famously changed Buffett's approach to investing, moving him away from the cigar-butt-style of value investing to one of recognizing and buying "wonderful businesses at fair prices."

As Berkshire Hathaway's CEO wrote in a 2015 shareholder letter, "From my perspective, though, Charlie's most important architectural feat was the design of today's Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices." This bit of sage advice transformed Berkshire into one of the largest publicly traded companies in the world.

So, let's take a look now at a few more words of investing wisdom from investor Charlie Munger, who once said, "The best thing a human being can do is to help another human being know more."

Charlie Munger's advice to Warren Buffett to buy "wonderful businesses at fair prices" included businesses in which you may pay a higher price. In his opinion, these opportunities should be seized. Instead of waiting, Munger believed great opportunities, once identified, should be embraced and for a price they deserve. As he once said, "When you get a lollapalooza, for God's sake, don't hang by like a timid little rabbit."

A well-known example of this is the California candy maker See's Candies, which opened its first shop in 1921. In 1972 — before Munger joined Berkshire Hathaway — he convinced Buffett to buy the company for $25 million, despite See's — at the time — reporting annual pretax earnings of $4 million. It was the kind of acquisition Buffett wouldn't have gone for in his earlier days, but See's proved to be the perfect example of seizing an opportunity and paying for a company what it was worth. Per CNBC, See's has since produced more than $2 billion for Berkshire Hathaway.

While Charlie Munger was an investing genius, whose portfolios at hedge fund Wheeler, Munger & Co. (1962-1975) gained an average of 19.8% annually at the same time the S&P grew at a 5.2% rate, according to the Wall Street Journal, he was also quick to acknowledge he didn't know it all. In fact, Munger maintained a "too-hard" pile, which were potential investments that were considered outside of Berkshire Hathaway's circle of competence. If Munger or Warren Buffett didn't really understand it, they'd add the investment to the pile and move on.

Munger believed in the circle of competence when it came to investing and in life. As he advised, "You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don't, you're going to lose." And when it comes to investments, "losing" means money.

Charlie Munger believed in the long game ("... sitting, sitting, sitting") when it came to investing. "The first rule of compounding: Never interrupt it unnecessarily," he said. For investments, he was a major proponent of exercising patience, doing the research, then taking action when the time was right (like with See's). Warren Buffett, explained the strategy in baseball terms, comparing it to a batter waiting for their pitch, i.e., a hittable ball.

As for picking stocks, Munger believed it paid to be patient, even if you sometimes had to wait for years. Unsurprisingly, he wasn't a fan of trendy stocks and jumping on the latest and greatest, such as artificial intelligence and cryptocurrency. In fact, in his keynote address at Zoom's Zoomtopia 2023 conference, he said of AI, "I think it's probably getting more [hype] than it deserves," according to Fortune. And in 2021, speaking at the Sohn Hearts and Minds conference in Sydney, Munger had said that the U.S. should've banned cryptocurrency. "I just can't stand participating in these insane booms," he said (via the Sydney Morning Herald).

As for staying within your circle of competence, Charlie Munger once said of him and Warren Buffett, "We're not so smart, but we kind of know where the edge of our smartness is ... That is a very important part of practical intelligence" (via CNBC). And yet, Munger didn't believe you couldn't improve on what you knew. In 2007, Munger gave the commencement speech for the University of Southern California School of Law and shared, "Lifelong learning is paramount to long-term success. ... Without it, we won't succeed, because we won't get far based on what we already know."

When it comes to investing, everyone starts out as a beginner, but as Charlie Munger explained, there's always more to learn, even after you reach a new level of expertise. As he said in his 2005 book, "Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger," "Spend each day trying to be a little wiser than you were when you woke up."

In 2010, at the Berkshire Hathaway annual meeting, Charlie Munger said this about the economic conditions at the time: "If I can be optimistic when I'm nearly dead, surely the rest of you can handle a little inflation." Words of optimism that certainly feel relevant today, given the country's current inflation situation (3.2% in October of 2023, per the Bureau of Labor Statistics). As for investing, it goes back to Munger's approach to waiting for the right opportunity, seeing the big picture, being rational, and not letting what others are doing influence your plan.

While many look at investments as a way to make money quickly, Munger points out that it could also lead you to lose money, especially if you're rash. Or, even if you don't lose money, if it doesn't meet with your expectations, it could still feel like a disappointment. A change in perspective may help. He said, "If you have unrealistic expectations you're going to be miserable your whole life. You want to have reasonable expectations and take life's results, good and bad, as they happen with a certain amount of stoicism."