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Rupert Hargreaves
Rupert Hargreaves
Articles (684)  | Author's Website |

Charlie Munger's Investment Checklist

Munger's advice on how you should invest

February 09, 2018

Investing is as much about controlling your own emotions as it is picking the correct stocks. I believe a crucial part of making sure you do not make any stupid emotional mistakes is to use a checklist.

The great thing about checklists is they provide an extra layer of stability. We are only human, so we cannot remember every single mistake or piece of investment advice ever received in our minds alone (maybe Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) can, but most of us mere mortals cannot), which is why writing down the most vital bits of information and compiling them into a checklist is critical for long-term investment success.

"Poor Charlie's Almanac" features Charlie Munger (Trades, Portfolio)'s own checklist, which he believes can help all investors, no matter what their age or experience. Here's a condensed version.

Measure risk

"All investment evaluation should begin by measuring risk, especially reputational."

The level of reputational risk is not as crucial for the everyday investor, but measuring risk for every investment is. At some point in your life, you will experience an investment loss (most investors will experience more than one). The key to being a successful investor over the long term is to make sure these losses do not end your investment career. The lower the risk of permanent capital impairment, the better.

Be independent

Every investor is different, has different goals and is suited to different investment styles. Therefore, you need to be independent in your research. If you borrow someone else's research, the chances of you making a silly mistake by selling too early are substantially increased. What's more, if you have done the research yourself, and have confidence in your findings, holding on through a downturn is easier.

Prepare ahead

"The only way to win is to work, work, work, and hope to have a few insights."

Investing is not easy or fun, it is hard work and tedious. You should always be on the lookout for the next opportunity and have a keen focus on research. If you are too time-poor for this, or just cannot be bothered, an index fund is for you.

Have intellectual humility

It is impossible to know what the future holds. Investing based on a precise scenario is doomed to fail because there are so many moving parts to every company, the chances of each one working out as you believe are slim. Acknowledge that you do not know everything and cannot predict the future, and invest accordingly.

Analyze rigorously

Numbers never lie. The best way to avoid frauds and find the market's most undervalued opportunities is to pay close attention to the numbers and find out everything you can about a company. Like I said above, there are no shortcuts in this business.

Allocate assets wisely

Every investor is different, so every investor will be willing to commit a different percentage of their wealth to equities. If you put in too much, you may be forced to sell at the wrong time. Allocating assets effectively is key to achieving both steady returns and giving you the freedom to invest when you want to, not when Mr. Market decides.

Have patience

Investing is a marathon, not a sprint. Be patient, ignore day-to-day market moves and let the power of compounding do the heavy lifting over the long term.

Be decisive

Buffett and Munger are well-known for their drive to take big bets on the companies they believe are most undervalued. If you have put in the research and time to uncover the market's best securities, it makes no sense to take insignificant stakes.

Be ready for change

You cannot predict the future, so do not try to. Be forceful and decisive in your ideas, but also accept that you must be willing to change if the investment case unfolds unfavorably.

Stay focused

Stay focused on what you set out to do, keep Munger's checklist in mind and do not try to change your strategy too much. Investing is a marathon, not a sprint.

About the author:

Rupert Hargreaves
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.

Visit Rupert Hargreaves's Website

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