5 Charlie Munger Investing Lessons Every Value Investor Should Live By

If you know me, you know Charlie Munger has been one of my greatest investing idols. I’ve got his bust sitting right on my desk. The man was 99 years old when he passed, with a net worth of around $2.7 billion—not because he chased risk, but because he mastered the fundamentals and stayed rational when most people lost their minds.

Now, Charlie was often known as Warren Buffett’s right-hand man, but I’d argue he was a titan in his own right. His investing wisdom is foundational to the Rule #1 philosophy, and today I want to walk you through five of Charlie Munger’s most powerful investing rules. These principles helped him—and all of us who follow them—build long-term wealth while staying sane through market storms.

Inversion — Think Backwards to Make Smarter Decisions

One of the first lessons I learned from Charlie was the power of inversion. Most people ask, “How can I succeed?” Charlie asked, “How can I fail?” and then worked backward to avoid that outcome.

He explained this beautifully in a story about his time as a weather forecaster for pilots. Instead of asking how to do the job well, he asked himself, “How could I get these pilots killed?” A dark question, but it led him to identify the two biggest threats: icing and fuel exhaustion. Avoiding those meant keeping people alive. Simple. Rational. Effective.

That’s the exact mindset we take into Rule #1 Investing. Instead of starting with “How do I make a killing in the market?” we ask, “How could I lose everything?” and then we build systems to avoid those mistakes. It’s why Buffett’s two famous rules are:

1. Don’t lose money.

2. Never forget rule #1.

If you obsess over not screwing up, the wins will take care of themselves.

Stay Calm — Why Great Investors Don’t Panic

Charlie was a master of temperament. He didn’t flinch when the markets dropped. And trust me, they dropped hard—Berkshire Hathaway stock declined by 50% three times during his tenure. Did he panic? Not even a little.

He once said, “If you’re not willing to react with equanimity to a market price decline of 50%, two or three times a century, you’re not fit to be a common shareholder.”

Let that sink in.

That level of calm is what separates great investors from average ones. Most people panic during market dips. They lose sleep, question their decisions, and often sell at the worst time. But those drops? We welcome them. They’re when we find companies on sale.

This philosophy is rooted in Kipling’s poem If, which Charlie loved. “Treat those two impostors just the same,” it says—referring to success and failure. We don’t celebrate bull markets or cry in bear markets. We prepare for both. We train ourselves to stay emotionally even. Because volatility isn’t our enemy—it’s our edge.

Humility — Know What You Don’t Know

Charlie wasn’t polite in the traditional sense—he once refused to take a picture with me after I published a New York Times bestselling book. But he was humble in the deepest sense. He knew exactly where his knowledge ended—and refused to go past that line.

He called it knowing your circle of competence, and it’s one of the most important rules in investing.

Warren once said, “I’d rather deal with a guy with an IQ of 130 who thinks it’s 125 than a guy with an IQ of 180 who thinks it’s 200. That second guy will kill you.”

Being honest about what you don’t know is a competitive advantage. It keeps you from making bets on things you don’t understand. It keeps you safe.

When we teach Rule #1 Investing, we emphasize this constantly: if you don’t understand the business, you don’t buy it. Period. You don’t guess. You don’t gamble. You wait until it’s clear.

That’s humility in action.

Circle of Competence — Stay in Your Investing Lane

Here’s a scenario. Let’s say you buy a stock based on a hot tip. The next day, it drops 20%. What do you do? Do you buy more? Do you panic and sell?

The truth is—if you don’t fully understand that business, you won’t have the foggiest idea what to do. And that is exactly the kind of confusion Rule #1 investors avoid.

Charlie made it crystal clear: only invest in businesses you understand deeply. Stay in your circle of competence. When you do, you’ll be able to make rational decisions no matter what the market throws at you.

That’s why our ideal companies are often incredibly simple. We love businesses that are so clear and so good that, as Charlie said, “an idiot could run it.” And even better if a great CEO is at the helm.

Great Businesses — Buy Companies That Thrive Without Perfection

Charlie had a line I’ll never forget: “We want to buy something that an idiot could run—and then we want a wonderful person to run it.”

The truth is, the best businesses don’t rely on perfection. They have systems, pricing power, loyal customers, and wide economic moats. They can survive a bad quarter or even bad leadership for a while. That’s what we look for in Rule #1 investing.

Warren once said he’d choose a great business over a great person. And that’s because a great business has built-in durability. A bad business, on the other hand, can collapse from a single mistake.

When I look for companies to invest in, I look for this exact strength: resilience. Simplicity. Repeatable cash flow. And most importantly, a margin of safety.

Final Thoughts — Munger’s Legacy and Rule #1 Application

Charlie Munger didn’t build his wealth by being flashy or chasing trends. He did it by being rational, humble, calm, and precise. He avoided mistakes. He stayed within his circle. He bought wonderful companies at fair prices—and he held on.

That’s what we teach at Rule #1. That’s how I invest. That’s how you can invest, too.

If you want to dive deeper into these strategies, come to our next Rule #1 Investing Workshop. I’d love to walk you through everything we teach—from understanding a business to calculating its value to building your confidence as a long-term investor.

We’ve helped over 25,000 people learn this stuff, and we’ve got the NPS scores to back it up—higher than Harvard’s MBA program. This workshop could be the best decision you ever make for your financial future.