Charlie Munger: Character Traits You Should Cultivate

Become a better investor by improving these 13 ways of thinking and behaving

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Nov 26, 2018
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You may not be a

Charlie Munger (Trades, Portfolio) or a Warren Buffett (Trades, Portfolio), but you can be an above-average investor if you develop the character traits outlined in chapter five of “Charlie Munger: The Complete Investor.”

Author Tren Griffin wrote, “This chapter identifies a few of the attributes that make up 'the right stuff' of a successful investor, as identified over the years by Munger.” In all, Griffin found 13 traits that the vice chairman of Berkshire Hathaway (

BRK.A, Financial)(BRK.B, Financial) considered crucial to having the right stuff:

  1. Patience: For Munger, patience is not just waiting for the right deal to come along, but also to strike swiftly. “Success means being very patient but aggressive when it’s time.” Buffett, too, has weighed in on this subject, saying the stock market transfers funds “from the active to the patient.” Both Munger and Buffett have relied heavily on probabilities, and waiting for a stock in which you have a high probability of success.
  2. Discipline: To be disciplined investors, we need to be able to think for ourselves, to be contrarians rather than following the herd. In addition, we must be able to refrain from investing and trading, even when action offers more comfort than doing nothing. In Munger’s words, “We’ve got great flexibility and a certain discipline in terms of not doing some foolish thing just to be active—discipline in avoiding just doing any damn thing just because you can’t stand inactivity.”
  3. Calm, but courageous and decisive: Here’s another blunt assessment, this time on the subject of calmness: “If you’re not willing to react with equanimity to a market price decline of 50 percent two or three times a century, you’re not fit to be a common shareholder.” Courage means sticking to your good ideas, even when share prices head the wrong way. Decisiveness means acting as Munger did in 2009; while almost everyone else was in shock, he used excess cash at the Daily Journal Corp (DJCO, Financial) to successfully invest in bank stocks.
  4. Reasonably intelligent, but not misled by high IQs: Having a high level of intelligence without common sense does no good and may lead to habits like predicting interest rates even though they cannot be predicted. Beware, too, of people with high intelligence and expertise in one field assuming it will work in other fields; the classic example is of doctors and lawyers who get beyond their circle of competence when investing.
  5. Honest: Author Griffin argued that Munger looked upon honesty as not only the right direction, morally, but as the direction that will produce the greatest financial return. “More often we’ve made extra money out of morality. Ben Franklin was right for us. He didn’t say honesty was the best morals, he said that it was the best policy.”
  6. Confident and non-ideological: That’s confidence in the context of being aware of your potential fallibility. As Munger said, “The ethos of not fooling yourself is one of the best you could possibly have. It’s powerful because it’s so rare.” He also believes it is important to remain non-ideological because an ideology can stop the critical assessment of hard issues.
  7. Long-term oriented: For most of us, it’s hard to resist the urge of instant gratification, however, deferred gratification leads to better results in most realms of life. In Munger’s words, “Almost all good businesses engage in “pain today, gain tomorrow” activities.” Why is a long-term orientation better? In a word: Compounding.
  8. Passionate: The key is understanding that people who are passionate are more likely to work harder and invest more, not to mention reading and thinking more. Thus, they have an informational edge over the non-passionate. Often, a person’s passion grows as they get to know their subject better.
  9. Studious: Trust Munger to combine some wisdom and wit, as in, “Learning from other people’s mistakes is much more pleasant.” We’ve mentioned Munger’s commitment to reading already, but studiousness also has a broader scope, such as learning how businesses work before buying them and the Munger-Buffett “scuttlebutt” network for getting facts and opinions from many different people.
  10. Collegial: Having someone to consult or assess your ideas is very important, and obviously Munger and Buffett have each other. Buffett jokingly calls Munger “The Abominable No-Man” because he turns down so many ideas. Being collegial can also mean having groups, formal or informal, with whom you can share ideas.
  11. Sound temperament: Munger said, “Having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control.” That’s one of the many ways in which he has told us that successful investing depends on controlling dysfunctional urges.
  12. Frugal: Like his idol Benjamin Graham, Munger strongly believes that keeping costs under control is critical. Griffin added, “I suspect that some of the frugality that can be seen in Graham value investors springs from their understanding of opportunity cost and the power of compounding.”
  13. Risk averse: Unlike some other investors, Munger does not define risk by volatility alone, “Using [a stock’s] volatility as a measure of risk is nuts. Risk to us is 1) the risk of permanent loss of capital, or 2) the risk of inadequate return.” According to Griffin, other investment managers want us to believe volatility equals risk because if stocks drop in price then investors will flee their funds.

(This article is one in a series of chapter-by-chapter digests. To read more, and digests of other important investing books, go to this page.)

Disclosure: I do not own shares in any company listed, and do not expect to buy any in the next 72 hours.

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