Charlie Munger: The 5 Investing Tricks That Made Him a Billionaire
Curated from: New Money
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Inverting the problems you have to solve
Charlie explains how he applied this trick as a meteorologist, but this mental framework works all the same when investing. While it’s essential to ask why a stock will do well in the future, it is just as important to ask why a stock would go down because, after all, the goal is not to lose money.
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Humility (knowing what you don't know)
In investing, you don’t have to know a little about a lot of things, you just need to know a few things very well. Then, you should know your limit of competency, to realize when you’re drifting into areas you don’t know particularly well. Also, don’t be afraid to dive even deeper into your areas of expertise.
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Stay rational (don't be swayed by short-term volatility)
Staying focused on the long term and not having a knee-jerk reaction to market swings is essential to gaining from the stock market. Even when his portfolio went down in value by 50% (three times) he was not worried. Panicking means losing, so staying composed is essential.
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Keep it simple (look for businesses that are simple, solid, and straightforward)
“If it won’t stand a bit of mismanagement, it’s not a good business”, a friend of Munger said. It is good to invest in good people behind good ideas, but it is very important that the business itself is solid and straightforward, and that it has a competitive advantage.
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Read a lot
“When you’re reading you can just take it as you want it”. Making self-education and self-improvement a priority will help you out in life.
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