How to think like Charlie Munger: Take A Simple Idea Seriously
"Take a simple idea, and take it seriously."
-Charlie Munger
Simplicity has a way of improving performance by enabling us to understand what we are doing.
Charlie Munger and Warren Buffet are known for their investing philosophy. They do not talk about market trends or what's likely "next" unless what's next is what's going to happen in the next 10+ years.
Most financial news and financial pundits try to predict what will happen in the next six-twelve months. They don't have the stomach for long term thinking.
Munger and Buffet, on the other hand, optimize for the long run because they have learned long ago that the only real way to predict a future outcome is to invest in good businesses.
It really is as simple as that. Buy good businesses.
This is advice you'll hear from Buffet and Munger often. They've been saying it for years now.
So why do so few investors take this approach?
Because investors are impatient, and they overvalue their skills. It feels good to take action as if that's the path to success. But as Munger and Buffet long ago realized, the less action they take, the better.
If you were to ask Munger, he would tell you that you are not smart and neither is he, not smart enough to predict the future, that is. He would then tell you that successful investing is about doing very little, as little as possible.
When you use the simple idea of buying good businesses, you become obsessed with finding the best companies, and since there are not a lot of "best' businesses, you don't make investment decisions all that often.
Buying good businesses is a simple idea that Munger takes seriously. This concept can apply to all of life, not just investing.
The second simple idea Munger and Buffet take seriously is thinking long term.
What you get is a simple question that you answer by adding two simple ideas together. And this simple equation has made two of the richest men in the world and one of the largest holding companies in history: Berkshire Hathaway.
It goes like this: Buy good businesses + hold them forever = make billions of dollars
The Dip
Investing is the perfect analogy for life. You have to be patient. Overactive individuals in the market will always fail compared to those that think bigger, see the big picture, and are patient for the market to reward them.
Life is the same.
When you are patient, when you think like the tortoise, you know you'll eventually get there. The hare, on the other hand, is duped by its own hubris, and races around and falls asleep and loses the race.
This is how many people go through life: they hop from this thing to that and quit when they get tough. As a result, they never realize the results they would have had if they stuck with it.
Seth Godwin calls this "the dip," which is the trough right before the rise.
Most people quit at the dip because the dip is hard. It's stagnant. It may even seem like you're heading in the wrong direction. The key is to keep going. Then once you get through the dip, you'll find a way out of it (and you'll be better off for it).
Taking simple ideas seriously requires thinking long term. It requires seeing the bigger picture and having faith in that vision. This faith will keep you committed through the inevitable dips that come your way.
This could be your art, your career, the movie you're trying to sell, whatever. If you give up on this idea before you realize it, well, you'll never realize it!
It seems so obvious, even stupid, yet this is still the common trajectory for most people. Most people quit far too soon. And they get drawn into shiny object syndrome by whatever new thing comes around.
Heed Munger's advice and take a simple idea very seriously. Focus on this foundational idea and commit to the long run. You'll always win if you do that.