Charlie Munger once said:
"When everybody goes insane, staying sane is your competitive advantage."
Here are 10 investing lessons I learnt from him:๐งต
1. Invert, always invert.
Making money in the market is simple: Don't lose it, upside will take of itself.
Buffett famously said: "There are two rules. #1 is never lose money, #2 is never forget the rule #1."
Focus on what you should avoid and it'll get you where you want.
2. Keep it simple.
All you need are three things:
1) Business has to be simple.
2) It must have a durable competitive advantage.
3) It has to be trading at an attractive valuation.
Once you spot that opportunity, you grab it and you sit on it as long as you can.
3. Long-term thinking is the key.
If you have an exceptional business, it keeps compounding over years and justifies even an expensive looking purchase price.
You must be willing to ignore the short-term headwinds to take full advantage of this process.
4. Stay calm, when everybody is going crazy.
There are thee types if advantages in the market:
- Technical
- Behavioral
- Informational
There are too many smart people now so nobody has a technical or informational advantage.
Only advantage you have is behavioral.
5. Don't chase hot stocks.
People act in herds out of fear of missing out (FOMO).
Such herd moves in one direction creates ignored spaces in other directions.
Smart investor takes advantage of the inefficiency created by ignorance, doesn't chase hot stocks.
6. Learn from others.
People learn best by trial and error.
However, error comes with high costs in financial markets.
Make it a habit to learn from other investors' mistakes, it's free education.
7. Never short.
Shorting is a loser's game.
It isn't enough that you are right in your short, you have to be right in time.
Yet, stocks could remain expensive longer than you can remain solvent.
Don't play the loser's game.
8. Remain flexible.
Investing is not a game that you can be right all the time.
Even the best investors are frequently wrong and even the worst ones are sometimes right.
Remain flexible, change your mind when the facts change.
9. Don't trust EBITDA.
EBITDA is an accounting measure, not a real life measure.
What matters is always net profit, i.e earnings after amortization, depreciation, interest and tax.
10. When you have great business, hold it forever.
People start thinking about their exit a second after they buy their stocks.
This is not the right strategy.
Real money isn't in buying or selling, but in holding.
Look for permanent holds, not exits.
Do you want to become a better investor?
I share all my insights in my weekly newsletter.
Join 12,000+ readers to become a better investor.
You will get a free e-book when you join ๐
https://t.co/DqiY204zNb
Charlie Munger once said:
"When everybody goes insane, staying sane is your competitive advantage."
Here are 10 investing lessons I learnt from him:๐งต 1. Invert, always invert.
Making money in the market is simple: Don't lose it, upside will take of itself.
Buffett famously said: "There are two rules. #1 is never lose money, #2 is never forget the rule #1."
Focus on what you should avoid and it'll get you where you want. 2. Keep it simple.
All you need are three things:
1) Business has to be simple.
2) It must have a durable competitive advantage.
3) It has to be trading at an attractive valuation.
Once you spot that opportunity, you grab it and you sit on it as long as you can. 3. Long-term thinking is the key.
If you have an exceptional business, it keeps compounding over years and justifies even an expensive looking purchase price.
You must be willing to ignore the short-term headwinds to take full advantage of this process. 4. Stay calm, when everybody is going crazy.
There are thee types if advantages in the market:
- Technical
- Behavioral
- Informational
There are too many smart people now so nobody has a technical or informational advantage.
Only advantage you have is behavioral. 5. Don't chase hot stocks.
People act in herds out of fear of missing out (FOMO).
Such herd moves in one direction creates ignored spaces in other directions.
Smart investor takes advantage of the inefficiency created by ignorance, doesn't chase hot stocks. 6. Learn from others.
People learn best by trial and error.
However, error comes with high costs in financial markets.
Make it a habit to learn from other investors' mistakes, it's free education. 7. Never short.
Shorting is a loser's game.
It isn't enough that you are right in your short, you have to be right in time.
Yet, stocks could remain expensive longer than you can remain solvent.
Don't play the loser's game. 8. Remain flexible.
Investing is not a game that you can be right all the time.
Even the best investors are frequently wrong and even the worst ones are sometimes right.
Remain flexible, change your mind when the facts change. 9. Don't trust EBITDA.
EBITDA is an accounting measure, not a real life measure.
What matters is always net profit, i.e earnings after amortization, depreciation, interest and tax. 10. When you have great business, hold it forever.
People start thinking about their exit a second after they buy their stocks.
This is not the right strategy.
Real money isn't in buying or selling, but in holding.
Look for permanent holds, not exits. Do you want to become a better investor?
I share all my insights in my weekly newsletter.
Join 12,000+ readers to become a better investor.
You will get a free e-book when you join ๐
https://t.co/DqiY204zNb
