By Narasimhan Vijayaraghavan
There is nothing more counterproductive than envy. Someone in the world will always be better than you. Of all the sins, envy is easily the worst, because you can’t even have any fun with it. It’s a total net loss.
– Charlie Munger
Well, Charlie Munger happened to be a lawyer. But, that is not what got him here. Polymath is a word. An expression. A sentence. And regrettably it is bandied about too loosely and casually to describe individuals. The expression loses its sting too easily. But, when used to capture Charlie Munger’s extraordinary faculties, it fits in beautifully. The word meets its perfect meaning.
Why did he appeal to me? He was an investor, a stock market guru. I have been through Harshad Mehta in 1992, Dotcom bubble in 1999, Ketan Parekh 2001, sub prime crisis in 2008 and the covid pandemic shake up too. I have lasted them all as I never relied on the market for my livelihood. My profession took care of it. The market was for fun, games and razzmatazz and generate wealth if it could and would. So Charlie, Warren Buffet and Berkshire Hathaway (there is the inevitable Ajit Jain Indian connect, insurance and reinsurance conglomerate to keep me hooked). But, Charlie Munger was right, front and center.
Charlie Munger, vice chairman of Berkshire Hathaway and long-time business partner of Warren Buffett, is widely regarded as one of the most profound thinkers in the realm of investing. His intellectual rigor, multidisciplinary approach, and keen insights into human nature have set him apart as an investing great. This essay explores Munger’s contributions to the world of investing, his intellectual frameworks, and the lasting impact of his philosophies.
Multidisciplinary learning
Munger’s investment philosophy is deeply rooted in his multidisciplinary approach, which he often refers to as a “latticework of mental models.” This framework involves integrating concepts from various fields such as psychology, mathematics, economics, and history to make well-rounded investment decisions. Munger believes that understanding the world through multiple lenses provides a more comprehensive and accurate perspective, which is crucial in the complex world of investing.
One of Munger’s key mental models is the concept of “inversion,” which he borrowed from the field of mathematics. Inversion involves thinking backward to solve problems, such as considering what could go wrong with an investment rather than what could go right. This approach helps investors identify potential pitfalls and make more informed decisions.
Rationality and Human Behaviour
Munger’s keen understanding of human behaviour and psychology is another cornerstone of his investment philosophy. He emphasizes the importance of recognizing cognitive biases and irrational behaviour’s that can cloud judgment and lead to poor investment decisions. Munger’s extensive knowledge of behavioural economics has enabled him to avoid common pitfalls and capitalize on opportunities where others might falter.
One notable example is Munger’s focus on the psychology of misjudgement, which he outlines in his famous speech “The Psychology of Human Misjudgement.” In this speech, Munger discusses various cognitive biases, such as confirmation bias, overconfidence, and loss aversion, and how they can adversely impact investment decisions. By being aware of these biases, Munger has been able to maintain a rational and disciplined approach to investing.
Value Investing and Long-Term Perspective
Munger, alongside Warren Buffett, is a staunch advocate of value investing a strategy that involves buying undervalued stocks with strong fundamentals and holding them for the long term. Munger’s emphasis on thorough research, intrinsic value, and patience has been instrumental in the success of Berkshire Hathaway. He believes that a long-term perspective allows investors to ride out market volatility and capitalize on the compounding of returns.
Munger’s investment philosophy also stresses the importance of investing in high-quality businesses with strong competitive advantages, or “moats.” He argues that companies with durable moats are more likely to generate consistent returns over time, making them ideal long-term investments. This focus on quality over quantity has been a hallmark of Munger’s approach and a key factor in his investment success.
Ethics and Integrity
Integrity and ethical behaviour are fundamental principles in Munger’s investment philosophy. He firmly believes that honesty and transparency are essential for long-term success and
reputation. Munger has often stated that doing the right thing, even when it is not the most profitable in the short term, ultimately leads to better outcomes. His commitment to ethical behaviour has not only earned him respect in the investment community but has also contributed to the sustained success of Berkshire Hathaway.
Impact and Legacy
Charlie Munger’s intellectual contributions to investing have left an indelible mark on the field. His multidisciplinary approach, deep understanding of human behaviour, and unwavering commitment to rationality and ethics have inspired countless investors. Munger’s teachings and writings, including his seminal book “Poor Charlie’s Almanack,” continue to be a valuable resource for those seeking to improve their investment acumen.
Munger’s partnership with Warren Buffett has also been a testament to the power of collaboration and shared values in achieving extraordinary success. Together, they have built Berkshire Hathaway into one of the most successful investment firms in history, demonstrating the efficacy of their investment principles and the strength of their intellectual synergy.
Charlie Munger’s status as an intellectual colossus in the world of investing is well-deserved. His innovative mental models, deep insights into human psychology, and steadfast adherence to ethical principles have set him apart as a true investing great. Munger’s legacy will continue to influence and inspire future generations of investors, solidifying his place in the pantheon of investment luminaries.
When Charlie Munger died 34 days shy of his centenary, he along with Warren Buffet had built the 800 Billion $ business empire. But, he is now remembered and recalled, more for his wit and wisdom and his famous one-liner in the Berkshire Hatchway’s legendary AGM’s at Omaha, when asked to contribute after a Warren Buffet response- “I have nothing to add”. Contextually, it was a telling and profound statement which communicated far more than the 5 words. His presence was his statement. His pregnant silence never missed the target.
Despite losing an eye very early in life, after a routine cataract surgery, he was a voracious reader and described himself as one who was always seen as “One holding a book in hand with two legs thrust out”, as his favourite focus in life. That is some self-portrayal in these WhatsApp University, stolen focus times we live in.
But we can, must and shall surely allude to the man’s wit and wisdom as that was who he was and has left behind as his rich and lasting legacy. Shall we?
