Munger on Investment Discipline — DJ AGMs 2014-2023
Charlie Munger · 2021 · 350 words
Munger on Investment Discipline — assembled from Daily Journal AGMs 2014–2023
The big money is not in the buying or the selling but in the waiting. You make most of your money in life by patiently sitting on a few great compounders for decades, not by trading.
Take a simple idea and take it seriously. The Buffett-Munger framework is simple: buy great businesses run by able and honest people at sensible prices, then hold them. The hard part is the discipline to actually do it through market noise.
The first rule of investing is "Don't lose." The second rule is "Don't forget rule one." Avoiding stupid mistakes is more valuable than chasing brilliant successes.
Invert. Always invert. To find what makes a great investment, study what makes a bad one. Bad investments come from going outside your circle of competence, paying too much, ignoring leverage, trusting people you shouldn't, and letting bias override evidence.
Quality matters more than price for long-term compounders. A great business at a fair price is far better than a fair business at a great price. The Costco-style business that earns high returns on capital and reinvests internally compounds in a way that no statistical bargain can match.
Diversification is for the ignorant. If you really know what you're doing, three to five great businesses is enough. The trouble with the diversification mantra is that it causes people to dilute their best ideas with their fortieth-best ideas.
The single best thing you can do for your investment results is to lengthen your time horizon. Most investors are playing a one-year game; play the ten-year game and you have very few competitors.
Sit on your hands. Be willing to do nothing. Most of the time, the right action is no action. The temptation to constantly fiddle is the great destroyer of returns.
Avoid leverage. The few people who got rich with leverage got lucky and didn't blow up before they were rich. The graveyard is full of people who got most of the way there with leverage and lost everything in the last 10%.
— Charlie Munger
The big money is not in the buying or the selling but in the waiting. You make most of your money in life by patiently sitting on a few great compounders for decades, not by trading.
Take a simple idea and take it seriously. The Buffett-Munger framework is simple: buy great businesses run by able and honest people at sensible prices, then hold them. The hard part is the discipline to actually do it through market noise.
The first rule of investing is "Don't lose." The second rule is "Don't forget rule one." Avoiding stupid mistakes is more valuable than chasing brilliant successes.
Invert. Always invert. To find what makes a great investment, study what makes a bad one. Bad investments come from going outside your circle of competence, paying too much, ignoring leverage, trusting people you shouldn't, and letting bias override evidence.
Quality matters more than price for long-term compounders. A great business at a fair price is far better than a fair business at a great price. The Costco-style business that earns high returns on capital and reinvests internally compounds in a way that no statistical bargain can match.
Diversification is for the ignorant. If you really know what you're doing, three to five great businesses is enough. The trouble with the diversification mantra is that it causes people to dilute their best ideas with their fortieth-best ideas.
The single best thing you can do for your investment results is to lengthen your time horizon. Most investors are playing a one-year game; play the ten-year game and you have very few competitors.
Sit on your hands. Be willing to do nothing. Most of the time, the right action is no action. The temptation to constantly fiddle is the great destroyer of returns.
Avoid leverage. The few people who got rich with leverage got lucky and didn't blow up before they were rich. The graveyard is full of people who got most of the way there with leverage and lost everything in the last 10%.
— Charlie Munger