Charlie Munger’s 5 golden investment formulas, which transformed Warren Buffett from a millionaire to a billionaire, are equally effective even today.

New Delhi. Charlie Munger’s name is taken in the world of investment in the same way as Chanakya’s name is taken in the world of strategy. Munger, Warren Buffett’s closest associate and the real architect of Berkshire Hathaway’s unprecedented success, completely changed the thinking of Buffett himself. The investment principles of Munger, who left the world on 28 November 2023 at the age of 99, are still like a Bible for millions of investors.

1. If you don’t understand, don’t touch it – avoid greed

The first and most important principle of Munger was that you should invest money only in those businesses which you understand well. Even if the whole world is crazy about a stock, if you don’t understand its business model then stay away from it. Munger used to divide investments into three categories – yes, no and very difficult. He always left things that were ‘too difficult’ immediately.

2. Think upside down – recognize your mistakes, success will come on its own

Munger insisted on thinking backwards to solve problems. His advice was not to think about how to become rich, but think about what mistakes can make me poor. The person who recognizes his mistakes and removes them, success comes to him automatically.

3. Waiting is the real investment – ​​the magic of compounding

According to Munger, the real money of investment is not in buying or selling shares but in waiting patiently. The biggest mistake is to overreact to daily market fluctuations. Once you choose a great company, stick with it for years because the magic of compounding works only when you give it time.

4. Buy a great company, not a cheap one – this is what changed Buffett’s fortunes

This was the advice that changed the fortunes of Berkshire Hathaway. Munger helped Buffett break the habit of buying cheap companies and said that it is better to buy a great company at a fair price than to buy an ordinary company at a great price. Munger gave preference to companies that had brand value or an impenetrable fort like a patent.

5. Not just economics—read psychology and history too

Munger did not consider investing as just a game of numbers. He used to take investment decisions by combining psychology, history, physics and mathematics. He said that to someone who has only a hammer, every problem looks like a nail. Therefore, the more you expand the scope of your knowledge, the better you will be able to understand the market.