Some Investment Principle You Must Remember (Poor Charlie's Almanack Summary)

 In this one we are going to discuss about some investing principle of one of the OG investor Charlie Munger. First, let's know a bit about him: -

Charlie Munger is a billionaire and also a partner of another OG investor Warren Buffett. Warren Buffett also claims it that he also had learn a lot from Charlie Munger. Charlie Munger has a habit to read around 500 pages daily. He has discussed some of his investing principle in book by the name "Poor Charlie's Almanack". So now you are going to get summary of it.

Investing Principle: -

Image Credit: - booksrun.com

Quote: -

        All I want to know is where I am going to die, So I'll never go there.

        ~Charlie Munger 

Here are some of his investing principles: -

    · If you already know that there is higher chance of making loss in stock market so why go for higher profit? So, one must invest his/her money by calculating the loss the phenomenon also known as risk management.

        - Its means that if you are aiming for higher profit then there is higher chance that you are putting quite considerable amount in the market. But as we all know that there are only few people who made money (a lot), there are few, so why to make mistake that can cause your ability to take risk in future. 

             If you put all of your money in market, then it's quite probable that you soon will run out of money then you can suffer from lack of money. So, show some intelligence and go with the mathematics (probability) and avoid putting all your money in the market until you become professional.

    · Betting on business is better than betting on management.

         - If the company is doing good and able to build nice records in the past then you can't bet on management that you should check in the annual report that who is the next person in the management and also all the things that you should check in management. For Example, companies like APPLE and MICROSOFT.

    ·A great business at fair price is superior to a fair business at a greater price.

         - It means that in long term, price does not matter if the management is right, and the company is performing good then you can consider that business buying.

    ·We wait for no branners.

        - Company 60% acquisition fail. Mean if big company acquiring small businesses, then out of three, two of their investment fails. 

       Because company invest in small businesses when they got capital, or generally we used to take business decisions on the basis of opportunity, when price is down e.g., recession, crises etc.

    · Patience.

        - Every strategy works only for short interval of time. But patience is the strategy that works for you always.

So, these are some of the principles of Charlie Munger. He also has some checklist which goes like as below: -

   · Charlie's Investment Checklist -

1) Risk 

       One should invest in a business by just only calculating losses, how much loss one can bear. We should not invest in a company by calculating profit. And also 50% market down is not CRASH, it's just an opportunity to buy the business at lower price, this phenomenon also helps you in your margin of safety.

2) Be Independent 

       If you take average investment decision (decision which is not different from others) by taking some tips from broker, agent, advisors, gurus then your profit will also become average.

3) Improve And Prepare 

       You should always improve yourself by learning and reading.

If you want to take good decision, then you should ask to yourself Why? After every little decision always ask why I am doing this or that.

   This will improve your understanding.

4) The Beginning Of Wisdom

       Always learn something new about technology, and all the other option in the market or even in nature to help yourself with the wisdom.

5) Portfolio Allocation

       Invest in bulk, by investing in bulk can make you rich, whenever you get opportunity buy in bulk. Little of the money, can be invested by some folly people also. Thus 

                   Opportunity = Buy In Bulk

6) To A Man With Hammer Everything Looks Like A Nail.

       According to Charlie Munger a person must have basic knowledge in every field (This thing works in long term). For example: -

In

1) Maths - Compounding effect, basic arithmetic, permutation

2) Psychology - Incentive Cause Bias, Consistency principle, social proof, sunk cost etc.

3) Economics - Adventure of scale, wealth effect, cooperative advantage etc.

4) Markets - Technology, Mr. Market, competitive destruction of trade etc.

5) Engineering- Backup System, Margin of safety etc.

6) Accounting - Financial Statement etc.

· Charlie Munger's Life Principle 

1) One best way to get what you want is to deserve what you want.

     - If you even get a thing that you want but you don't deserve it then you'll lose that thing shortly.

2) Don't work for someone you don't respect or don't admire.

3) Don't sell anything you won't buy yourself.

4) Circle of competence

    - Knowing what you don't know is better than brilliant.

5) Learn from others mistake, it's cheaper.

   - Go to bed a little wiser each day.

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