Munger finished a bachelor’s degree before law school
He studied mathematics at the University of Michigan but left to serve in the war. Harvard Law admitted him without a bachelor’s degree, and he graduated in 1948 with honours
Famous Traders · Value
Charlie Munger
Charlie Munger / Buffett’s Partner and the Architect of Berkshire Hathaway
A lawyer without a bachelor’s degree who turned Warren Buffett from a hunter of cheap stocks into a buyer of wonderful businesses. He thought with models from many disciplines and liked to turn questions upside down to find ways to avoid mistakes. On this page you can try holding his fund through its heavy-loss years, see how a dream business like See’s makes money, and practise spotting the biases that lead to bad trades.
POOR CHARLIE’S · ALMANACKLatticework
CM- 1962Wheeler, Munger & Co.
- 1972See’s Candies $25 million
- 1978Berkshire vice chairman
INVERT, ALWAYS INVERTEST. 1924
Illustration: a latticework of mental models. No openly licensed photo was found
Born1924
Berkshire vice chairman1978–2023
Wheeler, Munger per year19.8%
Age99
Wheeler, Munger · 1962–197519.8%Compound annual return before the manager’s share, against about 5% a year for the Dow
1973–1974−53%Portfolio decline from peak after losses of 31.9% and 31.5% two years in a row
See’s Candies · 1972$25MPurchase price of a business that had earned about $1.35 billion in cumulative pre-tax profit by 2007
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ProfileQuick facts
NameCharles Thomas Munger
Born1 January 1924 in Omaha, Nebraska, the same city as Warren Buffett
EducationStudied mathematics at the University of Michigan and meteorology at Caltech during military service, and graduated from Harvard Law in 1948 with honours, despite having no bachelor’s degree
First careerA lawyer in Los Angeles who co-founded the law firm Munger, Tolles & Olson in 1962 and stopped practising law in 1965
FundWheeler, Munger & Co., 1962–1975, with a compound return of about 19.8% a year before the manager’s share, against about 5% for the Dow
PositionsVice chairman of Berkshire Hathaway 1978–2023, chairman of Wesco Financial 1984–2011, and chairman of Daily Journal 1977–2022
WorksThe speeches A Lesson on Elementary, Worldly Wisdom (1994) and The Psychology of Human Misjudgment (1995), collected in Poor Charlie’s Almanack (2005)
Died28 November 2023 in Santa Barbara, California, aged 99, about a month before his 100th birthday
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From Omaha to Los AngelesFrom a grocery store boy to the world’s most famous investing partner
Munger grew up in Omaha and worked at the Buffett family’s grocery store long before he actually met Warren decades later. He never finished his bachelor’s degree because of the war, but still got into Harvard Law and became a successful lawyer in Los Angeles
The 1950s were very hard for him, bringing a divorce and the loss of a son. After meeting Buffett in 1959 he gradually turned from law to investing. Tap each year to follow his journey
LIFE · ALMANACKMunger’s life calendar
1924 · Born on 1 January 1924 in Omaha. As a teenager he worked at Buffett & Son, the Buffett family’s grocery store, but did not yet know Warren, who was about six and a half years younger
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CASE FILE · 1965–1972From cigar butts to wonderful businesses
Buffett’s old approach
Buy ordinary businesses at very cheap prices
- Like picking up a cigar butt with one puff left: you profit only once
- You have to keep selling and finding new ones
- Bad businesses often get worse while you wait
What Munger argued for
Buy wonderful businesses at fair prices
- The business grows on its own with little extra capital
- You can hold for a long time and let profits compound
- See’s Candies in 1972 was the first clear test
In Berkshire’s 50th anniversary letter, Buffett said Munger persuaded him to change his approach, and called Berkshire built to Charlie’s blueprint, with himself as the general contractor (paraphrased)
Munger in a 2009 BBC interviewIf you can’t calmly accept a 50% fall in your stock, which can happen two or three times a century, you’re not fit to be a shareholder and deserve the mediocre result you’ll get
Paraphrased, not a direct quote
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Partnership ledgerLab: could you have held on to Munger’s fund?
The Wheeler, Munger fund beat the Dow by a mile over 14 years, but the ride was anything but smooth. The figures below are the real annual returns. Choose the year you start investing, and set a rule: if a year loses more than a certain amount, you can’t take it any more and move your money to the Dow instead
Annual returns (%)
100 from your starting year
Wheeler, MungerDowYour money
Your 100—
If you held the fund without selling—
If you held the Dow throughout—
Your deepest decline—
The fund’s annual returns before the manager’s share, and the Dow, from the table Buffett published in The Superinvestors of Graham-and-Doddsville (1984). Limited partners compounded about 13.7% a year after the manager’s share. Moving to the Dow is a lab assumption. Taxes and fees are excluded
What this means for traders
Even a good trading system has losing streaks. If your order size is so big you can’t stand it, you’ll abandon the system at the worst moment and miss the recovery. The right order size is one where you can still follow your rules even when the account falls hard
COST · COMPOUNDING
Costs you cut on every trade compound into a lump sum over time Trade gold, currencies or indices with XM through 1TRADER and get up to 90% of the IB commission on every lot
Open account ↗1TRADER is a partner (IB) and earns a commission when you open an account through our link · % is the share of IB commission returned to you · How to get rebates
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The dream businessLab: why was See’s a dream business?
