Charlie Munger: How to Remain Rational

Thoughts on how to remain rational in investing from the billionaire

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Rupert Hargreaves
Apr 15, 2021
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In a previous article, I highlighted some comments from value investor

Li Lu (Trades, Portfolio), who stated that one of the greatest lessons he had learned from Charlie Munger (Trades, Portfolio) was the need for rationality in all environments.

Munger himself has spoken about this topic several times in the past. Most recently, he talked about the subject at the 2020 annual meeting of shareholders for the Daily Journal Corporation (

DJCO, Financial). Here are some of my key takeaways from the meeting.

How to remain rational

An audience member asked the billionaire if he had any "tips or tricks" that could help the average investor become more rational. To this question, Munger responded by saying:

"Well, it's a long process. I don't think anybody just flashes into it. It's not like somebody tells you all you gotta do is run down to the front of the revival meeting and shout out and you get a wonderful ever after...

Rationality is something you get slowly, and it has a variable result, but it's better than not having it."

For anyone looking for a quick and simple answer to this question, a formula that can be applied to any situation in life to become more rational, this is an unsatisfactory answer. But that's not the point.

Anyone who has spent a considerable amount of time studying Munger's comments will know that he does not have the answer to every question. Indeed, there really is no simple trick in existance that can allow someone to change their habits on a dime, and "becoming more rational" is indeed a process of changing habits. However, Munger has provided his audience with somewhat of a framework to build rationality.

A framework for the solutions

Munger is and has always been an avid reader. Anyone who wants to replicate his success should copy this approach, in my opinion. Reading gives us insights into things that have happened and provides some insight into why they happened.

For example, by reading, we can understand how actions lead to future outcomes. It is easier to learn from past examples for a couple of reasons. From an investment perspective, it is cheaper, and from a psychological perspective, it is easier to see others' mistakes rather than our own.

At the 2020 annual meeting, Munger went on to hint at the benefits of reading and studying:

"I just think that you can see how awful it is when people get into these furies of resentment and anger, and sure they're right about everything...I actually work at trying to discard beliefs. Most people just cherish whatever idiotic notion they already have because they assume it must be good. Think of the brilliant people who do some of the dumbest things."

How would we know about brilliant people who have done less-than-brilliant things if we don't read about them in the first place? I believe this is the most straightforward answer to the question of how we can become more rational, in addition to taking note of an analyzing our own investment histories. By understanding more about how irrational decisions come about, we can put in place checks and balances to make sure they don't affect our decision-making.

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Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors. Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.