What you can learn from Charlie Munger, even if he hates bitcoin

What you can learn from Charlie Munger, even if he hates bitcoin

Legendary investor and billionaire Charlie Munger, known as Warren Buffet’s right-hand man who helped build the powerful investment company Berkshire Hathaway, has died at the age of 99.

Munger’s family informed Berkshire “that he passed away peacefully this morning at a hospital in California,” according to a company announcement on November 28.

Munger, who has served as vice president of Buffett’s empire since 1978, has amassed a net worth of $2.6 billion and is often praised for adopting a sound investment and stock-picking philosophy throughout his time at Berkshire.

Although Bitcoin and cryptocurrencies are not favored investments by Munger and Buffet, who once referred to bitcoin (BTC) as “rat poison” and “rat poison squared,” cryptocurrency traders can still benefit from Munger’s lessons from his 60 years of investing experience. . Here are some investment strategies that Munger advocates:

Only invest in what you know

Munger said Berkshire Hathaway often categorizes stocks into one of three baskets when evaluating a potential investment.

“We have three baskets to invest: yes, no and difficult to understand.”

The latter may explain why Munger and Buffet never invested in Bitcoin and cryptocurrencies, but the important message is that they avoid investing in what they don’t know.

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Buffett previously admitted that he and Munger, both considered technology skeptics, were “too dumb to realize” the potential of Amazon’s e-commerce business in the 1990s and underestimated the company’s founder, Jeff Bezos.

Berkshire also does not invest in Microsoft or Google. “We blew it,” Munger once said, referring to the company’s decision not to invest in Google.

Despite this, Berkshire has stuck to sectors it knows well, such as banking and food and beverage, reaping huge profits from investments in Bank of America, American Express, Coca-Cola Co and, later, Apple. this.

Munger and Buffet also mastered the art of valuation by examining a company’s balance sheet before making an investment decision, which Munger once said was the only good way to invest.

“Every smart investment is a value investment (…) You have to value the business to value the stock.”

Although blockchains and protocols are generally not valued using a discounted cash flow model or other traditional methods, many insights can be gained from on-chain data, from the volume of the day -day active users and transaction volumes up to the total amount locked (relative to market capitalization) and net inflows and outflows, to name a few.

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Temperament, not IQ, is a more important factor in investment success

Munger is not one to jump ahead of a new trend, preferring to stay on the more conservative side of investing.

He once said that many “high IQ” people are bad investors because they have bad habits. “Many investors”, on the other hand, proceed with caution and think things through:

“Great investors are always cautious. They think things through. They take their time. They’re calm. They don’t rush. They don’t get excited. They just follow the facts, and they know the value. . And that’s what we’re trying to do.” .

“You have to guard against raw irrational emotions,” Munger said in another comment.

Having been in the investment space for more than 60 years, Munger says patience is also important when building wealth.

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“Big money is not in buying or selling, but in waiting.”

Building conviction and enduring change

Munger has seen Berkshire’s investment portfolio fall several times over the decades, such as the Black Monday crash in 1987, the financial crisis in 2007-2008 and most recently, the COVID-19 pandemic.

He once emphasized that long-term investors must learn to support their investments when adverse macroeconomic conditions cause the market to decline:

“If you are not prepared to react with fairness to a 50% drop in the market price two or three times in a century, you are not qualified to be a common shareholder and you deserve mediocrity that result you get.”

“There are times when there’s a lot of pain and other times when there’s a boom,” Munger said in another comment. “You just have to learn to live through them.”

Munger was born on January 1, 1924, which means he died 34 days before his 100th birthday.

“Berkshire Hathaway would not have reached its current position without Charlie’s inspiration, wisdom and involvement,” Buffett said in a statement.