Charlie Munger has a system that flips things on their head in a way that makes complete sense. He refers to it as inversion, and when combined with avoidance, it works wonders.

For example, instead of studying successful people in the hopes of also being successful, study what it takes to be unsuccessful and do the opposite. You may never be a huge success, but your chance of total failure decreases dramatically. And by studying unsuccessful people, you avoid any problems of confusing success with the role luck played in some people’s lives.

Munger explains his system like this:

My system in life is to figure out what’s really stupid and then avoid it.

Last week I finished transcribing the Daily Journal Meeting held a few weeks back. Examples of Munger’s system of inversion and avoidance run throughout, which are highlighted below, along with a couple of other important lessons that stood out. Continue Reading…

I watched Charlie Munger’s at the Daily Journal Annual Meeting. As usual, Munger doesn’t pull any punches. One piece from Munger’s opening statement stuck out because it fits with a book I finally started reading called Concentrated Investing.

I think it’s safe to say that broad allocation strategies are not only the accepted norm but anything not in a broadly diversified wrapper is looked down upon these days. Which is both good and bad. Good because most people are better off broadly diversified, earning market returns. Bad because doing anything not seen as popular might turn the few people off who could actually handle a concentrated strategy.

What exactly are they handling? Well, the more concentrated the portfolio, the more volatile it’s likely to be compared to average market volatility and the more likely (and more often) it deviates positively or negatively from a market return. The combination of those two — the potential to underperform the market and higher volatility — is why a broadly diversified option is best for most people but also so enticing for anyone who can stomach the wilder ride.

Munger prefers an extremely concentrated, no turnover portfolio focused on a few huge opportunities. Huge opportunities like that require a lot more dedication, intelligence, and luck than most expect. However, you don’t need Munger’s big brain to come up with a simple process of identifying smaller opportunities that pop up more often. The right temperament and a higher turnover rate than zero are all that’s needed.

Here’s what Munger had to say: Continue Reading…