Charlie Munger is best known as the second-in-command behind Warren Buffett at Berkshire Hathaway. He's also a world-class billionaire investor in his own right, capable of similar market-trouncing results as Buffett himself.
As a successful investor and all around nice guy, Munger often shares his investing wisdom with those who care to listen. Paying attention to what he says and acting upon his best advice should help you make yourself financially comfortable - maybe even rich.
With that in mind, here are some of his most pertinent words of wisdom for those who want to invest.
The No-Brainer Secret to Getting Rich
If you're looking to do more with your money than just stick it in a CD or savings account, perhaps the most important Munger quote of all time is this one:
"Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer."
Because you need to spend less than you earn in order to properly invest, and because investing defers your ability to spend money from today to sometime in the future, even lousy investing beats not investing at all.
Following Munger's advice throughout your career is just about the closest thing you'll find to a guaranteed way for you to wind up financially comfortable during your retirement.
The Key Financial Lesson for Those Not Yet Able to Invest
For those not yet able to regularly sock away cash for their futures, Munger has these words of wisdom:
"Once you get into debt, it's hell to get out. Don't let credit card debt carry over. You can't get ahead paying 18 percent."
Once again, Munger is absolutely correct. He and his partner Buffett may be among a handful of investors in the world with a legitimate chance of outrunning credit card debt with investment earnings. We mere mortals don't have a prayer.
The long-run returns from investing in stocks is somewhere around the 8 percent to 10 percent annualized range - and even that isn't guaranteed. When compared to the 13 percent or more interest rates that typical credit cards charge, the importance of always paying off that credit card bill -- and the futility of trying to beat that rate investing - becomes abundantly clear.
The most important instructions for those who do invest
Finally, for those who are ready to invest, Munger has two critically important pieces of advice. The first:
"The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash-flow than you are paying for. Move only when you have an advantage."
And Munger's second key piece of investing advice:
"There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn't awash in cash -- and I don't want to go back."
Taken together, they form the foundation of the value-investing strategy that made Munger and his partner Buffett two of the richest people on the planet. In essence, Munger's advice boils down to:
- Figure out why a company has a right to win (its staying quality/competitive advantage)
- Determine what that company is worth (the discounted future cash flow)
- Pay less than that amount to buy it, and
- It's a better idea to hold on to cash than to invest your money poorly.
- It's a pretty straightforward strategy, but it's the one that made Munger the billionaire he is today.
These Words of Wisdom Work in Good Times and Bad
Those straightforward bits of timeless advice from Charlie Munger contain the keys that will let anyone able to follow them throughout a career wind up comfortable, if not downright rich. Yet while his advice can work wonders, life does have a way of throwing us curve balls. Jobs get lost, health is not always with us, cars get wrecked, and roofs leak.
Don't let those curve balls dissuade you: Following Munger's advice gets you in a better position to hit them when they come flying past. For instance, it's a lot easier to deal with the costs of a wrecked car if you've got a pile of cash awaiting investment than if you're already in a hole from carrying credit card debt.
Even if you're not yet ready to invest, structuring your financial life around Munger's advice can set you up for success once you're able to get started.
If you are interested in the stock market, there isn’t a chance that you haven’t heard of Warren E. Buffet. He’s the second richest man in America with a net worth of $44 Billion - that's with a capital B!
Although very rich, Warren lives a “simple” life. He still drives himself to work every day and dines at Gorat’s, a standard, local steakhouse in Omaha. He is widely known for being courteous, personable, and humble. Obviously, Warren Buffett is a genius when it comes to investing and in life, so it pays to listen to his words. Here are ten famous Warren Buffet quotes that we can learn a ton from:
1. “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.” Sounds pretty simple, right? But when you’re buying or selling stocks, never losing money can seem impossible because prices fluctuate all the time. Warren, though, believes in buying the value of a company and not its stock price. He buys value at the right price, he doesn’t speculate or gamble. He makes sure that he knows a company’s value and that it will far outweigh the price that he paid for, and that is how he sticks to rule No.1.
2. “You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.” Warren is a patient man. He would never chase prices or force any investment. He waits for the right moment (dictated by either price or market condition) to pounce, and pounce he will. This requires a great deal of discipline, and that is what separates him from the majority of unsuccessful investors. Indeed, patience is a virtue.
3. “Never invest in a business you can’t understand.” This Warren Buffet quote is probably an offshoot of rule No.1. He will only play a game that he is really great at to ensure that his chances of losing are slim. Understanding a business really well can help you smell trouble from miles away. Also, you can never have conviction in something you do not understand, and conviction is what enables you to pounce on a company when the time is right.
4. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Warren would always put more value in a great company with great products and management than a mediocre one that can be bought on the cheap. A company’s stock price moves with the whims and emotions of traders and speculators, and is never a good indicator of value.
5. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” This is a great criterion in choosing a company to buy. Only buy stock in a company that will thrive, grow, and excel in the foreseeable future regardless of stock price. I only know one kind of company that fits that description, and that is the great kind.
6. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Warren knows that the stock market is full of folly. He knows that emotions like hope, greed, and fear dictate stock prices rather than logic and value. When people are panicky or fearful (as in a bear market) he takes that chance to buy great companies at cheap prices. As long as he does his research and knows the real value behind a company, he doesn’t get scared of its price fluctuations.
7. “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.” This Warren Buffet quote shows his humility and his infinite thirst for learning and improvement. He doesn’t have a huge ego; he doesn’t think of himself as superior than anybody else out there. Nor does he think that he knows everything.
8. “Our favorite holding period is forever.” Warren plays for keeps. He doesn’t buy a company that he wouldn’t hold or manage until a very long time. Making amazing gains, like his, takes time. Start young and go for the homeruns.
9. “Only when you combine sound intellect with emotional discipline do you get rational behavior.” Investors need these two ingredients to successfully parlay the investment game. The sound intellect comes from doing your homework. It is your research and analysis of a company’s business and value. Discipline on the other hand, refers to your ability to wait for the proper price to enter. You shouldn’t chase prices in bull markets and you shouldn’t get scared in bears. Practice emotional discipline and take your investing to the next level.
10. “Without passion, you don’t have energy. Without energy, you have nothing.” Be passionate in what you do and do what you are passionate about. Passion will make you go to the ends of the earth to see a dream fulfilled. It will be your fuel in your journey. It will make you unstoppable. It will see you through when times get tough, and it will make life so worth living.
Took onboard these inspirational, time-tested and proven quote and they'll help both in life and in investing.
