An Investing Principles Checklist - From Charles t. Munger

“No wise pilot, no matter how great his talent and experience, fails to use his checklist.“






  •  Risk – All investment evaluations should begin by measuring risk, especially reputational

o   Incorporate and appropriate margin of safety

o   Avoid dealing with people of questionable character

o   Insist upon proper compensations for risk assumed

o   Always beware of inflation and interest rate exposure

o   Avoid big mistakes; shun permanent capital loss


  •   Independences – “Only in fairy tales are emperors told they are naked”

o   Objectivity and rationally require independence of thought

o   Remember that just because other people agree or disagree with you doesn’t make you right or wrong – the only thing that matters is the correctness of you analysis and judgement

o   Mimicking the herd invites regression to the mean (merely average performance)


  •   Preparation – “The only way to win is to work, work, work, work , and hope to have a few insights”

o   Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day

o   More important than the will to win is the will to prepare

o   Develop fluency in mental models from the major academic disciplines

o   If you want to get smart, the question you have to keep is asking is “why, why, why?”


  • Intellectual humility – Acknowledging what you don’t know is the dawning of wisdom

o   Stay within a well-defined circle of competence

o   Identify and reconcile disconfirming evidence

o   Resist the craving for false precision, false certainty, etc.

o   Above all, never fool yourself, and remember that you are the easier person to fool


  •   Analytical rigor – Use of the scientific method an checklists minimize errors and omissions

o   Determine value apart from price; progress apart from activity; wealth apart from size

o   It is better to remember the obvious than to grasp the esoteric

o   Be a business analyst, not a market, macroeconomics or security analyst

o   Consider totality of risk and effect; look always at potential second order and higher level effects

o   Think forward and backwards – Invert, always invert


  • Proper allocation of capital is an investor’s number one job

o   Remember that highest and best use is always measured by the next best use (opportunity costs)

o   Good ideas are rare –when the odds are greatly in your favour, bet (allocate) heavily

o   Don’t fall in love with an investment – be situation-dependent and opportunity driven


  •  Patience – Resist the natural human bias to act

o   “Compound interest is the eighth wonder of the world “ (Einstein); never interrupt it unnecessarily

o   Avoid unnecessary transactional taxes and frictional costs; never take action for its own sake

o   Be alert for the arrival of luck

o   Enjoy the process along with proceeds, because the process is where you life


  •   Decisiveness- When proper circumstances present themselves, act with decisiveness and conviction

o   Be fearful when others are greedy, and greedy when others are fearful

o   Opportunity does not come often, so seize it when it does

o   Opportunity meeting the prepared mind: that’s the game


  • Change – Life with change and accept unremovable complexity

o   Recognize and adapt to the true nature of the world around you; don’t expect it to adapt to you

o   Continually challenge and willingly amend your “best-loved-ideas”

o   Recognize reality even when you don’t like it – especially when you don’t like


  • Focus – Keep things simple and remember what you set out to do

o   Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat

o   Guard against the effects of hubris and boredom

o   Don’t overlook the obvious by downing in minutiae

o   Be careful to exclude unneeded information or slop: “A small leak can sink a great ship”

o   Face your big troubles don’t sweep them under the rig


In the end it comes down to Charlie’s most basic guiding principles, his fundamental philosophy of life: Preparation. Discipline. Patience. Decisiveness. Each attribute is in turn lost without the other, but together they form the dynamic critical mass for a cascading positive effects for which Munger is famous (the “lollapalooza”).



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