Charlie Munger follows an investment philosophy to make money in the stock market.
He shared these rules in his book Poor Charles’s Almanack.
You can also call these rules as Good Habits as he follows them for every investment he makes.
Charlie Munger created these rules to restrict errors of omission which could drastically worsen your portfolio performance.
These rules are 10 in number and constitute his sound investment strategy.
Rule # 1 – Measure Risk
All investment evaluations should begin by measuring risk, especially reputational.
Rule # 2 – Be Independent
Only in fairy tales are emperors told they’re naked.
Rule # 3 – Prepare Ahead
The only way to win is to work, work, work, and hope to have a few insights.
Rule # 4 – Have Intellectual Humility
Acknowledging what you don’t know is the dawning of wisdom.
Rule # 5 – Analyze Rigorously
Use effective checklists to minimize errors and omissions.
Rule # 6 – Allocate Assets Wisely
Proper allocation of capital is an investor’s No. 1 job.
Rule # 7 – Have Patience
Resist the natural human bias to act.
Rule # 8 – Be Decisive
When proper circumstances present themselves, act with decisiveness and conviction.
Rule # 9 – Be Ready For Change
Accept unremovable complexity.
Rule # 10 – Stay Focused
Keep it simple and remember what you set out to do.
Don’t forget to read Charlie’s book.
It’s a must read for all those who are aspiring to become a Value Investor.
You need a different checklist and different mental models for different companies. I can never make it easy by saying, ‘Here are three things.’ You have to derive it yourself to ingrain it in your head for the rest of your life.