Munger and Aurelius: A Stoic Way of Investing
Charlie Munger (1924–2023 AD) — legendary investor, architect of Berkshire Hathaway’s business philosophy, and the man whom Warren Buffet referred to as his closest friend. While Buffet always seemed to gain the spotlight, it was Munger who, with his usual calmness and alertness, guided Berkshire to its present success.
On the other side is Marcus Aurelius (121–180 AD) — the last of the “Five Good Roman Emperors”, warrior who successfully fought against the Parthians and the Marcomannis, and the philosopher king credited for vitalizing Stoicism through his personal writings in Meditations.
After spending an unhealthy amount of time playing basketball and watching Champions League (go Barca!) highlights in the military, I thought it would be more rewarding to look into Munger’s investment philosophy which can be mined from his remarks in various shareholder meetings. Munger is a self-proclaimed Stoic, and I was curious what principles he condensed to navigate through the chaotic business world.
Keep it Simple
“Very little is needed to make a happy life; it is all within yourself, in your way of thinking.” — Meditations, Book VII, 67.
Stoicism teaches that one should focus on what is within their control and accept with equanimity what is not. This is summed up in the famous quote from Epictetus (50–135 AD), “the chief task in life is simply this: to identify and separate matters so that I can say clearly to myself which are externals not under my control, and which have to do with the choices I actually control.”
Clarity and simplicity are necessary in order to focus on what truly matters. Munger advocates for a similar approach by investing in businesses with understandable models and predictable outcomes. He avoids complex financial instruments and companies he does not understand thoroughly. A real life application is Berkshire’s investment in Coca-Cola, whom Munger marveled at its simple business model and branding, making it a core holding in his portfolio for many years.
Munger further exemplifies his belief in simplicity through his famous (or infamous) opposition to diversification. “One of the insane things that’s taught in modern university education is that a vast diversification is absolutely mandatory in investing in common stocks,” he remarked at the company’s annual meeting in May 2023. Diversification, he believed, is only made by ignorant investors. For a well-researched investor, a simple portfolio is adequate to weather the storms and gain enormous profit. For example, Munger claimed that he owns just 3 investments, viz. Costco, Berkshire, Li Lu’s investment partnership. In investing, as in life, the simplest solutions are often the most effective.
Know Your Limits
“You have power over your mind — not outside events. Realize this, and you will find strength.” — Meditations, Book IV, 3.
Marcus Aurelius stresses the importance of understanding one’s limitations and focusing on what one can control. This realization probably arose from his time fighting in the front line, where he had to face the harsh realities of warfare on a daily basis.
In investing, Munger emphasizes the concept of a “circle of competence”, urging investors to stay within their areas of expertise. He argues that straying beyond this circle can lead to disastrous outcomes. This is grounded in a deep understanding of businesses and industries, allowing one to assess risks more accurately and make informed decisions.
When I was reading through Munger’s shareholder meetings, what surprised me the most was Munger’s constant recognition of his limitations. When asked about the rise of tech companies and AI, Munger declined to comment. For a person of his caliber and knowledge, he inevitably has opinions concerning such topics. Yet by refusing to allow his relative ignorance to push him into making rash mistakes, he ultimately spared Berkshire from significant losses during the dot-com bubbles in the late 1990s.
The Essence of Value Investing
“Examine the principles which govern your every action. Strive to act in accordance with reason and virtue. Let these be your guides in all matters, including matters of wealth and fortune.” — Meditations, Book VII, 11.
Stoicism seeks to align one’s actions with reason and virtue; it believes people should aim to adjust their will (or volition, prohairesis) in accordance with nature. On a practical level, Aurelius emphasizes the importance of investing in oneself, that is, personal growth.
Munger believes that investors should adhere to principles of rationality, integrity, and ethical conduct when making financial decisions. For example, he likens momentum trading to gambling, going as far as to declare, “If I am a dictator, I will try to squeeze out the trading volume and stop this ongoing stupidity.” Profits made in the casino creates ephemeral wealth but not eternal value.
Instead, value investing focuses on the importance of adhering to sound principles and ethical standards. By looking at companies with strong fundamentals, transparent management, and honest management, value investors should build their wealth while upholding moral integrity. In addition, the value investor should always try to expand his knowledge. A voracious reader himself, Munger often attributed his success to continuous learning and curiosity. Such an attitude almost certainly guarantees personal growth and the ability to make informed decisions.
Investment philosophies are but extrapolations of our attitude towards life itself. A single philosophy can shower one with unprecedented prosperity as well as ruin another’s livelihood. In order to become a truly exceptional investor, one should always look into himself before identifying the principles his character most aligns with.
For Munger, Stoicism is a reflection of his character. This is because Stoicism offers a practical philosophy for living a fulfilling life, grounded in principles of virtue, self-awareness, and acceptance of the world as it is. Recognition of his strengths and flaws enabled Munger to develop a critique of the world and take on such an approach, supporting him throughout his career and personal life.
Of course, not everyone needs to follow suit. For example, Munger’s opposition to diversification is met with resistance from Ray Dalio, founder of Bridgewater Associates and an incredible philosopher himself, who emphasized the importance of scattering risks amidst the changing world order.
At the end of the day, the Stoic way of investing is an incredible amalgamation of ancient wisdom and modern finance. It arose from an in-depth analysis of oneself by two of history’s wisest and most introspective men. Not everyone has to be Charlie Munger, but the process of self-understanding can be performed by every one of us in the present world, right now.
