5 things I’ve learned from Charlie Munger

The wit and wisdom of Charlie Munger, the vice chairman of Berkshire Hathaway, is legendary in the investment world. Here are five of my favorite Mungerisms and what I learned from them:

‘The desire to get rich fast is pretty dangerous.’
Early in my life, Munger taught me that trying to get rich fast is dangerous. One has to gamble on the short-term price swings of some stock, derivatives contract, the Dow Jones Industrial Average DJIA, -0.03% the S&P 500 index SPX, +0.06%  or other asset. A huge number of people are trying to do the same thing, many of them who are much better informed than I am, and the short-term price movement of any stock or derivative contract is subject to all kinds of wild price gyrations due to events that have nothing to do with the actual long-term value of the underlying business. And last, but not least, there is the problem of leverage — to get rich quickly one often has to use leverage/debt to amplify small price swings into really huge gains. If things go against us, can also turn into really large loses.

So we take a leveraged position in a stock, thinking we are going to hit it big, something terrible like the Sept. 11 terrorist attacks happen, the stock market tanks, and we get wiped out. This is why Munger and Warren Buffett, Berkshire’s BRK.A, -0.45% BRK.B, -0.37%   chairman and CEO, avoid using leverage and only bets on the long-term economics of the business, and not the short-term price swings of its stock price.

Link: 5 things I’ve learned from Charlie Munger