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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Charlie Munger’s investment rules

Posted by Muthu on February 3, 2011

My interview has appeared in an article in the current issue (February’11- page No. 12 & 13) of Gokulam Kadhir that has hit the stands yesterday.

My wife was amused to see my photo along with that of world leaders. Well this is the only place where I can share space with them! Otherwise I’ve to take a cue from parrot astrologers and build an album with the help of technology. Wouldn’t it be nice if I’ve a photo in office reflecting a serious discussion with President Obama?

The current market scenario all the more convinces me the efficacy of investing in equities through SIP.

When market touched 21000 points during Diwali, people were predicting that it would touch 25000 points by this month or next. Now the same people have singing the tune that it would go below 15000. Well forecasters, the market may prove you again wrong.

Interestingly couple of days ago the central statistical organization has upped our GDP growth rate for the current year.

I’m glad that I’m not in the unenviable and meaningless job of predicting the markets daily. I would prefer many other jobs over the same.

Having long term perspective definitely helps to ignore short term noises completely.

I don’t tell something which I myself don’t follow or believe in. I’m glad that this conviction helps in our clients mapping their investments to their long term goals.

Short term interest rates are very attractive. People who do not have need for liquidity for a year or more may consider investing in Fixed Maturity Plans (FMPs). However please note that unlike their previous avatar, FMPs now do not offer any exit option before the date of redemption, should not provide indicative yield and proposed portfolio. If you are fine with this, given the tax advantage, then FMPs are worth considering for investments of 1 to 2 year period.

About investing in gold, we’ve written in the past and explained to our clients in person, what our views are. There is no change to that.

One mutual fund house is bringing in from this month the concept of investing in gold. I’m not talking about gold ETFs but an open ended fund. The NAV would track the price of the gold. One may go for either lumpsum or SIP in gold. The investor would have all the benefits of owning gold minus wastages and charges that come with physical possession.

Unlike ETF, here you would not need a demat account and associated charges (broking, DP and transaction charges) for owning gold in e-form. Like your other mutual fund investments, the fund house would keep it in demat form and would issue an account statement from time to time.

If the effort by this fund house draws good response, other fund houses may also come with a similar product sooner or later.

Charlie Munger is not new to you. You may know him from our previous postings. He is the vice-chairman of Berkshire Hathaway, the investment vehicle of Warren Buffett.

Here are Munger’s investment rules.

1)     Measure risk- All investments evaluations should begin by measuring risk, especially reputational.

2)     Be independent– Only in fairy tales are emperors told they’re naked.

3)     Prepare ahead – The only way to win is to work, work, work and hope to have a few insights.

4)     Have intellectual humility – Acknowledging what you don’t know is the dawning of wisdom.

5)     Analyze rigorously – Use effective checklists to minimize errors and omissions.

6)     Allocate assets wisely – Proper allocation of capital is an investor’s no.1 job.

7)     Have patience – Resist the natural human bias to act.

8)     Be decisive – When proper circumstances present themselves, act with decisiveness and conviction.

9)     Be ready for change – Accept unremovable complexity.

10) Stay focused – Keep it simple and remember what you set out to do.

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