Charlie Munger’s Best Advice for Living—in His Own Words

The world could learn a lot from Charlie Munger.

Nick Webb, CC BY 2.0 <https://creativecommons.org/licenses/by/2.0>, via Wikimedia Commons

A couple of years ago, on this very day, famed investor and philanthropist Charlie Munger died at a Santa Barbara hospital just 34 days shy of what would have been his 100th birthday.

Best known as the right-hand man of legendary investor Warren Buffett, Mr. Munger was the longtime vice chairman of Berkshire Hathaway, a multinational holding company headquartered in Nebraska. (He was also the director of Costco Wholesale Corporation.)

In his decades of business and finance, Mr. Munger distinguished himself as one of the savviest investors of his day—and one of the most quotable.

Mr. Munger was generous with not just his money—he gave half a billion dollars to universities and other organizations—but also his wisdom. Here’s just a taste of some advice from Mr. Munger that many today could benefit from.

Live Within Your Means

One of the reasons Mr. Munger became a billionaire was that he understood the value of a dollar. He once said the first step to wealth accumulation was learning to live within one’s means.

“Live within your income and save so that you can invest,” Mr. Munger said.

This sounds simple in theory, but it’s something many Americans find difficult to practice.

American families are more dependent on credit cards than ever, even wealthier families. Recent surveys show roughly a third of U.S. households making more than $150,000 a year say they will not be able to pay off their balance this year. With the average interest rate of a credit card currently hovering around 27.81 percent, credit card debt stands to be a major financial hurdle for countless families already struggling under price inflation.

Americans seeking to break the debt cycle would do well to heed Mr. Munger and economize their lifestyle.

Learn How to Invest

Mr. Munger didn’t advise living within one’s means just so Americans could hoard cash. He understood economizing as a pathway to saving, and saving as a pathway to investing—a key to wealth accumulation.

But effective investing requires knowledge and discipline. This is why Mr. Munger said it was essential to learn how to invest. Learning requires reading, which is why Mr. Munger was an evangelist of books.

“In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time—none, zero,” Mr. Munger once said. “You'd be amazed at how much Warren reads—and at how much I read.”

Learning the mechanics of trading is part of learning how to invest, of course. But Mr. Munger was speaking beyond things like options trading, noting that understanding economics and history is imperative to sound investing.

“There is no better teacher than history in determining the future,” he noted. “There are answers worth billions of dollars in a $30 history book.”

Keep it Simple … and Be Patient

There's no shortage of advice on investing out there, but Mr. Munger suggested that a lot of this advice is lousy, including the conventional wisdom many receive in university courses.

"One of the inane things [that gets] taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks,” Mr. Munger said. “That is an insane idea. It's not that easy to have a vast plethora of good opportunities that are easily identified. And if you've only got three, I'd rather it be my best ideas instead of my worst.”

Unlike many stock gurus, Mr. Munger (like Mr. Buffett) stressed the importance of keeping things simple, which is why he advised managing a relatively small basket of stocks made up of proven companies.

Once one has done his homework and purchased shares in a company, the key to returns is patience.

“The big money is not in the buying or selling,” Mr. Munger said, “but in the waiting.”

Understand the Importance of Incentives

Perhaps Mr. Munger’s most famous quote is related to a key concept in economics: incentives.

“Show me the incentive and I'll show you the outcome,” he once quipped.

Mr. Munger understood that incentives—good and bad—are what drive human behavior. Adam Smith was one of the first economists to chronicle the importance of incentives and to explain how the world revolves around rational self-interest.

Mr. Munger was a student of Smith, whom he once called “one of the wisest people” ever to live. And he gleaned an important economic truth from the author of "The Wealth of Nations."

“The iron rule of nature is: you get what you reward for,” Mr. Munger once said. “If you want ants to come, you put sugar on the floor.”

This is one reason Mr. Munger, a staunch defender of capitalism, ridiculed government efforts to rescue companies that were deemed “too big to fail.”

“Capitalism without failure is like religion without hell,” he observed.

Manage Your Character Closely—and Reject Envy

Mr. Munger might have been a billionaire, but he was no materialist. He believed deeply in the importance of character and hard work, which he saw as essential to capitalism and a free society.

“What makes capitalism work is the fact that if you’re an able-bodied young person, if you refuse to work, you suffer a fair amount of agony, and because of that agony, the whole economic system works,” he once observed. “You take away that hardship and say, ‘You can stay home and get more than if you come in to work,’ that’s quite disruptive to an economic system like ours.”

Mr. Munger rejected the idea that the modern world was powered by greed, and instead pointed to a different vice as the true catalyst.

"The world is not driven by greed. It's driven by envy," he said. “Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?”

Mr. Munger was right about envy, which is at the root of many evils today. It’s a sin that can drive even the best of us toward damaging behavior, and this is one reason Mr. Munger said it was important to cultivate virtues and reject vices like envy.

“Remember that reputation and integrity are your most valuable assets—and can be lost in a heartbeat,” he said.

I never met Charlie Munger, but I learned a lot from his wit.

I don’t agree with everything Charlie said, but he was one of a kind, and I’ll miss him. The world will, too, but at least we can all still benefit from the wisdom he shared.