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Many of you have heard of Warren Buffet. The wealth of this 91-year-old old man is $100 billion by 2021. It's worth more than a billion dollars each year. Well, have you ever heard of the name Charlie Munger? His last name is Mangır, hmmm.. Actually, his surname sounds like money in Ottoman Turkish.
An interesting coincidence. Anyway, let's get back to our topic. Charlie Munger is Vice President of Berkshire Hathaway Company, of which Warren Buffett is President. Bill Gates describes Munger as the most comprehensive thinker he has ever encountered . Like Warren Buffett, he was born in Omaha. He worked at Buffett's grandfather's grocery store as a child and had yet to meet his two best friends and business partners at the time.
Charlie isn't always keen on investing. After graduating from Harvard Law School, he founded his own law firm, which has served as an advisor to investors. Munger quit his law practice in 1965 to join Warren Buffett at Berkshire Hathaway . He eventually became Vice President of the company in 1978. Today, Charlie Munger is Warren Buffett's right-hand man.
Working together and growing old, we can say that Buffet has been an important part of his success . They worked together for over fifty years to build a half-trillion dollar business. You may have read many articles or watched videos about Warren Buffett and his investment strategies . However, Munger, despite being one of the most successful investors, has not been able to capture the same attention for some reason .
In fact, one of the reasons for this is the huge difference in their wealth. Warren Buffett's net worth is over $100 billion as of 2021, while Munger's is around $2 billion. Wait 2 sec – sorry for Charlie, he only has $2 billion. He is not on the list of the five richest people in the world. But Munger does a lot of charity work.
It makes donations to various universities to promote education. For example, he donated $ 43 million at a time to build a student complex at Stanford University . Although Charlie Munger is not on the list of the richest, it is clear that he is one of the best investors in the world . So let 's learn from him how we can improve our investment style and strategies .
We are always looking for a formula to get rich fast. But Charlie's excellent performance doesn't come from a magic formula. Neither a business school inspired system nor a textbook model. The secret behind his performance comes from the philosophy he developed by constantly seeking better ways of thinking .
It comes from the rigorous and remarkable preparation of the multidisciplinary research model. The investment strategies of Charlie Munger and Warren Buffett are quite similar. But Munger places particular emphasis on one particular element, human behavior. He has spent his life studying the best ideas from different disciplines.
It would not be right to attribute his success only to luck. As a result of his understanding of how flawed human behavior is and his insistence on finding answers to various patterns , we can say that it has paid off. Mental models shape our ability to think and make decisions. Investing is more than just analyzing numbers and making buy or sell decisions .
A large part of investment consists of individual behavior. Emotional processes, mental errors, and personality traits often interfere with investment decisions . We often make financial decisions based on impulses. These mental models help us understand how our biases affect our decisions . In his 1990 speech, Munger describes how learning the fundamental models of many disciplines can lead to advancement in business and life in general.
He believes that if we understand 80 to 90 of these patterns, we will know enough to understand the world . But learning these mental models takes dedication and consistency. In his talk, 'You have to have models in mind' And you need to place your experience – both indirectly and directly – on this patterning grid.
You may have noticed students just trying to remember and trying to give back what they remember . They fail in school and in life. You have to hang the experience in a series of pattern braids in your head.' says. All of this is based on Charlie's most basic guiding principles… preparation, patience, determination and discipline.
I think it would not be wrong to say that these 4 issues are his basic philosophy. These qualities are interconnected, and without one the other will be lost. But when they are together, they make a big impact. Munger talks about the lollapalozza effect in his speeches. Although it is not exactly Turkish equivalent, we can say that it is an extraordinarily impressive thing.
The basis of this influence is that people have many natural prejudices and tendencies. When these happen collectively, they can affect our behavior. When several of these biases act together to lead us to a particular action , it's called the lollapalooza effect. In his 1995 Harvard lecture The Psychology of Human Misjudgment, Charlie Munger used the term Lollapalooza effect and reviewed the many causes of people's misjudgments .
It takes a picture of the psychological state experienced in an auction to better understand this effect . There are four trends in which auction participants are forced to bid. First, Reciprocity Reciprocity is a social model of responding to one affirmative action with another affirmative action .
Therefore, the participants feel that they have the right to buy something because they were invited to the auction . "Since I was invited by the host, I have to buy something." 2. Consistency It expresses a thought process that the individual does not want to break the chain. For example, if the participant is famous for liking a certain type or product, they feel compelled to buy it.
