The world became a little less wise when legendary investor Charlie Munger passed away recently. By the time he reached 99 years old, Munger said some incredibly insightful things, making him a fan favorite for those who admire sound thinking, a contrarian view of the world, and a provocative way of expressing it.
Intellectually, Munger lived by one simple rule: “I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.” This made him a formidable foe in a debate and a great partner when making a complex decision, as Warren Buffett often attested.
Munger believed life was meant to be a game of everlasting learning, and he tried to make himself wiser every day. He had three rules for a career: “1) Don’t sell anything you wouldn’t buy yourself; 2) Don’t work for anyone you don’t respect and admire; 3) Work only with people you enjoy.” Pretty sound advice.
When it came to taking risks, Munger advised people to think like a player in a pari-mutuel game, where those who have bet on the winners of a race share in the total amount wagered. Good gamblers in a pari-mutuel not only pick a winner, but look for those with an advantage others have ignored or disregarded. That way, the winning bet pays an enormous upside.
Munger became wealthy by finding investments that fit that profile. With the odds in your favor, you should take more risks, according to Munger. But when you have a distinct advantage that others don’t see in the marketplace of ideas, then you should get aggressive and “load up.”
Taking a big risk is never a light decision. By definition, a risk is a chance with both a great upside and downside. But by looking for distinct advantages others haven’t realized yet, a bigger risk can be a wickedly smart call. That’s a risk you can’t afford to miss.
