2 weeks Ago By Proiti Seal Acharya
In early 2009, when the financial crisis was still wreaking havoc, former Vice Chairman of Berkshire Hathaway Inc. BRK BRK and former Chairman of Daily Journal Corporation, Charlie Munger , made an unusual choice that differentiated him from most investors. While panic spread across global markets and stocks were being sold unthinkingly, Munger silently funnelled 71% of the Daily Journal Corporation's cash into suffering financial institutions, particularly Bank of America Corp.
BAC and Wells Fargo & Co. WFC . This turned out to be a masterstroke.
By 2013, the value of those investments had increased three-fold, significantly boosting the company's worth. Using Mental Models, Not Market Predictions: Munger didn't depend on forecasts or gut instinct, Chris Franco noted in the CMQ Investing newsletter. Instead, he pursued a structured way of thinking that he called a “latticework of mental models.
” Three main models grounded his investment choices: the Circle of Competence (only invest in businesses you understand in-depth), the Margin of Safety (buy at a price so low that even if things go sideways, there is still upside), and Opportunity Cost (allocate capital only when the potential return is better than any other option available). These models created a strong, rational foundation for action when others were unsure of how to negotiate with uncertainty. Understanding the Psychology of a Market Collapse: Munger's success was rooted in his thorough understanding of human psychology.
He consciously made sure not to fall into mental traps like Social Proof (following the crowd), Loss Aversion (being afraid of losses more than valuing gains), and Availability Bias (giving undue importance to recent traumatic events like the 2008 collapse). He was not influenced by falling prices or sensational headlines. Instead, he gauged intrinsic value and based his thinking on facts, not fear.
See Also: Charlie Munger Once Said Warren Buffett Is A ‘Learning Machine’ And That’s What Lies Beneath Berkshire Hathaway’s Success From One Decade To Another Why Munger's Strategy Still Matters Munger's strategy reminds us of age-old lessons: think for yourself, invest only when you understand the business, and leverage the fear-driven mispricing when it occurs. Munger's 2009 trade remains an extraordinary example of how long-term planning and emotional regulation can generate incredible outcomes. Berkshire's Cash Strategy Echoes Munger's Playbook Warren Buffett's record cash pile at Berkshire Hathaway is an example of Charlie Munger's 2009 approach in action—wait for fear to drive value.
Armando Gonzalez, founder of AI-powered research platform Bigdata.com told Fortune that Buffett's moves demonstrate clear foresight: selling $134 billion in equities and building a $334.2 billion cash pile in expectation of market turmoil.
Like Munger, Buffett is deploying patience as a strategic edge that will give him an advantage over others. Gonzalez observed that Buffett is not chasing rebounds or attempting to time the bottom—he's waiting for real bargains to appear, where the risk-reward balance tips conclusively in his favor. Read Next: Charlie Munger Says Investors Who Can’t Handle Market Volatility ‘Deserve the Mediocre Result’ Photo Courtesy: Kent Sievers on Shutterstock.
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