'I have been known to buy such products. I have to buy it to prove it.' 3. Loyalty Tendency If a participant is bidding in the auction, he or she feels inclined to continue bidding just because he has started . "I have to keep going because I'm already bidding." 4. Social Proof People have a habit of trying and finding a way to fit in with a social crowd to validate themselves .
Social proof is the tendency of the participant to do something just because a group of social peers are doing the same . 'I have to buy these kinds of pieces because my peers do.' Okay, sir, I can hear you say , are we going to the auction and bidding, you are telling us about these . Now, let's move on to the part that will be useful for you, starting from the example here.
Why is the Lollapalooza effect important for investors to understand? In financial markets, this effect can result in a herd mentality, Munger says. One investor's behavior can affect the behavior of other investors. For example, a certain news causes millions of investors to buy one sector and sell another sector, resulting in extreme volatility in the market.
This creates a psychological snowball effect. The herd mentality is every investor's worst enemy. After all, everyone is out to sell. Who really profits in this situation? Nobody. The herd drive explains why people tend to follow others. When the market rises or falls, investors fear that others may have more information than they do.
As a result, investors feel a strong urge to do what others do . One assumption that attracted investors in the late 1990s was that any sudden drop was a buying opportunity. But buying at the drops does not always guarantee profits. Buying a stock that is cheaper than before does not necessarily make it a good investment .
There are several factors that contribute to the rise and fall of the market. Relying entirely on a "buy on the lows" approach can lead to losses. Munger believes it's wise to control for psychological factors. In summary; According to Charlie's investment philosophy, focus more on what to buy and less on when to sell.
Charlie Munger invests with principles based on his own rules and requirements. Adheres to the method of using checklists when making every investment decision. A very important point to note here is that there is no "all-in-one" checklist. Each investor should create his own checklist and update it as needed.
1. Treat Your Shares As If You Own The Company In Line With The Share Ratio You Own! Here's a question for you - Would you like to be the proportional owner of a company without a vision? Or a fundamentally weak company? No, right? Munger says that if you invest with the conscious thought of owning a stake in the company, you'll start to make better choices.
He believes understanding business models plays a vital role in understanding his values. To determine the success of a company, it looks at the cost of production, brand loyalty, the effects of the network it has. If the foundation of the company is strong, the company will have the ability to grow.
2.Buy at a Significant Discount by Intrinsic Value! Munger said, 'No matter how great a job is, it's not worth the endless price. We should have a price that is reasonable and leaves a margin of safety, given the normal ups and downs of life .” says. Intrinsic value measures the value of an asset. The margin of safety shows the difference between the current market price and the actual value.
It is an important factor in investing and is also advocated by Warren Buffett and Benjamin Graham . Investors can turn the odds of success in their favor by placing a margin of safety. 3. Be rational, focused and patient 'Many mistakes in life come from forgetting what you're really trying to do.' We tend to make erroneous decisions due to emotional biases.
Munger says rationality is the antidote to such mistakes. This is what determines the quality of a successful investor. So how do we become rational? Beginners must first apply the practice of patience in their lives. While this may sound like the easiest thing to do, it is actually difficult for most investors .
Like Buffett, Munger believes in value investing. And all you need to be a disciplined value investor is patience . Why should we behave like this? Because when you turn off the noise outside and focus on the long-term plan, you will witness the magic of compounding. That's how Charlie Munger and Warren Buffett made billions of dollars .
If you've watched the video so far, congratulations. They are most likely impatient, stopped watching early and are likely to be impatient with their investments as well . FINAL WORD Buffett has worked with Munger for over 55 years. Buffett's emphasis on only doing business with people he trusts is a testament to Munger's integrity and authenticity.
His approach to investing in mental models has made him a successful investor. His methods have made him wealthy over the years. His style requires a lot of patience and sticking to systematic processes. Munger says that all you have to do to be successful in life is not to be stupid . 'No one expects you to know everything about everything.
If you don't know and don't have a special talent, don't hesitate to say it.' And you don't have to be ashamed. In this channel, you can find content related to stock market, personal development and crypto world in playlists. You can also find videos of Warren Buffet's excellent observations on investment and life on this channel, and you can watch it from the cards and the links in the explanations .
If you invest without learning, you can be sure that the market will teach you pain. I hope you don't have this experience, but it's often been like this. Have a checklist before investing, be patient and apply your own mental model by thinking systematically . Stay informed.
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