In his letter to the shareholders of Berkshire Hathaway, Warren Buffet wrote this: In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten. Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect.
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Munger focusses first on what to avoid (things we should not do) before the steps he will take, "All I want to know is where I'm going to die, so I'll never go there."
- Succumbing to emotions - herd mentality, loss aversion and other biases will cause investors to make bad decisions. Munger is known for going against popular opinion.
- Under or over diversifying - for index funds, many own funds that overlap. For US investors, many hold only US stocks and overlook foreign equities. Own too few stocks is speculation while for those who own too many may be better off buying the index
- Timing the market - a buy and hold strategy is better than timing the market
- Misusing leverage - leverage refers to using a small amount to invest in a larger trade position. Munger advise is to be conservative as the market uncertainty has the potential to swing the other way which may wipe out the early gains.
The checklist below is lifted off from Chapter 3 of Poor Charlie's Almanac - the advice is so good that it would be an injustice to write anything else - you can buy the excellent book from Amazon
So here goes...
