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Charlie Munger used to work as a weather forecaster at the airport in his early days. In which they had to tell whether the weather was safe for the flight or not. But in an interview he said something which shocked everyone. He said that when I used to do weather forecasting, I always used to think about how I could kill the pilot or how I could make the plane crash.
Now this sounds very strange. Everyone was very shocked to hear this. But this is actually not his negative thinking but a rule of his. The rule that made him and his partner Warren Buffett one of the most successful investors in the world. So in today's video we will talk about five such golden rules of Charlie Munger, using which he and his partner Warren Buffett became the most powerful and most successful investors in the world.
And you will also know why he thought about killing the pilot or crashing the plane. So the first rule is inversion thinking. Zalim Agar says that before thinking about success, you should think about failure. That means first of all you do not have to think how much money can I earn from this stock.
Rather, I have to think about how much money I can lose in this stock. How much can I lose? Charlie Munger never thought about how much return this stock would give him if he invested in it. Rather, I used to think that if I invest in this stock, what is its biggest risk? And this is inversion thinking.
This is his rule number one. And that's why he used to think about how he could kill the pilot or how he could crash the plane. When you think about failure before success, you know exactly what not to do. When you already know what things can go wrong, you can avoid them. Charlie Munger used to do the same for stocks.
He used to see what things could cause me to lose my money. Be it overconfidence, overvaluation or lack of enough knowledge and enough data. One by one he started avoiding all the negative things. Charlie Munger says that if you prevent failure, success comes automatically. Charlie Munger's second rule is never lose money.
They always say rule number one is never lose money. Rule number two is never forget rule number one. Now this sounds much simpler. But it is very difficult to follow it. Because when most people invest in stocks, they do so after thinking about how much return they will get by investing in this stock.
How much profit can I make from this stock? But according to Charlie Munger, capital protection is most important. Capital protection is more important than returns. Because if your original money is not safe then there is no meaning of return. So he did not invest in any stock which had even a slight downside potential and in the stock market only the one who stands till the last wins and if you are losing your principal amount then you will not be able to stand till the last.
Charlie Munger's next rule is investor temperament. Whenever the market falls by 20%, 30% or 50% and investors get scared of that fall and start feeling anxious due to that fall, then it is actually not a problem of the market. That is a temperament problem because the job of the market is to go up and down.
Bull run, bear run is the job of the market and the job of the investor is to remain calm amidst all these ups and downs. Charlie Manga says that if you cannot survive the ups and downs of the market then you cannot become a long term investor or you are not ready for investing right now. Therefore, the ups and downs of the market did not make any difference to Chali Manger.
For him it was business as usual. Because only when you control your emotions during the ups and downs of the market, you can take the right decision. In the market, EQ and patience are required more than IQ. If you lack patience or become overly emotional after seeing the ups and downs of the market, then there is a high chance that you are going to take a decision that may result in a loss, which you may regret later.
Charlie Munger's next rule is Circle of Competence. We do not know everything. And we should accept this thing. And when you accept this thing, that is the real power. That is the real knowledge. The problem in the market is not that people have less knowledge. The problem in the market is that people think they have too much knowledge.
Whereas actually it does not happen. Charlie Magar says invest in what you really understand. You need to invest only in things that you understand well. Which you do not understand well. You should not invest in them at all. Otherwise you will only suffer losses. If you see, many people make huge losses in trading or in crypto and the only reason for this is that they do not understand all these things properly but they think that they have understood these things, hence they end up making losses.
If you look at Warren Buffett 's investing, he did not invest in any tech stock for a long time. And when he was asked why don't you invest in any tech stock ? So his answer was simple. He said I do n't understand tech. So when such big investors are totally comfortable in saying that I don't know something, then you should also be very comfortable in saying that I don't know this thing, hence I am staying away from it.
I do n't understand crypto so I stay away from crypto. You don't need to know everything about the stock market. You don't need to have knowledge of everything. You just need to know your limits. And whatever your strengths are, you can invest by using those strengths. Manger's next rule is great business and great management.
He says that the business of a company should be so good that a few mistakes do not make any difference to that company. Management is important. But a good business is more important than management. Because even a great management cannot run a weak business well. But a strong business can generate significant profits even with weak management.
Can generate significant growth. Because a strong business has a strong brand. He has a pricing power. He has repeat customers. The competition he faces is very low. And these are the things that make a business strong. According to Charlie Marshall, the simpler a business is, the more powerful it will be, and the more complicated it is, the greater the risk.
That's why he always invested in strong and simple businesses. Apart from this, having assets is also very important for financial freedom and you can create some assets literally for free. If you want to know about this in detail then you can check out this video. Bye till then.
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