The investment world mourns the loss of Charlie Munger, the 99-year-old Vice Chairman of Berkshire Hathaway and longtime investment partner of Warren Buffett. Munger passed away yesterday night in California. Munger, a lawyer by training, played a pivotal role in shaping Buffett's investment philosophy and success of Berkshire Hathaway. Munger's investment philosophy was a blend of Confucian wisdom, grabbing smart opportunities and calculated risk-taking.
“I am a follower of Confucious. Confucius said that real knowledge is knowing the extent of one’s ignorance. You have to strike the right balance between knowledge and gumption. And if you don’t know your circle of competence, then too much gumption will get you killed. But the more you know the limits to your knowledge, the more valuable gumption is,” Munger said.
On investing Munger says, "One should be ready to pounce when the opportunity presents itself, because in this world opportunities just don’t last very long. You should remember that good ideas are rare— when the odds are greatly in your favor, bet heavily.”
He further explains this idea, "The game in our kind of life is being able to recognise a good idea when you rarely get it or when it rarely is presented to you. And I think that’s something you have to prepare for over a long period. What is the old saying? That opportunity comes to the prepared mind. And I don’t think you can teach people in two minutes how to have a prepared mind. But that’s the game.”
Yet, Munger remained cautious, advocating that all investment evaluations should start by measuring risks. He highlighted the necessity of incorporating an appropriate margin of safety and staying vigilant about inflation and interest rate exposures.
Though a legendary wealth-creating machine, he doesn’t fail to remember, “If all you succeed in doing in life is getting rich by buying little pieces of paper, it’s a failed life. Life is more than being shrewd in wealth accumulation.”
Munger's Take On Bitcoin & Derivatives
While he recognized the intellect behind Bitcoin, he hated the speculative nature of cryptocurrencies. He called cryptos "anti-social, stupid, and immoral," denouncing the buying and selling solely based on belief of finding a bigger fool.
Munger says, “The computer science behind bitcoin is a great triumph for the human mind. That’s what captivates all these people. They’ve actually created a product that’s hard to create more of, but not impossible.”
Munger calls it an "artificially speculative medium that people are buying just because they think they can sell to someone else at a higher price, even though it inherently has no intrinsic value."
"I regard the whole business as anti-social, stupid and immoral. It’s just dementia.. And I think the people who are professional traders that go into trading cryptocurrencies, it’s just disgusting. It’s like somebody else is trading turds and you decide, ‘I can’t be left out,” Munger says.
Munger's views extended to derivatives trading, likening it to a casino. "It's a casino in drag. They make the witch doctors look good…The world of derivatives is full of holes that very few people are really aware of. It’s like hydrogen and oxygen sitting on the corner waiting for a little flame,” he said.
“It’s waiting that helps you as an investor, and a lot of people just can’t stand to wait. If you didn’t get the deferred-gratification gene, you’ve got to work very hard to overcome that,” Munger delivers in his classic in-imitable style.
