PHUN AND THE DEATH OF CHARLIE MUNGER

 It's Phun With Photos Thursday, and we will be updating this page throughout the day, so check back frequently. 

First up, is it just us or does the new speaker of the House remind you of anyone we know? 

The death of Charlie Munger. 

Those of you who are Gen Z (including those who wear black robes at work) probably do not know who Charlie Munger was. He passed away this week at the age of 99. He was someone we had the good fortune to meet a few times, and we followed his philosophy and here are his five rules for success. 

1. Know Your Stuff\

Munger often referred to this basic concept as staying within your own 'circle of competence' and focusing investment decisions on industries and companies that you can truly understand.

"You have to figure out what your own aptitudes are. If you play games where other people have the aptitudes and you don’t, you’re going to lose," Munger said. "And that’s as close to certain as any prediction that you can make. You have to figure out where you’ve got an edge. And you’ve got to play within your own circle of competence."

2. Who gains? (Que Bono)

Understanding incentives, Munger often said, is a key tenant in the investment canon that can provide a clearer understanding as to why management makes certain decisions and how they can guide future outcome. 

"Show me the incentive, and I will show you the outcome," Munger famously said. "The basic rule of incentives is that you get what you were rewarded for. If you have a dumb incentive system, you get dumb outcomes."

3. Be Safe

Befitting a man who, despite his vast wealth, lived simply and well, Munger adopted the value investing theory, first advanced by American economist Benjamin Graham, of a margin of safety.

Munger understood that undervalued stocks can always get cheaper, and thus opted to instead by securities that trade well below their inherent value in order to provide a cushion to unexpected losses. 

“In engineering, people have a big margin of safety. But in the financial world, people don’t give a damn about safety," Munger said. "When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000 pound trucks across it. And the same idea works in investing.”

4. See the edge

Munger, like Buffett, has always favored investment in companies with a so-called 'competitive moat', or a protective layer against their rivals. Companies with 'moats' that isolate their competitive advantages, such as Apple's services divisions that ties its hardware to recurring revenues in the broader eco system, hold tremendous value, Munger argues. 

“We buy barriers. Building them is tough. Our great brands aren’t anything we’ve created. We’ve bought them," Munger said in 2012. "If you’re buying something at a huge discount to its replacement value and it is hard to replace, you have a big advantage. One competitor is enough to ruin a business running on small margins.”

5. The power of compound interest

A basic, but often underrated investment principal, compound interest gains formed much of the underlying success of Munger's decades long career in finance.

Dovetailing with each of the four previous theories, reinvesting gains from good, competitive and predictable companies over the long term can add exponential growth even the most modest portfolio. 

(Robe wearers Nota Bene of this last piece of advice): 

"Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts," Munger said. "But you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day, and at the end of the day – if you live long enough – most people get what they deserve.”

Wall Street, and the world, has lost a great man.