If there is one thing we can learn from Charlie Munger (Trades, Portfolio) more than anything else, it is the need for long-term thinking.
Over the decades, Munger has spoken at length about many different investment topics. We can always learn something from this investor's speeches and writing. As such, I do think it is a bit of a stretch to try and distill all of his teachings down into just one primary takeaway.
However, I am also well aware that investing is incredibly complex as a topic. It has taken Munger a whole lifetime to build the principles and framework he uses today. I think it would be unrealistic to expect an investor to develop a similar understanding of the investment landscape just by reading a few articles.
It takes time, effort, and, above all, patience to understand how to be a successful investor. This is why I have decided to highlight what I believe is Munger's best investing lesson: a long-term mentality.
Investing for the long-term
While we only have a limited understanding of Munger's personal investments, this information provides enough insight to help us understand his basic principles. There are only really two individual stock holdings the billionaire owns in any significant size. These are Costco (COST, Financial) and Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial).
He has made other investments over the years, some of which have generated substantial returns. But for the purposes of this article, I will be focusing on the opportunities that we have the most information on, rather than trying to speculate on other positions.
What is interesting about Costco and Berkshire is that Munger sits on the board of directors in both situations. This provides the billionaire with a unique insider view into each of these companies' operating performances.
He has spoken about how it is essential to invest in companies one knows and understands well. This is certainly the case with Costco and Berkshire.
What is also interesting about these companies is that they have established business models. What I mean by this is that when Munger became an investor in both businesses, they had developed to such a stage where their competitive strengths were clear, and to this day they still operate under the same business models that earned them their success.
Munger became a shareholder in Berkshire after he wound down his partnership and essentially went into business with Warren Buffett (Trades, Portfolio) at Blue Chip Stamps (Buffett eventually rolled this business into Berkshire).
It is not clear exactly when Munger bought his position in Costco, but he has been a director since 1997. This suggests he could have been buying the shares in the 1990s. This is when the firm was already well established, and its competitive advantages were apparent.
These examples suggest that to imitate Munger's long-term mentality, we should focus on companies already showing signs of strength. This makes it easier to project their long-term potential. If it is easier to project long-term potential, it is easier to value businesses and ignore short-term market fluctuations.
The other lesson we can learn is that Munger has a foot in the door at the business with both investments. These are companies he knows incredibly well because he helps manage them.
Most individual investors won't ever have the same chance to sit on the board of a company like Costco, but they can play to their own strengths. Investors should pick and choose the companys they know well, in the sectors they know well. If one knows how an industry works inside out, one is less likely to make knee-jerk trading decisions based on market movements. They can use their industry knowledge to look past short-term headwinds and focus on the long-term potential.
Following this key Munger principle will not guarantee long-term success, but it may help investors improve the odds of success by helping to build a long-term mentality.
