Billionaire Charlie Munger, who passed away in November at the age of 99, spent many decades alongside Warren Buffett at the helm of Berkshire Hathaway Inc. Together, they grew Berkshire from a small textiles firm into a massive and diversified conglomerate with a market capitalization of about US$780 billion at the time of Munger’s passing.

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Over the years, I was fortunate enough to attend the company’s annual general meetings in Omaha, Neb., on many occasions. I started attending these meetings 20 years ago in 2004 with some friends and colleagues from Toronto, and continued almost every year until the COVID-19 pandemic put a halt to in-person meetings in 2020.

I found the Berkshire AGMs — which are commonly referred to as “Woodstock for Capitalists” — to be as entertaining as they were intellectually stimulating. A big reason for this was for the wit and wisdom of Munger. During his career, he demonstrated himself to be an unconventional thinker, one who applied the importance of psychological factors to better understand business and investing.

Here are five of the many investing lessons we have taken from Munger over the years.

Buy wonderful businesses at fair prices

At Goodreid, we strive to invest in quality companies, which was a core component of Munger’s approach to investing as well. He was credited for influencing Warren Buffett to focus less on price and more on the quality of the business that he was buying.

“Forget what you know about buying fair businesses at wonderful prices,” he is known to have said. “Instead, buy wonderful businesses at fair prices.”

Buffett famously transitioned from buying the cheapest businesses he could find, known as “cigar butts,” to buying quality businesses with strong brands, competitive advantages and the ability to raise prices over time. He largely made this transition because of Munger.

Exercise patience

“The big money is not in the buying and selling, but in the waiting.” Munger was known for his extreme buy-and-hold approach, selecting only companies he felt were a sure bet and then holding onto them for years.

Munger and Buffett shared a belief that investment opportunities with true potential are both rare and worth waiting for. Munger worked hard to identify investments he felt were as close as possible to a sure thing and often held them for years or even decades, which would allow the market to reflect their intrinsic worth over many years. He felt that by exercising patience, you could often avoid some investment mistakes.

“The whole secret to investment is to find places where it is safe and wise not to diversify,” Munger once said.

Great opportunities are rare

One of Munger’s approaches involved weeding out opportunities that were just mediocre. He believed great investment opportunities would only present themselves a few times in an investor’s career. He also believed in making bold moves in those rare moments when a tremendous opportunity does present itself.

This extreme selectiveness, coupled with a tendency to buy big when he did go in on a new investment, led Munger to maintain a portfolio extremely lacking in diversity by most modern standards. In his wisdom, if truly great investment opportunities are vanishingly rare, then over-diversification of a portfolio suggests an investor is buying into some names that represent only decent opportunities.

At the time of his passing, Munger reportedly held shares of just three companies in his personal investment portfolio: Berkshire Hathaway, Costco Wholesale Corp. and Daily Journal Corp.

Invert problems to reach a solution

Munger had a unique approach to problem solving: inversion, or looking at things upside down and planning for the opposite of what you want to happen.

Instead of trying to achieve success, make a list of how to avoid failure. This means you reverse the equation to try to identify potential sources of failure upfront. Munger felt it was not enough to think about difficult problems from only one perspective. Rather, you need to think about them forwards and backward. Inverting the problem won’t always solve it, but it will help you avoid trouble.

“Invert, always invert: Turn a situation or problem upside down. Look at it backward,” he said.

Whether approaching investing or life, Munger emphasized what not to do first, rather than what to do: “All I want to know is where I’m going to die, so I don’t go there.”

Continue to learn

Throughout his life, Munger demonstrated a relentless pursuit of knowledge. He was known for being an avid reader and believed that lifelong learning was key to success in investing.

“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day,” he said.

Munger encouraged fellow investors to broaden their knowledge beyond finance and economics, exploring a wide range of disciplines such as psychology, history and science. This multidisciplinary approach allowed him to gain unique insights and make more informed investment decisions.

If the above five lessons whet your appetite for more Mungerisms, a good follow-up would be to read Poor Charlie’s Almanac, a compilation filled with wonderful advice from him over the years. The lessons from Munger extend beyond the realm of investing; they offer a blueprint for a fulfilling and successful life. His wit and wisdom will certainly live on well into the future, influencing and moulding investment minds with entertaining nuggets of timeless wisdom for many years to come.

Robert Gill is senior vice-president and portfolio manager at Goodreid Investment Counsel, which offers individual investors and institutions actively managed investment solutions and advice. He can be reached at rgill@goodreid.com.

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