Charlie Munger
AP
Charlie Munger is best known as the second-in-command behind Warren Buffett at Berkshire Hathaway (BRK.A)(BRK.B). He's also a world-class billionaire investor in his own right, capable of similar market-trouncing results as Buffett himself.

As a successful investor and all around nice guy, Munger often shares his investing wisdom with those who care to listen. Paying attention to what he says and acting upon his best advice should help you make yourself financially comfortable -- maybe even rich.

With that in mind, here are some of his most pertinent words of wisdom for those who want to invest.

1. The No-Brainer Secret to Getting Rich

If you're looking to do more with your money than just stick it in a CD or savings account, perhaps the most important Munger quote of all time is this one:

"Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer."


Because you need to spend less than you earn in order to properly invest, and because investing defers your ability to spend money from today to sometime in the future, even lousy investing beats not investing at all.

Following Munger's advice throughout your career is just about the closest thing you'll find to a guaranteed way for you to wind up financially comfortable during your retirement.

2. The Key Financial Lesson for Those Not Yet Able to Invest

For those not yet able to regularly sock away cash for their futures, Munger has these words of wisdom:

"Once you get into debt, it's hell to get out. Don't let credit card debt carry over. You can't get ahead paying 18 percent."


Once again, Munger is absolutely correct. He and his partner Buffett may be among a handful of investors in the world with a legitimate chance of outrunning credit card debt with investment earnings. We mere mortals don't have a prayer.

The long-run returns from investing in stocks is somewhere around the 8 percent to 10 percent annualized range -- and even that isn't guaranteed. When compared to the 13 percent or more interest rates that typical credit cards charge, the importance of always paying off that credit card bill -- and the futility of trying to beat that rate investing -- becomes abundantly clear.
The most important instructions for those who do invest

Finally, for those who are ready to invest, Munger has two critically important pieces of advice. The first:

"The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash-flow than you are paying for. Move only when you have an advantage."


And Munger's second key piece of investing advice:

"There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn't awash in cash -- and I don't want to go back."


Taken together, they form the foundation of the value-investing strategy that made Munger and his partner Buffett two of the richest people on the planet. In essence, Munger's advice boils down to:
  • Figure out why a company has a right to win (its staying quality/competitive advantage)
  • Determine what that company is worth (the discounted future cash flow)
  • Pay less than that amount to buy it, and
  • It's a better idea to hold on to cash than to invest your money poorly.
It's a pretty straightforward strategy, but it's the one that made Munger the billionaire he is today.

These Words of Wisdom Work in Good Times and Bad

Those straightforward bits of timeless advice from Charlie Munger contain the keys that will let anyone able to follow them throughout a career wind up comfortable, if not downright rich. Yet while his advice can work wonders, life does have a way of throwing us curve balls. Jobs get lost, health is not always with us, cars get wrecked, and roofs leak.

Don't let those curve balls dissuade you: Following Munger's advice gets you in a better position to hit them when they come flying past. For instance, it's a lot easier to deal with the costs of a wrecked car if you've got a pile of cash awaiting investment than if you're already in a hole from carrying credit card debt.

Even if you're not yet ready to invest, structuring your financial life around Munger's advice can set you up for success once you're able to get started.

Chuck Saletta is a Motley Fool contributing writer. For investing ideas, try any of our newsletter services free for 30 days.

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18 Comments

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James Shaffer

The top 5 investing and financial planning recommendations that work for just about everyone:
1. Invest in low cost funds like Vanguard Index Funds.

2.. Get rid of financial advisors who do not bring you any value. The 1% a year they cost adds up to enormous sums over a lifetime.

3. Do what Suzey Orman recommends and trade in expensive whole life policies for Term life. Mine from LifeAnt costs $19 a month and I can sleep at night knowing my family is secure if anything happens to me. (you need life insurance if you don't have any).

4. Diversify across equity classes, and between equity and fixed income funds of different average terms. Match your allocations to your age and risk profile, 70/30 equities/bonds is a good starting point for most people.

5. Don't be afraid of alternative investments, a small business for instance, or real estate partnerships. There is a trap in thinking that our choices are so limited when there are many other options.

June 03 2014 at 2:21 PM Report abuse rate up rate down Reply
Sophia Anne Walker

"Once you get into debt, it's hell to get out. Don't let credit card debt carry over. You can't get ahead paying 18 percent." This is one of the best advice I have heard. Thank you.

Sophia
http://www.startupbusinessloans.com/research/

July 24 2013 at 11:50 AM Report abuse rate up rate down Reply
jakki051

I'm going to enjoy my life and help others along the way! It you got money like these Billionaires, then you are like the rich man! You haven't done enough of helping others! I bet they don't take a dime away from here when they die!

May 30 2013 at 6:30 PM Report abuse -1 rate up rate down Reply
2 replies to jakki051's comment
analyst0042

Sure....if you need money you will go on welfare.....get unemployment....Yes, you have nothing to worry about slacker!

