The Charlie Munger Principles to Invest and Live By

Charlie Munger, who worked with Warren Buffett to build Berkshire Hathaway Inc. into a global investing powerhouse, died Tuesday at the age of 99. Among his many contributions, Munger was a prolific armchair philosopher, whose speeches and interviews included hundreds — maybe thousands — of nuggets about how to invest and live well.

Blunt, witty and scholarly in his assessments, here’s my distillation of the Munger philosophy and how he lived by it. The overarching principles are mined from his remarks at Berkshire shareholder meetings and his classic 2007 commencement address to the USC Gould School of Law, which can be found here.

Take a Multidisciplinary Approach

Munger, a lawyer by training as well as an avid poker player, credited much of his success to his interest in seemingly everything. He advocated for learning “all the big ideas in all the big disciplines,” and his talks were peppered with references to Confucius, Charles Darwin, Benjamin Franklin, Isaac Newtown and even Mozart. In a way, his sweeping academic interests seemed to mirror Berkshire’s portfolio, which currently includes holdings in Apple Inc., auto insurer Geico and See’s Candies, a conveyor of chocolates and peanut brittle.

Munger tempered this interest in going broad with a resistance to diversification for diversification’s sake. “One of the inane things that’s taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks,” Munger told the Berkshire faithful at the company’s annual meeting this year in May. “That is an insane idea. It’s not that easy to have a vast plethora of good opportunities that are easily identified.”

Plan for the Worst

Munger was sometimes pigeonholed as the pessimist in the partnership. Certainly, he had a grimmer assessment than Buffett about the prospects of succeeding in the investing game today, in a world with more and more money in the hands of smart people “all trying to outsmart one another.” He and Buffett had a lively debate about just that at this year’s meeting:

MUNGER: It’s a radically different world from the world we started in. And I suppose it will have its opportunities, but it’s also going to have some unpleasant episodes.

BUFFETT: But they’re trying to outsmart each other in arenas that you don’t have to play.