[Summary]
Charlie Munger's way of thinking is a way of thinking that makes decisions based on multiple knowledge models.
When Charlie Munger's thinking method is translated into practical examples, it becomes easier to see the difference between situations where it can be used and situations where it is difficult to use.
In actual investment, the starting point is to add psychology and accounting perspectives to investment decisions. However, you should be careful that it is easy to feel like you have learned difficult concepts.
In this article, I will organize Charlie Munger's thinking method not as "knowledge" but as a procedure to check before buying or selling. Don't rush to conclusions, read according to your financial amount and time horizon.
First, divide using Charlie Munger's way of thinking.
When we look at Charlie Munger's thinking method, we first separate out what we want to judge. The information you need will change depending on whether you want to know the meaning, confirm before buying or selling, or review your current holdings.
Especially for beginners in investing, the easier the words are, the more they tend to take them as a conclusion. Charlie Munger's way of thinking is not the only material for making decisions. If you want to check it, it is more realistic to look at it in conjunction with fund management, holding period, and opposing materials.
Thinking about Charlie Munger's way of thinking using practical examples
If we look at Charlie Munger's way of thinking as an example, we first make narrow assumptions. It is important not to mix up whether you are talking about the market as a whole, individual stocks, NISA or long-term funds.
If you check the following points, things will be much more organized.
| Axis to check | What to see with Charlie Munger's way of thinking |
|---|---|
| purpose | What do you use to judge? |
| Time axis | Which is closer to short-term trading, long-term holding, or NISA? |
| basis | Which one is more important: price, business performance, interest rates, exchange rates, or psychology? |
| risk | When things go the other way, where should you look again? |
| action | Will it lead to buying, selling, or doing nothing? |
Points that can easily cause trouble in making decisions
Charlie Munger's thinking method stumbles not only when you lack knowledge. In fact, there are situations where we interpret something conveniently because we know a little bit about it.
- Focus on one situation where Charlie Munger's thinking method works well.
- Even if the price movements are similar, if the background is different, they are treated as different things.
- View not only successes but also failures using the same criteria.
- Check if you can reproduce it with your own amount of funds
The important thing here is not to settle on a single correct answer based solely on Charlie Munger's way of thinking. In investment, the meaning of the same material changes depending on the market, holding period, and amount of funds. When in doubt, prioritize confirmation over conclusion.
Checklist before buying and selling
Before using Charlie Munger's way of thinking as a basis for actual judgment, please check at least these five points.
- Can you explain in one sentence the purpose of watching Charlie Munger's thinking method?
- Have you confirmed one or more countermeasures or failure conditions?
- Are you investing your living funds or money that will be used soon?
- Have you decided in advance the criteria for cutting losses, taking profits, and continuing to hold stocks?
- Are you making judgments based only on social media or short headlines?
Checklists are simple, but they prevent you from adding reasons after making a decision. The purpose of reviewing Charlie Munger's thinking method is not to act faster, but to reduce unnecessary mistakes in judgment.
Summary
Charlie Munger's way of thinking is a resource for organizing investment decisions. Even if you read it as an example, your judgment will be inaccurate if you treat it as a standalone buy/sell signal.
The points to keep in mind are as follows.
- Determine your purpose first by looking at Charlie Munger's way of thinking.
- Do not mix time axis and amount of funds
- Check not only good materials but also negative materials
- When using NISA and long-term funds, consider how to handle losses
- When in doubt, reduce your position or postpone it.
The more knowledge you have, the safer it seems, but in the market it can become dangerous if you use it incorrectly. Charlie Munger's thinking method should not be used to rush into judgment, but should be used as a tool to pause before buying or selling.