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Charlie Munger

Portfolio > Asset Managers

6 Lessons From Charlie Munger on Investing and Business

By Dinah Wisenberg Brin

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With Berkshire Hathaway’s annual shareholder meeting set for Saturday, many investors’ thoughts undoubtedly are turning to a key figure in the conglomerate who will be missing for the first time: Charlie Munger, who died late last year at 99.

Munger not only helped steer Berkshire as its vice chairman, he served as mentor to the firm’s legendary chairman, Warren Buffett, who earlier this year credited his business partner as the company’s architect.

Chris Davis, chairman and portfolio manager at Davis Advisors, anticipating his investment management firm’s annual pilgrimage to Omaha for the Berkshire meeting, recently posted a tribute to Munger and included important lessons he learned from the famous investor.

Davis said he made it a regular part of his routine over the years to visit Munger in Los Angeles and “sit at his feet and learn.”

One idea that Munger reinforced in Davis, a Berkshire board member, was the question: “What it is to be entrusted with somebody’s savings?” 

In the early days of growth and hedge funds, some in finance asked, “Why are we in the business of managing money for people that live on Main Street when we could run hedge funds for endowments and billionaires?” Davis said.

“And Charlie said: It’s a real duty to be entrusted with somebody’s life savings, and it’s a field where to dedicate yourself to that alone may distinguish you. Because, he said, you’re in a field where a lot of people get taken advantage of.”

Munger’s rules “remain at the bedrock of our firm,” Davis said.

Davis, who has a bust of Munger behind his office desk, noted that Munger had a bust of Benjamin Franklin in his office. Munger, he said, explained that he liked to have someone he admired looking over his shoulder.

Here are 6 lessons that Davis took from Munger, some for company leaders, some for investors.

1. Be aligned with clients.

Alignment of incentives is the most important Munger rule for Davis and his firm.

Munger “said so many firms, well, all they want to do is get bigger. And he said, but if you’re a large investor in your own funds, if you invest your money alongside your clients, you’re going to do better by 10% better performance than 10% more assets under management,” he said.

2. Build your board with people you admire.

Davis recalled Munger’s thoughts on choosing directors, saying, “Those people are the face of your clients — and keeping people in front of you that you don’t want to disappoint will always make you behave better.”

3. Earn people’s trust.

Munger advised living life “in a web of deserved trust,” Davis recalled.

“He said that the nature of trust, of behaving in a certain way, it makes other people better as well,” and advised treating people in a way that they’re given “a reputation to live up to,” Davis said.

4. Be patient.

Munger “talked about how difficult it is to do nothing … And he said, it’s often not that making a good decision is rare and valuable, but then sticking with it, not getting shaken out, letting it unfold over a very long period of time,” Davis said.

“So Charlie was very comfortable doing nothing for long periods of time, and often in the investment industry, professionals are uncomfortable with that, because it looks like they’re doing nothing.

“But Charlie and I used to admire the man who built the Suez Canal, the architect named Ferdinand de Lesseps. And he had a quote that Charlie and I both liked … Patience sometimes requires more strength of character than does action. And for investors, patience is sort of the fundamental pillar.”

5. Keep learning.

Munger believed in “constant learning,” Davis said. 

“And a subset of constant learning is unlearning things over time. In other words, the more something has worked, the more you believe it — and often in the nature of investing, the harder it becomes to change your mind.

“And yet, facts and circumstances change over time. And you have to be not just good at bringing in new ideas, you have to be good at discarding old ideas that no longer work.

6. Engage in ‘constant self-criticism.’

By this, Davis said, Munger referred to “the humility to constantly be asking yourself, ‘What if I’m wrong? What do I really know? What is really my edge in this? What do I understand that others don’t?’

“And again, that’s not a skill set that comes easily — constant self-criticism — because of course, it can lead to things like self-doubt and self-loathing. So there’s a fine line between conviction and self-criticism. And that line Charlie believed was absolutely essential for success over time as an investor.”

Pictured: Charlie Munger; Credit: Bloomberg

Dinah Wisenberg Brin

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