“Avoid crazy at all costs”
Charlie Munger was vice chairman of Berkshire-Hathaway and worked for almost 45 years with Warren Buffett. Munger died at 99 in December. I found his advice good for investing and life in general.
When asked if there was a secret to investing, he said, “I don’t know the secret.” Munger then added that he’d avoided major catastrophes in his life because he was “so cautious,” always avoiding obvious risks in his personal life and career.
“Crazy is way more common than you think,” said Munger. “It’s easy to slip into crazy. Just avoid it, avoid it, avoid it.”
What does Munger think is crazy? In 2018, Warren Buffett said, “My partner Charlie says there is only three ways a smart person can go broke: liquor, ladies and leverage.”
Munger clarified his general stance on personal vices: If it can “take that many fine people into deep trouble,” stay away from it. That included smoking and drinking to the point of alcoholism, he said — noting a prevalence of alcoholics and “near alcoholics” in his own family.
By leverage, he referred to the strategy of borrowing money to invest in stocks or buy another business. Munger said Berkshire Hathaway could “easily be worth twice what it is now” if the pair had used more leverage and risky strategies rather than simply reinvesting its past earnings.
Buffet said they (Buffet/Munger) could absorb significant losses, but Berkshire’s smaller shareholders could not. They intentionally decided to protect their cohorts by running Berkshire in a “very cautious” fashion, favoring long-term investments over short-term gambles.
Big Fancy Homes are almost always a bad idea
Besides ‘avoiding crazy’, Munger often preached the merits of living modestly, he gave advice like “don’t have a lot of envy” and “don’t overspend your income.” He credited his success and longevity to a long-held sense of caution and an ability “to avoid all standard ways of failing.”
Another area was the fact both he and Warren Buffet lived in the same house for almost 70 years.
[Buffett and I] are both smart enough to have watched our friends who got rich build these really fancy houses, and I would say in practically every case, they make the person less happy, not happier.
A “basic house” has utility, said Munger, noting that a larger home could help you entertain more people — but that’s about it. “It’s a very expensive thing to do, and it doesn’t do you that much good.” He also purposefully avoided a gaudy lifestyle that might create spoiled children.
They also weren’t fans of multiple homes. At the 2014 Berkshire Hathaway shareholder meeting, Buffett reportedly said his quality of life would “be worse if [he] had six or eight houses”.
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