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Charlie Munger worked as a weather forecaster at the airport early in his career. His job was to let pilots know if the weather was safe for flying. But in an interview, he said something that surprised everyone. He said that when he was working in weather forecasting, he would think, how he could most easily kill these people or crash the plane.
Although it may sound strange, Charlie has a special rule behind it. By following this rule, Charlie Munger and his partner Warren Buffett became the most powerful and intelligent investors in the world. You'll be surprised to know why Charlie would think about killing pilots or crashing planes. Role number one is inversion thinking.
Charlie's thoughts were not negative or crazy. This was his number one role inversion thinking. He used to say that before thinking about success, think about how failure can come. In simple words, instead of thinking about how to make money, think about how money can sink. In the stock market, people usually ask how much return can be obtained from a stock.
But where is the biggest risk in that stock, Charlie Hosten? He finds out and eliminates all those reasons one by one. Which can ruin his investment or money. Such as overconfidence, incorrect valuation, or unnecessary risk. According to him, if you can survive failure, success will come naturally. So before you think about winning, find ways to avoid losing.
Rule number two is never lose money. This rule states that money can never be lost. Although it seems very simple, it is the most difficult to follow. Most people invest in the market only hoping for returns. But for Charlie, capital protection or keeping real money safe is more important than returns.
According to him, if your principal money is not safe, what will happen with the return ? Taking big risks is not smart investing, but understanding big risks and avoiding them is real smartness. Role number three is investor temperament. The third rule of Chalimanger says that this is a rule that knocks about 90% of investors out of the market.
If you want to say that when the market falls, your portfolio drops by 20 to 30% or 50% and you get nervous or lose sleep over it, then understand that there is a problem with your temperament. The market's job is to go up and down. But an investor's job is to stay calm. An investor who panics when the market falls can never be a long-term winner.
According to Charles, EQ or emotional quotient and patience are more important than IQ when it comes to investing. When the market is turbulent, only those who can control their emotions can make the right decisions. Rule Number Four Circle of Competence. If he wanted, he would believe that we don't know everything.
And accepting this truth is our greatest strength. The real problem with the market is not that people know little, but rather that people pretend to know everything. Charlie's advice was to only invest in businesses that you clearly understand from the inside. If a stock price drops 25% and you do n't know whether you should be happy or scared, then you are outside your circle of competence.
You do n't need to know everything to make money from the markets. You just need to know your limits. Role number five is great business over great management. Charlie's rule number five says we should find a business that is very strong on its own. The business is so strong that even if you put in a crappy management or make a small mistake, the business will survive.
Because there is not always good management or good leadership in business. This does not mean that management is not important. But if he had to choose between great business and great management, he would always choose great business . Because even the best management can't do much for a weak or failing business.
But if you have a strong brand and position, you can get by with average management. This is called Big Mode, which protects customers from pricing power and competition. According to Charlie, the simpler a business is, the more powerful it will be. On the other hand, the more complicated the business, the more risk it will have.
So he always preferred businesses that were easy to understand and had a solid foundation. His role was absolutely clear. First look at the quality of the business, then the personality of the management. Because in the long term, profit or money always comes with a strong business. These were the five money rolls taught by Charlie Munger.
By using these rules, Charlie Munger and his partner Warren Buffett became one of the greatest investors in the history of the world.
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