Charlie Munger addressed shareholders and shared some lessons on wealth creation at the Daily Journal Corporation’s annual meeting in Los Angeles in February 2020.

The talk spanned a variety of topics, from wealth creation to victim-mentality, to how to stay motivated. You can find a full overview of his speech and Q&A session here.

Since attending the talk, I’ve dived back into the transcript and pulled out 5 lessons on wealth creation from Charlie Munger’s annual address.

5 lessons on Wealth Creation From Charlie Munger:

Wealth Creation Lesson #1: 99% of people will always be in the bottom 99%.

Munger was asked a question from an undergraduate student about the best way for someone to expose themselves to the business world and maximize their value to a corporation in the future.

Here’s his response:

There’s so many of you now who want to be rich by going into finance. And of course, that multitude is not going to all get rich.

99 percent will be in the bottom 99 percent.

I think you’ll be happier if you reduce your expectations than if you try and satisfy them.

This is probably not the answer this particular person wanted to hear, but it is reality. 99 percent of those who try to reach the top one percent of wealth will fail. Put another way, there will always be someone making more money than you.

How do you deal with this reality? Lower your expectations.

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Wealth Creation Lesson #2: If you want to get rich, be patient and rational.

Here’s Munger on the success of those from his generation:

I look at the people in my generation who were the nerds who were patient and rational, eventually did well, who lived within their income and worked at being sensible and when they saw an opportunity, grabbed it pretty fiercely…

And I think that’ll work for the new nerds of the world.

There’s no short-cut to wealth creation. Being patient, rational, and enjoying the ride is the key to a life well-lived. And when you see an opportunity? Grab it fiercely.

Wealth Creation Lesson #3: No one can teach you how to get lucky.

Munger was asked how he stays motivated at the age of 96. Here’s his answer:

Well, maybe I’ve been lucky. I like what I do. I have wonderful partners and friends. I have a nice family. My problems are interesting to me. I have been a very fortunate man.

Photo by Michał Parzuchowski on Unsplash

And I don’t know how to make everybody else lucky.

Well, I could have had a different hand and been some miserable alcoholic throwing up in the gutter.

I don’t think I deserve any great credit for having stumbled into a reasonable amount of felicity.

I do think that trying to be rational helped.

There’s no formula for luck. Though, Munger highly advises in his speech, The Psychology of Human Misjudgment, that you avoid addiction at all costs. That will at least likely save you from being an alcoholic in the street…

Wealth Creation Lesson #4: You don’t have to be smart. Just stay sane.

Here’s Munger on how he and his partners found success in business:

Part of the reason that some of the companies that I’ve been affiliated with have been successful…

It’s not that we’re so smart, it’s that we stayed sane.

Because a lot of what goes on is absolutely nuts. And we all see it in politics of course. It’s even sillier than it is in business.

Although sometimes we businessmen try and get into our share of the stupidity.

This boils down to keeping your head when everyone else is going crazy. If you can do that, you can get rich.

Wealth Creation Lesson #5: Find where you have an advantage over other people, and play in that arena.

Here’s Munger on only taking bets where he thinks he has an advantage:

I want to think about things where I have an advantage over other people. I don’t want to play a game where the other people have an advantage over me.

So if you have a pharmaceutical company and you’re trying to guess what new drug is going to be invented, I’ve got no advantage. Other people are better at that than I am.

So I don’t play in a game where the other people are wise and I’m stupid. I look for a place where I’m wise and they’re stupid.

And believe me, it works better.

Find your circle of competence and make bets squarely within it. In other words, when you have the advantage, fill up the truck.

There you have it - 5 Lessons on Wealth Creation From Charlie Munger.

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