I chanced upon an edited transcripts from Guru Focus of an interview of Munger and Li Lu in one of China’s top finance magazines.

Here are the 7 investing lessons I learned from Charlie Munger and Li Lu’s interview:

1. In investing, patience is very important.

Patience is getting harder these days. Today, information access is easier and almost in real-time. We can get plenty of information with regards to a particular stock all at the palm of our hands.

What is the downside to this? For one, the effect of priming when one looks at our daily stock prices is obvious. If one is not careful, our daily mood and feeling can be easily affected by whether our stock holdings are up or down on that day.

When we have that kind of negative emotion, people tend to make bad decisions and that makes patience even harder. But yet, ever-important if we want to make any real gains over the long-term.

2. Patience can be learned to some extent and to some extent, we are born with it.

In the book Thinking Fast and Slow, Daniel mentioned that people who tend to react impulsively tend to have more of system 1 (which is a reactionary kind of system). That is thinking fast and some people do have more of that.

What Charlie points out in the interview is that although we can be aware of it, to some extent we are born with it. A lot of it, in my opinion, is psychological in nature. I highly recommend anyone who wishes to understand how we think so we can make better decisions to read the book Thinking fast and slow by Daniel Kahneman.

I will also be summarizing what I learned from that book in the future. So stay updated to my blog post via email or telegram.

3. The way Berkshire and Charlie make long term investment is by waiting for something to be under-priced and then buy it.

The essential fundamental here is that if they find that there is nothing to do, I think they will not do anything. It is easier said than done.

The reason why Warren has not bought anything substantial during the whole pandemic might be because simply, they have not found something underpriced.

4. The truth is in the real value of the company itself.

The market might go up or go down in the short run. But eventually, the value of the business will be the reality that will be more reflective of how the stock price of that particular company will be in the long-term. 

This is easier said than done as well. 

I vividly remember Michael Burry, which is one of The Big Short characters mentions something along the line of “I may be early, but I am not wrong.” And it turns out for that particular big short trade, he was not wrong. That was about sub-prime mortgages, not individual stock. But the idea remains. Whether you are right or wrong, time will tell and the truth will eventually remain in the real value of the company/your idea. 

So I always say, do not be too emotionally affected if you stock has gone down, ask yourself, what is the true value of the company that you analyzed it to be? And what makes you so sure?

5. The Chinese who have gotten rich in Hong Kong over the last 50 years has been the long-term investors who’ve sought out good long-term investment and stubbornly held them for a long period of time.

Although I think lesson number 5 above might have a little bit of survivorship as well as hindsight bias, I do agree that the super big money can be made by holding great businesses that grow over the long-term.

The reason is simple. If we are considering the fact that we want to be an intelligent investor and assuming we do not engage in leverage, companies take time to grow. And companies take time to evolve.

As companies grow and evolve in the right way over the years, their share price will naturally grow with it.

6. Charlie Munger skims through or reads 20 books a week. He reads a lot of biographies, and some history. He reads almost no fiction.

Read, read, and read.

But do not read just for the sake of reading, try to understand what we are reading.

Store it in our memory.

And use the knowledge when opportunities arise in the future.

During this COVID-19 situation, instead of Netflix and binge-watching all the time, spare some time for reading. 🙂

7. Charlie has bought a lot of securities and sold very few.

I think the lesson above just say that Charlie has a tendency to not want to sell easily. This links us to the first point of this article again – which is patience.

Charlie has also said before, along the line “The big money is not in the buying and selling, but in the waiting.” That is also why he has bought a lot of securities and sold very few.

Like what Warren Buffett said before if you own a farm that produces something, and your farmer next door keeps giving you a quote for your farm, do you need to do something every day? The answer is no.

When we own a farm or a stock, we think about the potential of the farm or the company and how much it can produce.

He even talks about the farm analogy again in 2020 Berkshire annual meeting.

I hope the above article is value-adding to you 🙂 

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