Charlie Munger (Trades, Portfolio), Warren Buffett (Trades, Portfolio)'s right-hand man, is one of the investment world's greatest thinkers.
If I told you it is possible to distill his entire strategy down to just a few words, you might think I'm talking nonsense. That is true to some extent, but I believe it is possible.
While Munger has issued literally thousands of pages of advice on investing and how to succeed at life, if you only take away one or two nuggets of information, you can change your investing career and life substantially.
One of these nuggets is Munger's advice on making stupid decisions. Specifically:
"It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent."
This statement is short, but there's a lot to think about here. One of the things that stands out about Buffett and Munger's careers is they have never tried to be smart (despite being considered the most intelligent investors around). Throughout their investment careers, they have stayed away from using complex financial instruments and have, instead, remained content with buying and holding high-quality stocks.
Rather than trying to seek out brilliance, both billionaires encourage others to avoid making mistakes and build out a circle of competence. They both emphasize the idea that it is far more important to understand and know what you are good at, and stick to your strengths, than try to be clever and beat the rest of the market. This view is echoed in various statements both have given over the years in regard to wealth creation. For instance, Munger once said:
"Someone will always be getting richer faster than you. This is not a tragedy."
The gurus have both said that they never started out to get rich, wealth has just come as a byproduct of them doing what they love, investing.
They have also become wealthy because of their strategy: buying high-quality stocks and holding on. Such an approach isn't hard to replicate, but there aren't any other Buffetts out there because the "Oracle of Omaha" has developed a certain mindset. He has cultivated an environment that does not push him to make mistakes by investing outside of his comfort zone, and he is not constantly bombarded with ideas that may end up producing a negative return on investment.
Stick to what you know
Buffett is well aware that there may be plenty of other ways to make money apart from his strategy, but he's not going to chase these returns because it would mean investing outside of his comfort zone.
Buffett has also always had a keen focus on limiting risk. He commonly quips that his style of investing allows him to sleep comfortably at night, and it is easy to see why. He follows the standard Benjamin Graham mantra; not asking how much can he make before entering a position, but instead seeking to answer the question, "how much can I lose?" This is just part of his efforts to be "consistently not stupid."
A checkbox before investing
It is silly to suggest that Buffett and Munger have built a multibillion-dollar fortune just by not being stupid, but this is a massive part of their success. There's much more to being "not stupid" than the statement suggests. It means not taking on excessive risk, investing within your circle of competence and not jeopardizing your success by borrowing too much.
So the next time you make an investment decision, it might be sensible to ask yourself, "am I being stupid?" It won't make you a billionaire, but it might just stop you from making a decision that costs you years of hard-earned savings.
