Charlie Munger’s Investing Basics

Charlie Munger’s Investing Basics

A recent Morningstar article outlines four investing principles outlined in the book “Charlie Munger: The Complete Investor” that echo the early value investing concepts of Benjamin Graham.

The book “explains that as a value investor, you focus on the long-term intrinsic value of a stock instead of trying to anticipate how others might evaluate the stock in the future.”

The four principles are as follows:

  • Treat a share of stock as a proportional ownership of a business. You can’t understand the value of an equity share without understanding the business model of the underlying operation.
  • Buy at a significant discount to intrinsic value to create a margin of safety in order to protect your investment from “human error, misfortune, or extreme volatility.”
  • Make “Mr. Market” your servant rather than your master. Mr. Market, the article explains, is a metaphor for the capital market “with its short-term, volatile character.” If a company’s fundamental value remains stable, the argument goes, the short-term views of Mr. Market “can be tolerated as they will be corrected in the long run.”
  • Be rational, objective, and dispassionate. Rational thinking is the main protection against making emotional errors.

The article concludes, “In a nutshell, Graham value investing is a meaningful investment strategy that benefits from the power of compounding and facilitates long-term profits.”