Pro Strategy: How to invest like Charlie Munger

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The whole approach was based on understanding the bipolar personality of "Mr Market". This embodiment of stock market sentiment sways between overly confident and fearful while the underlying company remains the same.

CHARLIE MUNGER'S 10-POINT INVESTING CHECKLIST

1. Risk: All investment evaluations should begin by measuring risk, especially reputational. Apply Benjamin Graham's "margins of safety" principles, insist on being compensated for the risk you take on, and avoid companies with questionable individuals.
2.  Independence: "Only in fairy tales are emperors told they are naked." To be objective you must have independent thoughts. Mimicking the herd will lead to no better than average performance.
3. Preparation: "The only way to win is to work, work, work, work, and hope to have a few insights." Learn to love learning and never stop asking 'why?'.
4. Intellectual humility: Acknowledging what you don't know is the dawning of wisdom. Stay within your "circle of competence", the area within which you have superior expertise, and find and reconcile evidence that goes against your thesis.
5. Analytic rigour: Use of the scientific method and effective checklists minimises errors and omissions. Separate value and price; assess progress, not just activity, and the wealth of a company, as distinct from its size.
6. Allocation: Proper allocation of capital is an investor's number one job. Focus on "opportunity cost", the alternative options for your cash. When a (rare) good opportunity comes along, bet heavily.
7. Patience: Resist the natural human bias to act. Do not take action for its own sake; this only adds unnecessary costs and interrupts the magic effects of compound interest.
8. Decisiveness: When proper circumstances present themselves, act with decisiveness and conviction. Best summed up by Mr Buffett's adage: "Be fearful when others are greedy and greedy when others are fearful."
9. Change: Live with change and accept unremovable complexity. Understand that the world moves on and be willing to adapt your "best-loved ideas".
10. Focus: Keep things simple and remember what you set out to do. Guard against hubris and boredom. Filter out the minutiae and focus on the obvious.