Warren Buffett and Charlie Munger
Most investors who have done any reading have heard of Warren Buffett. However, his business partner is an interesting man as well. Charlie Munger is a billionaire investor, businessman, and philanthropist. He is vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett; Buffett has described Munger as his closest partner and right-hand man. (Wikipedia)
It is wise to seek the advice of someone who knows how to invest and who has a track record for successful investing. If someone purports to be an adviser, but doesn’t have personal success in their own investments, you would do well to question their advice. When it comes to investing, King Solomon suggests that you be on the lookout for danger. “The prudent sees danger and hides himself, but the simple go on and suffer for it.” Proverbs 22:3
What You Don’t Know
Far too many investors buy based on the recommendation of a broker or investment adviser. They do this without asking tough questions. If an adviser cannot give answers to tough questions, then perhaps they don’t know what they are talking about. If you don’t know what questions to ask, then I believe you are not ready to invest. It is better to learn before doing, than to rush in to buy investments based on the latest hot tip. Charlie Munger wisely suggests that “Knowing what you don’t know is more useful than being brilliant.” Perhaps you should start making a list of the things you want to know before you make an investment. I never buy an investment without asking at least five questions.
Rear View Mirrors
Do I always make the right investing decisions? No one does. If you were always successful with every decision, you would be a better investor than Warren or Charlie. You would be on CNN, Fox Business, and would be the most sought-after speaker at investor conferences.
When I am driving our Ford Escape, I am constantly checking my rearview mirror. There are a couple of reasons for this, but one is that what might be coming from behind will inform my decisions as I am moving forward, changing lanes, or slowing for an exit. It is often easier to make decisions about my next move using the rearview mirror than by looking through the windshield. Knowing “what came before” and learning from those things can be very beneficial for the individual investor.
You cannot predict the future, but you can gain insights about what might be true in the future my looking at the past. Warren has a humorous way of saying this: “In the business world, the rearview mirror is always clearer than the windshield.” – Warren Buffett. Learn before you invest. Learning, however, requires selecting sources and then some prudent application of what you learn.
Smart is one way to communicate “intelligent” or “informed and knowledgeable.” But is it possible to be “smart” and make terrible decisions? Yes, it is. When it comes to investing, you want knowledge, understanding and wisdom. Knowledge is gaining truthful facts. This includes truthful facts about a fund, a stock, or a bond. Understanding is seeing how those facts relate to your investment criteria. Understanding helps you determine your buy, sell, and hold rules. Wisdom is the work you do day-by-day, year-after-year to stick to the principles you say you believe.
Part of wisdom is recognizing your continuing lack of knowledge and wisdom. There is nothing more dangerous than thinking you are the smartest person in the room. Once again, consider Solomon’s words in Proverbs 9:9 “Give instruction to a wise man, and he will be still wiser; teach a righteous man, and he will increase in learning.”
Far too many investors are crazy drivers. They are constantly hitting their investment gas pedal (what is this called in an electric car?) and then hitting their investment brakes. This suggests that they don’t have a clear vision of where they are going and have not considered their past mistakes. Don’t join their ranks. You will certainly make a mess if you do.
All scripture passages are from the English Standard Version except as otherwise noted.