When you think of investing, it's easy to get bogged down by technical jargon and complex theories. However, the late Charlie Munger, Warren Buffett's longtime partner, had a knack for cutting through the noise with straightforward advice.
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In a 2005 interview, Munger said something that sticks: "A lot of people with high IQs are terrible investors because they've got terrible temperaments. And that is why we say that having a certain kind of temperament is more important than brains." So, while intelligence is great, how you handle stress and setbacks might matter even more.
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Munger and Buffett are known for their no-nonsense approach to investing, which shows in their thoughts on managing businesses and investing wisely. Buffett's style of business management is pretty laid-back. According to Munger, "Warren's way of managing businesses does not take a lot of time. I would bet that something like half of our business operations have never had the foot of Warren Buffett in them." This reflects a broader truth: sometimes less is more, especially when it comes to micromanaging.
Their approach isn't just about keeping things simple for simplicity's sake; it's about effectiveness. Munger emphasizes the importance of a broad understanding across disciplines. He says, "It's very useful to grasp all the big ideas in hard and soft science. A, it gives perspective. B, it gives a way for you to organize and file away experience in your head." This multidisciplinary knowledge helps make better decisions in investing and business management.
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However, regarding actual investing, Munger and Buffett have strong opinions about how many stocks you need. They're not fans of over-diversification. Buffett has famously said, "Three great businesses will be better than 100 average ones." This means that finding and sticking with a few exceptional investments can often be more rewarding than spreading your money too thin.
Munger adds to this by critiquing modern investment theories. He calls out the flaws in "Modern Portfolio Theory," stating, "You cannot believe this stuff ... It will tell you how to do average." To him, true investing success doesn't come from following every theory but from understanding what makes businesses great and sticking to that knowledge.
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If you're looking to navigate the investment world, consider taking a page from Buffett and Munger's playbook: focus on a few high-quality investments, manage them wisely, and remember that temperament can be more crucial than raw intelligence. It's not about having all the answers but about handling the ups and downs with a steady hand.
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This article Charlie Munger Claimed 'People With High IQs Are Terrible Investors' – According to Him, This Trait Is More Important Than 'Brains' originally appeared on Benzinga.com
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