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Investing in a Crisis: 5 Tips From Charlie Munger

The vice-chairman of Berkshire Hathaway and Warren Buffett (Trades, Portfolio)'s right-hand man, Charlie Munger (Trades, Portfolio), is a highly accomplished investor in his own right. Munger's investment activities might not attract as much attention as those of Buffett, but that does not mean that his strategy is any less successful.


Indeed, while Buffett is busy running Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), Munger has adopted a more sedate approach. Doing nothing is a big part of his investment strategy.

Munger has been investing, in one way or another, for more than six decades, which means he has almost unrivaled experience as a long term investor. As such, his views on investing for the long term and riding out market volatility are highly valuable.

With that in mind, here are five tips from Munger on how to invest in uncertain times.

Investing in uncertain times


"You must force yourself to consider opposing arguments. Especially when they challenge your best-loved ideas."



The world is always changing, shifting and developing. As a result, there's no guarantee a business (or investing) strategy that worked 10 years ago will work today. With this being the case, Munger believes that it is vital to continually re-evaluate and break down your investment ideas to see if they're still valid. Learning the other side of the argument is just part of this strategy.


"Rapid destruction of your ideas when the time is right is one of the most valuable qualities you can acquire. You must force yourself to consider arguments on the other side."



The world is changing rapidly. To stay on top of these changes, investors need to consider all arguments. We can't just stick our heads in the sand.


"Our experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime."



Investors should always be prepared to act quickly and with conviction. However, this does not mean that you should ever rush into a situation. Just because something looks cheap does not necessarily mean that it is. There will always be opportunities for investors. Waiting for the right one is essential. Acting before you're ready can be costly and detrimental to wealth over the long-run.


"Life, in part, is like a poker game, wherein you have to learn to quit sometimes when holding a much-loved hand--you must learn to handle mistakes and new facts that change the odds."



Admitting when you're wrong and selling an investment is just as important as waiting for the right opportunity. It is never too late to exit a losing position. You can recover from a 90% loss, but not a loss of 100%.

Investors need to be able to quit, sell a holding and move on when the facts change. Ignoring the facts and hoping things work out for the best is a disastrous investment strategy.


"Sit on your a**. You're paying less to brokers, you're listening to less nonsense, and if it works, the tax system gives you an extra one, two, or three percentage points per annum."



Munger is a strong advocate of doing nothing. Since he closed up his investment partnership in the mid-1970s, the billionaire investor has only reportedly made a handful of trades. He believes it's better to ignore the rest of the market and trade as infrequently as possible.

Not only will investors benefit through lower commission charges using this approach, but their tax bills will also be lower.

Disclosure: The author owns shares in Berkshire Hathaway.

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This article first appeared on GuruFocus.