Charlie Munger On How To Outperform Wall Street Investors

Charlie Munger On How To Outperform Wall Street Investors

How would you like an investing advantage over Wall Street? If yes, listen to Charlie Munger’s advice.

Instead of listening to what’s typically taught in business schools or what a lot of people on Wall Street end up doing, you can set yourself up to outperform The Street.

At the 2019 Daily Journal Corporation Annual Meeting, Charlie Munger discussed examples of how to beat Wall Street at investing.

Charlie attributes Berkshire Hathaway’s and Daily Journal’s successes to having “basic morality and sturdy common sense.” And he specifies that “when people talk about common sense they mean uncommon sense,” because common sense isn’t actually as common as you’d think it is.

When Charlie discussed “investment counseling shops” trying to get an advantage over one another, he’s generally referring to Wall Street firms.

Charlie said that these firms were trying to do financial alchemy by gathering “brilliant young people from Wharton and Harvard” and attempt to outperform competitors by using “their single best idea then created a formula with this collection of best ideas.”

While he doesn’t give away why this approach keeps failing, I think it has to do with how these academic formulas lack wisdom and conviction. No matter how “smart” someone is by academic standards, it doesn’t substitute for investing experience that both Charlie Munger and Warren Buffett have accumulated through trial and error in life.

In order to invest, Charlie says you need to be “right when the professor is wrong. Anybody can spit back what the professor tells you. The trick is to know when he’s right and when he’s wrong. That’s the properly educated person.”

Charlie is critical of the investing advising profession where compensation is not dependent on actually acceptable investing results, unlike if you seek surgery or legal help. After all, “index funds have come along and they basically beat everybody” so why do you need a financial advisor if you can do it yourself?

Charlie told stories of how his grandfather was a successful businessman in Iowa. He said that the trick was to seize a few opportunities when they came along.

Charlie Munger summed up why he is one of the most successful investors: “And so I always knew from when I was a little boy that the opportunities that were important that were gonna come to me were few and the trick was to prepare myself for seizing the few that came.”

He continued, “this is not the attitude that they have at a big investment counseling thing. They think if they study a million things they can know a million things. And of course the result is that almost nobody can outperform an index. Whereas I sit here with my Daily Journal stock, my Berkshire Hathaway stock, my holdings in Li Lu’s Asian fund, my Costco stock, and of course I’m outperforming everybody.”

He is living proof you only need to be right a few times in a long life: “and I’m 95 years old. And I practically never have a transaction. And the answer is that I’m right and they’re wrong. And that’s why it’s worked for me and not for them. And now the question is do you want to be more like me or more like them?”

If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.

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