May 30 2013 at 8:31 PM Report abuse -1 rate up rate down Reply
cowboys

I understand what you are trying to say. Nobody needs millions of dollars. Save enough to spoil yourself every once in a while, maybe give yourself a much deserved vacation every now and again, but excess is just that-excess. You don't take any of it with you.

May 31 2013 at 11:22 AM Report abuse +1 rate up rate down Reply
jakki051

SAVE, SAVE, SAVE!!! Who the hell am I saving for? It will be like my 50+ years of social security! When time comes for me to get it, the lie they tell me is it won't be any! Hell, I'm going to spend mine because when I die, hell the world will go through it like water!! I'm tired of saving and when I want to withdraw they tell me it aint none. How the hell can they reduce my social security by the amount I have elsewhere. It's like having a savings in two separate banks and one bank says you can't withdraw any of your savings because you have savings in another bank! !@&%$#

May 30 2013 at 6:27 PM Report abuse -1 rate up rate down Reply
1 reply to jakki051's comment
analyst0042

You just figured it out that you are not Alice in Wonderland. Grow up..you should have been aware of this by the time you were 20.

May 30 2013 at 8:33 PM Report abuse +1 rate up rate down Reply
Evalynn Nyman

I have lesss than 50,000. dollars in stocks and need to raise more money to help
with my health expenses. My stock advisor hasn't helped with new ideas for several years. Please can you help me gain instead of loose in this econemony???

May 30 2013 at 2:06 PM Report abuse +1 rate up rate down Reply
1 reply to Evalynn Nyman's comment
analyst0042

You should have been saving since you started working for this rainy day. Go broke and go on Medicaid....there is your solution.

May 30 2013 at 8:34 PM Report abuse -1 rate up rate down Reply
gway1958

How do you ever make enough money to ever have enough left over to invest...republicans want to make sure the keep all the money for themselves...yes I know Warren is a DEM

May 30 2013 at 10:52 AM Report abuse -2 rate up rate down Reply
1 reply to gway1958's comment
greedydiver

And Democrats want all the hard working Americans to support the people who are to lazy to get jobs or think they are to good to work companies like Mcdonalds,

May 30 2013 at 1:57 PM Report abuse -2 rate up rate down Reply
lejn42

Where do you get the idea that there were five pieces of advice. I only counted two.

May 30 2013 at 10:26 AM Report abuse +1 rate up rate down Reply
1 reply to lejn42's comment
gway1958

Thank goodness...I thought I forgot how to count for a minute

May 30 2013 at 10:51 AM Report abuse +1 rate up rate down Reply
chain.link1

Money tip number 1

"When you do insider trading, assume a sweet grandfather image and the SEC will not question your trades." Warren Buffett

May 30 2013 at 9:31 AM Report abuse +1 rate up rate down Reply
2 replies to chain.link1's comment
socioeconomist1

"I will only invest in American Companies".... Warren Buffet prior to investing abroad.

May 30 2013 at 9:34 AM Report abuse +3 rate up rate down Reply
1 reply to socioeconomist1's comment
Tom

I think that Obama had learned a lie or two from him

May 30 2013 at 5:19 PM Report abuse rate up rate down
nani

yeah, and whatever did happen to that silly ol' libor "scandal" where all those banks admitted to rate fixing?......

May 31 2013 at 11:40 PM Report abuse rate up rate down Reply
socioeconomist1

It will take someone informed to get this joke....

Here are some more tips for the common worker:

1. Don't buy car insurance from GEICO, go to Progressive instead.
2. Get your Ice cream at McDonald's and pay 1/4 of what you would at Dairy Queen.
3. Justin Boots are overpriced, instead wear an off brand since all Cowboy boots look the same.
4. Never buy life insurance, use that money to invest like Warren does with what people pay him for life insurance.
5. Do not drink Coca-Cola... Not only is it very bad for you, but tap water is a lot cheaper and less addictive.

May 30 2013 at 9:21 AM Report abuse +1 rate up rate down Reply
1 reply to socioeconomist1's comment
socioeconomist1

I forgot the most money saving tip of all....

When you go on vacation with your friends... get free transportation by hopping a BNSF freight train like your great grandparents used to do to get around the country. If you think it is dangerous, so is parachuting and mountain climbing, consider it an adventure !!

May 30 2013 at 9:33 AM Report abuse +1 rate up rate down Reply
alfredschrader

On paper the technology I own makes me worth many, many times more than what these gentlemen . But, for example, Steve Jobs was very wealthy, only he is dead, so is Gordon Getty another billionaire that died miserably. The most valuable substance there is, is not gold, diamonds, silver, platinum, emerald, or ruby. It's a gray substance contained inside your skull, given to you by God. Used wisely, it yields more than wealth.

May 30 2013 at 6:14 AM Report abuse +1 rate up rate down Reply
1 reply to alfredschrader's comment
socioeconomist1

paraphrased:

"Even though Alfred here works for money, he claims that money is of no interest to him since he is a total loser"

Every loser on the planet says the same thing.... yet they all work for money and always try to find the best paying jobs for what they do....

May 30 2013 at 9:23 AM Report abuse rate up rate down Reply