In 1972 See’s made less than $5 million in pre-tax profit and used about $8 million of capital. Buffett and Munger paid $25 million, because the business could grow with almost no extra capital, so nearly all its profit could be sent elsewhere to reinvest. Compare it with businesses that need extra capital every time they grow
Final year profit (million)—
Cumulative profit (million)—
Extra capital (million)—
Cash available to reinvest—
A simple model: pre-tax profit grows at a constant rate each year, and the capital needed rises with the extra profit at a set ratio. Taxes and inflation are excluded. Real figures from Buffett’s 2007 letter: See’s made about $82 million pre-tax in 2007 and about $1.35 billion cumulatively since 1972, using only $32 million of extra capital, while an ordinary business earning $82 million would need about $400 million of capital
SPREAD · COSTDon’t let costs quietly eat your profitsTrade with XM through 1TRADER and get up to 90% of the IB commission on every lot
1TRADER is a partner (IB) and earns a commission when you open an account through our link · % is the share of IB commission returned to you · How to get rebates
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Lollapalooza scannerLab: catch the bias before it catches you
In 1995 Munger explained that smart people make bad decisions because of psychological tendencies everyone has, and when several tendencies act together, the effect is more extreme than expected. He called this Lollapalooza. Read each trading situation, then pick the biases you think are at work
Gold soaring in every group chat Gold has risen 5 days in a row. Every group chat talks only about gold, and friends post their profit screenshots every day. You have no order yet and feel you must rush in before it’s too late
Moving the stop loss EUR/USD runs against you. You’re down 80 pips, but you’ve already told your friends in the group it will definitely rise, so you move your stop loss further away, because you don’t want to close at a loss and still believe you read the market right
The volume bonusA promotion pays a bonus if you trade 50 lots this month. Near the end of the month you’re still 15 lots short, so you open orders more often, even though you haven’t seen a setup you like
The expert on TVA famous analyst says on a show that USD/JPY will go much higher. You buy immediately with a bigger size than usual, confident that this time it can’t go wrong
Which biases are at work? Pick as many as you like
You’ve picked 0 biases
The main biases in this situation—
INVERT · turn it upside down
The tendency names are shortened from the 25 tendencies in The Psychology of Human Misjudgment as printed in Poor Charlie’s Almanack. The situations are hypothetical examples. The answer is the most prominent set of biases, not the only possible answer
What this means for traders
Munger used a pilot’s-style checklist before big decisions. Traders can do the same. Before opening an order, ask yourself 3 questions: am I entering because others are? Am I trying to win back a loss? And if I’m wrong, where will I get out?
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Fact checkFact check: truth and stories passed along
Munger’s sayings and stories have been shared so widely that some have become distorted. We sort each one by the weight of the evidence
Munger changed Buffett’s investing approach
Buffett himself wrote in Berkshire’s 50th anniversary letter that Munger persuaded him to stop buying ordinary businesses cheaply and buy wonderful businesses at fair prices, and said Berkshire was built to Charlie’s blueprint
Munger’s fund never suffered big losses
It lost 31.9% and 31.5% two years in a row, a decline of about 53% from the peak, and did worse than the Dow in both years
Investors in the fund earned 19.8% a year
19.8% is the fund’s total return before the manager’s share. Limited partners compounded about 13.7% a year, still far above the Dow’s roughly 5%
Invert, always invert are Munger’s own words
Munger borrowed this advice from Carl Jacobi, a Prussian mathematician, and applied it to decisions, such as asking what would cause failure and then avoiding it
See’s was bought for far more than the capital the business used
They paid $25 million while the business used about $8 million of capital. Buffett wrote in 2007 that See’s had earned $1.35 billion in cumulative pre-tax profit using only $32 million of extra capital
Munger discovered BYD
Munger was the one who pushed Berkshire to invest, but Li Lu, founder of Himalaya Capital, introduced him to the company and its founder Wang Chuanfu
Shareholders must accept prices falling by half
In a 2009 BBC interview he said that if you can’t accept your stock falling 50% two or three times a century, you’re not fit to be a shareholder (paraphrased)
Every lot you trade with XM through 1TRADER earns cash back of up to 90% of the IB commission, lowering your costs over time
Open an account for cash back ↗1TRADER is a partner (IB) and earns a commission when you open an account through our link · % is the share of IB commission returned to you · How to get rebates
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LessonsLessons for Forex and gold traders
Your checklist
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Invert before you open an order
First ask what would blow up your account, such as excessive leverage, no stop loss or trading on emotion, then cut those out. Munger once said something like: all I want to know is where I’m going to die, so I’ll never go there
Wait for the right moment, then act decisively
Munger made his money from a few very good decisions, not frequent trading. Traders don’t need an order every day; a day with no setup is a day you don’t need to trade
Know your own biases
Before clicking to open an order, check whether you’re following others, unable to bear a loss, or trusting a famous name without thinking. If several apply at once, be extra careful
Prepare for losing stretches
Even Munger’s fund fell about 53% in 1973–74. Use an order size you can bear in bad times, or you’ll be forced out at the worst moment
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Quiz5-question quiz
Question 1 / 5
Since which year was Munger vice chairman of Berkshire Hathaway?
