What crypto traders can learn from Charlie Munger — even if he hated BTC

Legendary investor and billionaire Charlie Munger has died at the age of 99.

Munger’s family informed Berkshire that “he passed away peacefully this morning in a California hospital.” according to Company announcement released on November 28th.

Munger, who has served as vice chairman of Buffett’s empire since 1978, has amassed a net worth of $2.6 billion and is often praised for employing sound investing and stock-picking philosophies during his tenure at Berkshire Hathaway.

Although Bitcoin and cryptocurrencies are not favored investments by Munger and Buffett, who have called Bitcoin (BTC) “rat poison” and “rat poison squared,” crypto traders can still learn from Munger’s 60-year Benefit from the knowledge gained through investing experience. Here are some of the investing methods Munger espouses:

Only invest in what you know

Munger said Berkshire Hathaway typically places stocks into one of three baskets when evaluating potential investments.

“Our investments fall into three baskets: yes, no, and too difficult to understand.”

The latter may explain why Munger and Buffett have never invested in Bitcoin and cryptocurrencies, but the point is that they avoid investing in something they don’t know.

Buffett has previously admitted that he and Munger – both considered tech skeptics – were “too stupid to realize” the potential of Amazon’s e-commerce business in the 1990s and underestimated the company’s founder, Jack Jeff Bezos.

Berkshire also has no investments in Microsoft or Google. “We screwed up,” Monger once said. reflect About the company’s decision not to invest in Google.

Nonetheless, Berkshire stuck to industries it was familiar with, such as banking and food and beverage, and made huge profits through investments in Bank of America, American Express, Coca-Cola and, later, Apple, which it decided not to invest in. inside.

Charlie Monger’s secret to success is simple and perfect:

– Expenses are less than income
– Invest prudently
– Avoid toxic people and toxic activities
– Delayed gratification
– Never stop learning pic.twitter.com/8IiJNngsdg

— John LeFevre (@JohnLeFevre) November 28, 2023

Munger and Buffett have also mastered the art of valuation by asking about a company’s balance sheet before making investment decisions, which Munger has said is the only smart way to invest.

“All smart investing is value investing (…) You have to value the business in order to value the stock.”

While blockchains and protocols typically cannot be valued through discounted cash flow models or other traditional methods, a wealth of insights can be gained from on-chain data—from daily active user counts and transaction volumes to total value locked (relative to (in market capitalization) and net inflows and outflows, etc.

The greater factor in investment success is temperament, not IQ

Munger has never been one to jump headfirst into new trends, preferring to maintain a more conservative approach to investing.

He has said before that many “highly intelligent” people are bad investors because they have bad tempers. “Great investors”, on the other hand, act cautiously and thoughtfully:

“Great investors are always very careful. They think things through. They take their time. They’re calm. They don’t rush. They don’t get excited. They just go after the facts, and then they find value. That’s what we try to do. matter.”

“You need to control raw irrational emotions,” Monger said in another comment.

related: Charlie Munger says Bitcoin is a ‘disgusting’ product that ‘appeared out of thin air’

Munger, who has been involved in the investment field for more than 60 years, said patience is also very important when accumulating wealth.

“The big money is not made by buying or selling, but by waiting.”

Build belief and dampen volatility

Munger has seen Berkshire’s portfolio decline several times over the decades, such as the 1987 Black Monday crash, the 2007-2008 financial crisis and, more recently, the COVID-19 pandemic.

He once emphasized that long-term investors must learn to stick to their investments when adverse macroeconomic conditions trigger market declines:

“If you’re not willing to react calmly to a 50% decline in market prices two or three times a century, then you’re not a fit to be a common stockholder and you deserve mediocre results.”

“There are periods where there’s a lot of pain and there’s other periods when there’s prosperity,” Munger said in another comment. “You just have to learn to live with them.”