Warren Buffett’s right-hand man, Charlie Munger, is 99 and has witnessed a good deal of history first-hand.
He has worked as a high-powered lawyer and has been vice chairman of Berkshire Hathaway BRK.A BRK.B for 45 years.
So who better to offer insights into investing and dealing with life’s trials and tribulation? Stripe Press has just published a book by Munger, “Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger."
And the publisher recently conducted a question-and-answer session with Munger. Here are some of his comments.
Munger’s musings about money
“What makes investment hard is that [on one hand] it’s easy to see that some companies have better businesses than others,” Munger said.
“But [on the other hand], the price of the stock goes up so high that all of a sudden, the question of which stock is the best to buy gets quite difficult. We’ve never eliminated the difficulty of that problem.”
And where does Berkshire look for an investing edge?
“We’re always looking for something where we think we have an insight that gives us a big statistical advantage,” Munger said. “Sometimes it comes from psychology, but often it comes from something else. And we only find a few, maybe one or two a year.”
Berkshire has “no system for automatic good judgment on all investment decisions,” Munger says. “Ours is a totally different system. We just look for no-brainer decisions.”
One way of looking at it: “As Buffett and I say over and over again, we don’t leap seven-foot fences," Munger said. “Instead, we look for one-foot fences with big rewards on the other side. So we’ve succeeded by making the world easy for ourselves, not by solving hard problems.”
Munger's key to successful investing
So what's the key to successful investing?
“To succeed in investing and in practical life, you must have a certain amount of competence,” Munger said.
“And you have to know what you know and what you don’t know. Warren and I know what we're good at and what we're not good at.”
Realize that mistakes are inevitable, Munger said.
“Part of what you must learn is how to handle mistakes and new facts that change the odds,” he said. “Life, in part, is like a poker game, wherein you have to learn to quit sometimes when holding a much-loved hand.”
Investing landscape has gotten harder: Munger
Comparing investing now to the beginning of his career, “of course it's gotten harder,” Munger said. “It's gotten so hard that most of the people who are in wealth management have almost zero chance of outperforming an unmanaged index like the S&P 500.”
Back in the day, “a guy who just bought the best common stocks and sat on his ass would have made about 10% per year,” Munger said. “That’s not the standard return that someone can expect now.”
Life’s tougher for young people now than in his day, Munger said. “We obtained houses, got into good school districts, and had a growing, pleasant civilization. …Now, in the big cities, it's going be very hard to get a new house.”
Despite all that, Munger said young people can succeed by working hard each day without expecting instant success. “Slug it out one inch at a time, day by day, and at the end of the day you will get what you deserve.”
And he recommends four coping mechanisms:
- “Have low expectations,
have a sense of humor,
- surround yourself with the love of friends and family, and
- above all, live with change and adapt to it.”
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