Do you know Charlie Munger, the man they call the Gol D. Roger of investing?
OK, I just made that nickname up...
For a bit of background, Charlie was Warren Buffett’s business partner and vice-chairman of Berkshire Hathaway.
He died in 2023 at 99, but left behind advice that could change how you invest and make decisions.
What made Charlie Munger so special?
Charlie based his decisions on mental models.
He used ideas from psychology, microeconomics, physics and even biology to make investment decisions.
Imagine: $100 invested in Berkshire Hathaway in 1965 would now be worth more than $2.4 million.
The company turned thousands of ordinary investors into millionaires.
And all of that thanks to Charlie.
You’re probably thinking, "OK, that’s nice, but where are you going with this?"
Uncle Bobby has just finished reading Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger and The Tao of Charlie Munger.
So he’s going to share three lessons he took from them.
And trust me, they might help you find the One Piece. I promise I’ll stop with the jokes now.
1) Think backwards: inversion
Charlie liked to think backwards. By identifying what could go wrong, he could do a better job of avoiding it.
He called this inversion.
His best-known quote on the subject: "All I want to know is where I’m going to die, so I’ll never go there."
Say you want to get rich through trading. Instead of asking, "How can trading make me rich?", ask yourself:
"How can I make sure I never make money trading?"
The answers might be:
- Make impulsive decisions like a gambler
- Follow advice from people who’ve never really traded
- Don’t take practice seriously
Then avoid those behaviours.
P.S. Inversion can help in plenty of areas, not just trading and investing.
2) Invest in what you understand
Charlie said, "If you don’t understand a business, don’t buy it."
Sounds logical, doesn’t it?
Yet plenty of us have bought shares or crypto just because some CryptoGuy on Instagram said it was "the next 100x"...
Speaking of 100x, read these tips if you want to make the most of the next bull run.
Charlie only invested in companies whose business models he fully understood.
You don’t have to be an expert. You just have to do your research properly.
3) Keep it simple
Charlie said, "Life should be kept simple. Make simple decisions. Don’t keep everything in your head."
In investing, that means you don’t need to overcomplicate things.
Find good companies, buy them at a good price and hold them for a long time.
That’s it.
No need for complex mathematical formulas or incomprehensible charts.
Keep it simple, and you’ll be ahead of 50% of investors.