Last week, Charlie Munger passed away.
And though many people may remember him as Warren Buffett’s “sidekick,” Munger was a legendary investor in his own right.
From 1962 to 1975, Munger’s investment partnership produced 19.8% compound annual returns. Over that same period, the Dow Jones Industrial Average returned just 5%.
And even more significant, Munger had a huge influence on how Buffett approached investing.
Before he met Munger, Buffett liked to follow the principles of Benjamin Graham. Many of his early investments were in “cigar-butt” companies. These were stocks where share prices were below the value of the assets the company owned.
But Munger convinced Buffett to shift his investing away from buying “fair companies at a wonderful price” to buying “wonderful companies at a fair price.”
Some of Berkshire Hathaway’s best investments – such as Coca-Cola and See’s Candies – were purchased not because they were cheap, but because they were high-quality businesses.
Instead of looking for “cigar butts” to turn a quick profit, Buffett became a “buy and hold forever” investor – thanks to Charlie Munger.
Today I’d like to share some of my favorite “Mungerisms” and how they influence our approach to investing here at Wide Moat Research.
Charlie Munger Quotes to Live By
Live within your income and save so that you can invest.
Munger was a huge fan of the power of compounding.
Too often I hear stories of people putting off saving and investing until just before retirement. But investments need time to grow in order to turn into life-changing wealth.
That’s why I frequently remind readers to invest their money as soon as they can… so that it can compound over many years and support a comfortable retirement.
There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous.
I learned this the hard way. Before the Financial Crisis, I owned a real estate empire worth millions.
But it was built on mortgage debt that increased my leverage. Meaning I was investing more money than I actually had by borrowing more money to invest.
And when it all came crashing down, I was left with almost nothing.
That’s why I rebuilt my wealth the slow way – by investing in high-quality, reliable companies. Without leverage.
The world is full of foolish gamblers, and they will not do as well as the patient investors.
I’ve been known to play a few hands of blackjack when I’m visiting Vegas.
But I always remember gambling is a form of entertainment – and not a reliable way to get rich.
That’s why when it comes to investing, I steer clear of meme stocks and sucker yields. If the potential returns seem too good to be true, they probably are.
Instead, I put my money in reliable companies that pay me dividends that grow every year.
I don’t make money predicting accurately. We just tend to get into good businesses and stay there.
Nobody gets everything right.
And I’ll be the first to admit that I’ve made many mistakes and bad calls over the years.
But what’s more important is that I’ve put my money into wonderful businesses.
So even if stock prices drop in the short term, I sleep well at night because I know that the companies I own will be worth more over the long term.
You have to keep learning if you want to become a great investor. When the world changes, you must change.
My team of analysts and I are constantly learning. We spend dozens of hours every week researching the latest trends in the market and around the world.
That’s how we know which companies are the highest quality dividend payers the market has to offer.
And we share that research here at the Intelligent Income Daily to help you prepare for a brighter future by building a portfolio full of safe and secure dividends.
Happy SWAN (sleep well at night) investing,
Editor, Intelligent Income Daily
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Source: Wide Moat Research