Charlie Munger's final investment wisdom: 13 key principles

Last November, Charlie Munger, the 99-year-old partner of investment legend Warren Buffett for over half a century, passed away in California. One of his final public activities was an interview with the technology industry podcast “Acquired.” This was Munger’s first appearance on the podcast, and his investment philosophy and life insights have become a major topic among investors.

Fundamental Questions About Market Structure

Munger issued a sharp critique of the current culture of individual investors. According to him, ordinary investors are merely reacting to price fluctuations, repeatedly buying and selling. He argued that if he were a policymaker, he would impose high taxes on short-term profits to eliminate such speculative behavior from the market.

The same applies to the venture capital (VC) funding sector. Munger pointed out that repeated success in VC investments is nearly impossible. Because all projects require rapid decision-making amid excessive popularity, most VC investors are ultimately gambling, he diagnoses.

Reassessing Regional Economies and Investment Opportunities

Charlie Munger evaluated the outlook for China’s economy over the next 20 years as superior to any other developed economy. The major Chinese companies are more robust, competitive, and relatively undervalued, making them attractive. For this reason, he has decided to actively incorporate Chinese risk assets into his portfolio.

The Japanese market also presents undeniable opportunities. Munger focused on Japanese companies’ low-interest environment(10-year government bond yields around 0.5%), and strong asset bases(such as mines and rubber plantations). He mentioned that ten years ago, there were clear investment opportunities where one could buy stocks with borrowed money and receive a 5% dividend.

Criteria for Judging Good Investments

Munger emphasized that the longer you hold a stock, the deeper your understanding of it becomes. Observing a company for more than five years gradually clarifies its fundamental nature. However, when recognizing a true competitive advantage, strategies must change. That moment is when you should make a big bet, and he insists that the best investments require deploying large amounts of capital.

Regarding companies with genuine brand value like Apple, Munger expressed special affection. He explained that great brands should only be bought at appropriate prices and that capturing truly undervalued rare opportunities is the key to successful investing.

He also added that even if a stock is extremely cheap, it may be worth holding for a certain period, even if the company is currently in poor shape. This reflects his belief that time and market changes can be powerful tools for reevaluating a company’s value.

Leverage and Principles of Corporate Management

Looking back on Berkshire Hathaway’s growth, Munger hypothesized that if they had used a bit more leverage early on, the current scale could have tripled. Interestingly, he assessed that the risk would not have been greater than the current level. However, Berkshire has maintained a conservative stance to avoid damaging hedge positions caused by leverage.

Munger also offered interesting observations on corporate innovation capacity. Traditional retail companies like Walmart fail to adapt to new changes because of wasted space caused by old mindsets. When old customs occupy the brain, there is no room left for innovation.

Characteristics of Managers and Advice for Future Generations

Munger regarded BYD Chairman Wang Chuanfu(王傳福) as a true manufacturing expert. His passion and execution in product manufacturing are said to surpass even Elon Musk in terms of manufacturing prowess.

It is also impressive that Munger does not give easy advice to younger generations. He emphasized that he carefully selects whom to advise and has no intention of playing a mentorship role. The reason is that the world is filled with deception and madness, making the challenges faced by the younger generation increasingly difficult.

Discovering Investment Opportunities and the Essence of Life

Munger firmly stated that he does not seek investment opportunities he is unlikely to find(e.g., companies like Haribo, Hermès). Instead, he focuses only on areas he can understand and have a chance to discover. While acknowledging that finding investment opportunities is becoming more difficult than before, he demonstrates a philosophy of doing his best within realistic limits.

In his later years, Munger emphasized the importance of family relationships. Living harmoniously with each family member, overcoming difficult times together, and helping each other are as important as investing. He said that this is not as difficult as it seems, and observed that more than half of marriages in the U.S. remain stable.

Charlie Munger’s final interview raises profound questions about how to judge and act in an era of uncertainty, extending beyond investment techniques.