Buffett said investing is simple but not easy. Today we won’t talk about the “not easy” half—just the simple part. As long as you start from common sense and understand Charlie Munger’s sit-back investing method, you’ll see that investing really is very simple!
90% of people invest like this: they constantly open their phones, look at the market, look at candlestick charts, then sell this and buy that. I used to be like that too, busy all day. Tiring, yes—but the key thing is, I didn’t make much money either.
After reading Poor Charlie’s Almanack and learning about Munger’s sit-back investing method, I realized that my previous investing was pure blind busywork. Aside from using busyness to move myself, it amounted to nothing. Now my investing is much simpler: hold good companies, hold long term, buy when I have money, and do whatever I want when I don’t.
So what is the sit-back investing method? Munger’s original words: We prefer to put large amounts of capital somewhere where we won’t have to make further decisions. If you buy something because it is undervalued, then when its price rises to your expected level, you’ll consider selling it—that’s hard. But if you can buy a few great companies, then you can sit back comfortably, and that’s a very good thing.
Understand this passage well. If you don’t understand it for now, I suggest bookmarking it and reading it several more times later.
At this point you might ask: The sit-back investing method is simple, but what benefits does it have? In my view, mastering Munger’s sit-back investing method has four main benefits.
First, it saves money. You no longer buy and sell frequently as before, so each year you save a lot in commissions and stamp taxes—at least 2 points, sometimes 5 points. That’s not small. Look at current bank deposit rates and you’ll know. To calculate exactly how much you save, pull out your account statements from the past few years and do the math.
Second, it saves effort. Major investment decisions concerning your lifetime financial freedom only need to be made once or twice in a lifetime. For good companies you can understand, you must bet heavily. After that, you don’t need to make those insignificant small decisions anymore. In Buffett’s letters to shareholders, I remember he said that if something isn’t worth doing well, it’s not worth doing at all.
Third, it saves time. Because value investing requires very few decisions, the time saved can be used to do what you love. I personally enjoy studying value investing and spend the most time on it. I often read Buffett, Munger, and Duan Yongping, repeatedly. After reading, I write something. Through this, my understanding of what true investing is and how to achieve financial freedom has deepened.
Fourth, it saves worry. You don’t need to watch the market all day, so your heart rate won’t rise and fall with stock prices. You don’t compare yourself with others. They earn theirs, I earn mine. Contentment brings happiness, and naturally you eat well and sleep well every day.
The key to the sit-back investing method is to let your money flow to places where you no longer need to make decisions. Munger said that in a lifetime, a person only needs to find three good companies and hold them long term to become very rich. If possible, you might even hold only one company that you consider the best. Munger said this and did this—he put 90% of his net worth into Berkshire. A good company like Berkshire that is worth entrusting your whole life to—have you found one?