Charlie Munger’s Investing Checklist

Charlie Munger Investing Checklist

An Investing Principles Checklist from Poor Charlie’s Almanacks. A book we highly reccommend to any enterprising investor learning how to invest, and a crucial part of any investment education process. Charlie has a way of simplifying complex ideas.

In the end, it comes down to Charlie’s most basic guiding principles, his fundamental philosophy of life: Preparation, Discipline, Patience, Decisiveness

  • Risk All investment evaluations should begin by measuring risk, especially reputational, incorporate a margin of safety, avoid dealing with those of questionable character, insist upon proper compensation for risk. Always be aware of inflation & interest rate risk and avoid big mistakes shuning permanent loss of capital.
  • Independence “Only in fair tales are emperors told they are naked”, Objectivity and rationality require independence of thought. Remember that just because other people disagree with you doesn’t make you right or wrong. — The only thing that matters is correctness of your analysis or judgement. Mimicking the heard invites regression to the mean or merely average performance.
  • Preparation Develop into a life long self-learner through voracious reading cultivating curiosity and strive to become a little wiser every day. More important than the will to win is the will to prepare. If you want to get smart, you have to keep asking “why, why, why?”
  • Intellectual humility Stay within a well-defined circle of competence. Identify and reconcile disconfirming evidence. Above all never fool yourself and remember you are the easiest person to fool. Acknowledging what you don’t know is the dawn of wisdom
  • Analytic rigor Think forwards and backwards. Invest, always Invert. Use of scientific method and effective checklists minimizes errors. Is it better to remember the obvious than to grasp the esoteric.
  • Allocation Don’t “fall in love” with an investment — be situation dependent and opportunity-driven. Good ideas are rare. When the odds are greatly in your favor, allocate heavily
  • Patience Resist the natural human bias to act. “Compound interest is the eighth wonder of the world” (Einstein); never interrupt it unnecessarily”
  • Decisiveness Be fearful when others are greedy, and greedy when others are fearful. Opportunity doesn’t come often, so seize it when it comes.
  • Change Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you. Recognize reality even when you don’t like it – especially when you don’t like it
  • Focus Face your big troubles; don’t sweep them under the rug