1978, and he held the role until his death in 2023
What does the latticework of mental models mean?
Such as mathematics, accounting, psychology and economics, so you don’t see every problem through a single tool
How much did Blue Chip Stamps pay for See’s Candies in 1972?
$25 million, while the business used about $8 million of capital
In 1973 and 1974, roughly how much did the Wheeler, Munger fund lose each year?
31.9% and 31.5%. The portfolio fell about 53% from its peak
Who did the advice Invert, always invert, which Munger loved to quote, come from?
A Prussian mathematician who advised solving hard problems by turning them upside down
0/5
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Invert, always invertStart by asking what would blow up your account
What you can apply from Munger is preventing big mistakes before thinking about profit, knowing your own biases, and keeping costs low. Here are tools on 1TRADER that can help
REBATE · 1TRADER
Trade like a pro: control your costs
Open an account through 1TRADER and get cash back on every lot you trade, lowering your spread and commission costs over time.
How to get rebates, step by step →Leveraged trading carries high risk. Study the broker’s terms and the risk disclosure before opening an account.
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Further readingFurther reading
- Poor Charlie’s AlmanackCharles T. Munger, edited by Peter D. Kaufman · 2005A collection of Munger’s key speeches, including the revised The Psychology of Human Misjudgment, which sets out 25 psychological tendencies
- Damn Right!Janet Lowe · 2000A biography of Munger, from his childhood in Omaha and his law career to his role at Berkshire Hathaway
Sources for this article
- Wikipedia: Charlie Munger
- CNN: Charlie Munger Fast Facts
- Motley Fool (1999): Charles Munger partnership vs. DJIA
- Wikipedia: The Superinvestors of Graham-and-Doddsville
- NBC News: Charlie Munger dies at 99
- Fortune: Munger, cigar butts and Berkshire
- NBC San Diego: Buffett’s tribute to Munger
- Wikipedia: See’s Candies
- Crossing Wall Street: Buffett on the Dream Business (2007 letter)
- Farnam Street: A Lesson on Elementary, Worldly Wisdom
- Novel Investor: Charlie Munger’s Tendencies of Human Misjudgment
- CnEVPost: BYD tribute to Charlie Munger
- Wikipedia: Wang Chuanfu (BYD and Li Lu)
- The Rational Walk: Charlie Munger on Booms and Busts
- Editor and Publisher: Munger steps down as Daily Journal chairman
- New Straits Times: Invert, always invert
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FAQFrequently asked questions
Who is Charlie Munger?
An American investor and lawyer (1924–2023), vice chairman of Berkshire Hathaway from 1978 until his death, and Warren Buffett’s partner, who persuaded Berkshire to buy wonderful businesses at fair prices
What is the latticework of mental models?
An idea Munger described in 1994: you should have the key thinking models from many disciplines, such as mathematics, accounting, physics, biology, psychology and economics, and use them together instead of seeing every problem through a single tool
What does Invert, always invert mean?
Advice Munger borrowed from the mathematician Carl Jacobi: solve hard problems by turning the question around. For example, instead of asking how to get rich, ask what would blow up your account, then avoid that
What is the Lollapalooza effect?
Munger’s term for situations where several psychological tendencies act together and reinforce each other, so the result is more extreme than the sum of each one alone, such as fear of missing out, following the crowd and envy in a hot market
How can Forex and gold traders use Munger’s ideas?
Use inversion to set rules that prevent heavy losses, run a bias checklist before opening an order, trade only setups you truly understand, and use an order size that can withstand a losing streak
Educational content, not investment advice. Return figures are publicly reported figures. The labs use models and hypothetical situations. · risk disclosure · Forex glossary