Insights + News + Advice

Insights + News + Advice


Charlie Munger’s timeless lessons for investors

The investing world lost one of its most influential voices this November with the passing of Charlie Munger. Long known as the sidekick to his famous investment partner Warren Buffett at holding company Berkshire Hathaway, Munger was a legend in his own right, providing sharp-witted but straightforward commentary on how the stock market works.

Munger was one of the early advocates of behavioral finance as a guide to sound decision-making, and many of the principles he followed inform our approach at Leelyn Smith. Buffett and Munger, for example, were pioneers of moat investing, one of the seven investment pillars that guide us in managing client portfolios. Buffett is credited with using the word “moat” to describe a company’s structural and sustainable competitive advantages, a term he has mentioned many times in Berkshire Hathaway’s annual letters to shareholders.[1]

We believe Munger’s views on money and investing are applicable to all of our clients, and we wanted to share four principles in particular that have a major influence on our investment approach.

In investing, it’s OK to do nothing.

The stock market moves up and down every day as buyers and sellers come to agreements on what a publicly traded company is worth. Sometimes, those movements are dramatic, causing investors to panic and sell when prices drop or buy more shares as a stock zooms higher. Rather than react, Charlie Munger preached patience, cautioning investors not to panic when markets plunge or become overly optimistic when they surge. Rather, Munger emphasized the value of waiting for the right opportunity to purchase a high-quality company at an attractive price.

Volatility isn’t risk.

Risk in the stock market is commonly accepted as the degree of price swings in a security, also known as volatility. Academic research has developed the concept of the efficient frontier[2]—the optimal allocation of stocks, bonds, and other investments that should allow investors to maximize their return for a given level of risk. Much of the investment sales and marketing industry has been built on the premise that you want to avoid downside risk (falling prices) at all costs.

Munger thought about risk differently. When stock prices went down, he viewed that as an opportunity and explained that investors should be happy to be able to buy good businesses at attractive prices. Unless a stock runs the risk of suffering a total loss, investors should look forward to market corrections as buying opportunities. If a company’s fundamentals don’t change, price swings in their stock should not be considered a risk. Buffett summed it up this way: “We attempt to be fearful when others are greedy and greedy when others are fearful.”[3]

Risks do exist in capital markets, such as a company defaulting on its debt obligations, going bankrupt, or losing a leader to a competitor or another business venture. At Leelyn Smith, we seek to manage these risks in several ways. We favor quality companies by owning moat funds and diversifying across hundreds of stocks as well as multiple asset classes. This allows us to weather price volatility and remain ready to act on attractive buying opportunities when they are available. 

Markets are good, but they aren’t perfect.

Stock and bond markets do a pretty good job of reflecting all publicly available information in the prices of securities. But Munger emphasized that markets are made up of people, and while the crowd is usually right, that isn’t always the case. People are fallible, and the same biases that impact everyday decision-making also play a role in how people invest.

Through his voracious reading and decades of experience as a money manager and business owner, Munger came to realize that investing is largely psychological. He sought to use that to his advantage in two ways: (1) he acknowledged the powerful role emotions play in investing and sought to limit their influence on his decisions, and (2) he recognized when those biases were causing the market to be inefficient and viewed those periods of price dislocation as chances to scoop up beaten-down gems.

While Munger played the role of amateur psychologist to Buffett and other investors, the field of behavioral finance has evolved over the years into a true discipline. Leelyn Smith recognizes that emotions are among the greatest risks facing investors, and we acknowledge this as a specific pillar of our investment strategy.

No good investor is either “value” or “growth”.

Perhaps Munger’s greatest advice to Buffett was convincing him to evolve from a deep value investor committed to always investing at rock-bottom prices into one who placed a premium on a company’s fundamentals. As Buffett explained, “This ended my pursuit of `cigar-butt’ investments—mediocre companies at ‘bargain’ prices—and set me in pursuit of splendid businesses selling at [reasonable] prices.”[4] While Munger and Buffett have had plenty of success investing in value companies going through difficult periods, they have also found success in buying and holding blue-chip growth companies.

The point is that all good investment strategies work some of the time, but none work all the time. As we have seen in the last two years, value and growth investment styles tend to thrive at different times. 2022 was the year of a value rebound as inflation and interest rates soared, benefiting companies whose valuations didn’t have far to fall. This past year has seen the resurgence of growth, boosted by enthusiasm over artificial intelligence and optimism that interest rates may have peaked. Since both value and growth have proven successful, our view like Charlie’s is why not use them both?

Putting it all together.

We admire Charlie Munger and seek to emulate him through our investing principles. We recognize that true diversification comes from multiple angles, and we apply this premise by allocating our clients’ capital across not only companies, sectors, and asset classes, but also investment strategies. If we get these allocation decisions right and keep emotions in check, our clients are not only well-positioned to participate in the economic growth and wealth creation provided by long-term investment in the stock market, but they also should benefit from a more pleasant and less anxiety-provoking investment experience.

To learn more about Leelyn Smith’s investing principles, please see our “Confidence Driven by Conviction” e-book or contact your Leelyn Smith advisor.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

[1] History of moats: From ancient castles to modern markets (

[2] Efficient Frontier: What It Is and How Investors Use It (

[3] Berkshire Hathaway Annual Letter to Shareholders, 1986.

[4] “Charlie Munger, Warren Buffett’s Partner and `Abominable No-Man’ Dies at 99,” Wall Street Journal, November 28, 2023.

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