We’re going over five Charlie Munger quotes that will make you a better investor. Charlie was the longtime partner of Warren Buffett before he passed last month at the ripe young age of 99. Together at their company Berkshire Hathaway, they amassed one of the best track records of all time, compounding at an absurd 19.8% from 1965 through 2022, compared to 9.9% for the S&P 500 over the same time period.

5 Quotes From Charlie Munger

I'm going to give you five quotes from Charlie Munger that summarize his investment philosophy and make sure to stick around until the end, because I'm also going to go over what Munger describes as one of the biggest mistakes he ever made.

Let's get into it with the first quote.

"The big money is not in the buying or the selling, but in the waiting."

You could argue that waiting was Munger's greatest investing superpower. Waiting to let compound interest do the work.

I said that Berkshire Hathaway grew at 19.8% per year for the 58 years from 1965 to 2022. If you had invested $10,000 in 1965 and grew that at 19.8% per year, do you know how much you'd have after five years? You'd have nearly $25,000.

Now that's a great return, but would anybody know Buffett or Munger's name if they had simply tripled their money over five years? Of course not.

But do you know how much that $10,000 would be worth in 2022 after 58 years? $355 million. Isn't that crazy?

Munger says the ability to wait is more important than the buy or sell decision.

On to our second quote.

"It is occasionally possible for a tortoise content to assimilate proven insights of his best predecessors to outrun hares that seek originality or don't wish to be left out of some crowd folly that ignores the best work of the past. This happens as the tortoise stumbles on some particularly effective way to apply the best previous work or simply avoids the standard calamities. We try more to profit from always remembering the obvious than from grasping the esoteric. It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid instead of trying to be very intelligent.”

In America, we celebrate innovation and disruption. So it's easy to let that mindset guide our investment decisions." Munger, though, says his secret in investing has basically been the opposite.

Rather than coming up with a new investment strategy or buying companies developing new innovative technology, he focused on avoiding the big mistakes. Or as he more eloquently puts it, being consistently not stupid.

That's not to say that every investing decision Munger ever made was a good one, as we'll find out at the end of this video, but he managed risk so that when he did make a mistake, it didn't blow up the entire portfolio.

Let's look at the next quote.

"If you think your IQ is 160 but it's 150, you're a disaster. It's much better to have a 130 IQ and think it's 120."

This quote highlights the importance of humility in making investment decisions. A humble investor knows they don't know everything. They're open to learning, they question their assumptions, and they consider the other side before they make an investment, which overall typically leads to better investment decisions.

Overconfidence can get you into trouble. I'm going to cheat now and throw in another related Munger quote here because I think it's so good.

"There is no such thing as a 100% sure thing when investing. Thus the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero. Don't count on getting rich twice."

Again, this speaks to the power of humility in your investment decisions. If you use a lot of leverage in your investments, you only need to be slightly wrong one time to completely blow up your portfolio.

On to the next quote.

"The idea of caring that someone is making money faster than you are is one of the deadly sins. Envy is a really stupid sin because it's the only one you could never possibly have any fun at. There's a lot of pain and no fun. Why would you want to get on that trolley?"

I love that. Envy is the only deadly sin you could never possibly have any fun at. And yet if we're honest, I think it's present in all of us.

Asset bubbles are born out of envy. We see everyone else seemingly getting rich on something and we don't want to miss out.

It was dot-com stocks in the late 90s, real estate in 2007 and 2008, and then meme stocks the last few years.

Being able to curb that FOMO and sit on the sidelines for these bubbles is essential for the long-term investor.

Berkshire Hathaway's best years over the past few decades have come from avoiding those bubbles and then reaping the benefits when they eventually pop.

And our fifth quote.

"A lot of people with high IQs are terrible investors because they've got terrible temperaments. And that is why we say that having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success."

In many ways, this is a summary of the other quotes we've already gone over.

People with high IQs are more prone to overconfidence. They think they know something with certainty, but there is no certainty in investing.

Having a temperament of patience allows compound interest to do the work for you. Having a temperament to sit through the inevitable market downturns when the world is seemingly ending helps you to avoid the big mistake of selling before the recovery. And that mistake is what plagues so many individual investors.

Charlie Munger’s Biggest Mistake

All right, so Munger has an amazing track record as we've already talked about, but he has made some mistakes. And he had this to say earlier this year,

"I regard Alibaba as one of the biggest mistakes I ever made. In thinking about Alibaba, I got charmed by their position in the Chinese internet and didn't stop to realize they're still a retailer."

So what happened with Alibaba? Well, by Munger's own admission, he was valuing it as an internet business where the economics would be more favorable as opposed to a retailer, which is typically going to have tighter margins.

What's interesting is Munger also used leverage in the purchase of Alibaba because he felt the opportunity was "so ridiculously good." So even Munger can run afoul of his own advice sometimes, which should be encouraging news for us average investors.

You know what else is pretty much guaranteed to lower the returns of long-term investors? Taxes. But there's a way you can use a health savings account to invest completely tax-free and avoid that tax drag on your portfolio. If you haven't already, make sure you check out my video on using the HSA as a tax-free investing vehicle next.