Thursday, February 14, 2008

* Charlie Munger's 10 Rules for Investment Success

Charlie Munger, Warren Buffett's friend and partner, is quite an investor in his own right. A recent Motley Fool article "Charlie Munger's 10 Rules for Investment Success" details Munger's 10-step investment checklist from his book Poor Charlie's Almanac. Here are the steps:

  1. Measure risk: All investment evaluations should begin by measuring risk, especially reputational.
  2. Be independent: Only in fairy tales are emperors told they're naked.
  3. Prepare ahead: The only way to win is to work, work, work, and hope to have a few insights.
  4. Have intellectual humility: Acknowledging what you don't know is the dawning of wisdom.
  5. Analyze rigorously: Use effective checklists to minimize errors and omissions.
  6. Allocate assets wisely: Proper allocation of capital is an investor's No. 1 job.
  7. Have patience: Resist the natural human bias to act.
  8. Be decisive: When proper circumstances present themselves, act with decisiveness and conviction.
  9. Be ready for change: Accept unremovable complexity.
  10. Stay focused: Keep it simple and remember what you set out to do.
I am sure each of us can relate to one or more of these. I am particularly drawn to #3 and #5, but #8 is tops with me. I am driven to find that jewel in the rough that was missed by the herd. You can't beat the head by following it!

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