SmallChange

Billionaire's advice on how to get rich

Read extensively, grasp core concepts across varied disciplines, and do not stop learning

They say that money makes the world go round.

Just about everyone thinks about money. In fact, the idea of getting rich is one subject that is guaranteed to grab plenty of attention.

Not that accumulating lots of money is a bad thing. Money makes things happen and gives us the freedom to pursue our passions and spend our time engaged in activities we find satisfying.

It also gives us the choice to switch to a job which may be less financially lucrative but more fulfilling intellectually and spiritually.

One way to make more money, aside from earning a big fat salary, is to work the savings which we have already accumulated a lot harder to get a better return.


ST PHOTOS: CHNG CHOON HIONG

But that tends to involve taking risks by investing it in, say, the stock market, where if we are not careful, we may blow whatever little savings we have so painstakingly built up on a bad investment.

Mr Charlie Munger, the right-hand man of legendary investment guru Warren Buffett and a billionaire in his own right, will tell you that the secret to Mr Buffett's success is to spend at least half of his waking hours "just sitting on his ass and reading" and he - Mr Munger - does the same.

Thus, there are people who are on a constant lookout for insights on how to achieve that elusive edge to get a better investment return without taking on a bigger risk.

Some people with these matters on their minds would turn up at my talks asking me pointed questions on what lies ahead in the stock market and how they can profit from it. I hate to have to disappoint them by telling them that I don't know. In fact, nobody does.

But to me, that should not be the end of the story. Rather, it should mark the start of a fruitful journey that begins with the question of how a person can invest successfully in a world crammed full of uncertainties.

Many investors adopt a blinkered approach to their investments. Some rely on hot stock tips from friends or colleagues. Others have hunches about what is happening in the stock market and try to make an educated guess on what to invest, based on these hunches.

But the world's best investors do not become successful by relying on making the right predictions on their stock picks. Rather, it is about following the right principles.

Just ask Mr Charlie Munger, the right-hand man of legendary investment guru Warren Buffett and a billionaire in his own right.

He will tell you that the secret to Mr Buffett's success is to spend at least half of his waking hours "just sitting on his ass and reading" and he - Mr Munger - does the same.

Mr Munger believes that in order to succeed in investment and in life, we must grow our "elementary worldly wisdom". To do that, we must read a lot in order to understand the core principles from many disciplines such as mathematics, accounting, history, economics and psychology.

By learning the most useful concepts across a wide spread of disciplines, he says that he can see patterns and solve problems better than the people around him. He also becomes a great stock-picker, as he is able to think in broad terms, relying on the lattice of big ideas he has mentally built up as models in his head to make better investment decisions.

It is an endeavour also picked up by other people who have made a success of their lives.

Said Mr Munger at a commencement speech at the USC Law School in 2007: "I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than when they got up, and boy does that help, particularly when you have a long run ahead of you."

For those who may be scared off by the vast amount of reading they may have to undertake, Mr Munger has this consoling message: "Fortunately, it isn't that tough - because 80 or 90 important models will carry about 90 per cent of the freight to make you a worldly-wise person. Of those, only a mere handful really carries very heavy freight."

And learning can be quite fun, if one knows how to apply it. Take the use of probabilities - which estimate the chances of a certain event happening - in everyday life.

Mr Munger said: "At Harvard Business School, they take high school algebra and apply it to real-life problems. The students love it. They are amazed to find that high school algebra works in life."

Fortunately for us, the quest to become well-informed, by Mr Munger's yardstick, is well within our reach. The HDB heartland boasts big community libraries, well stocked with books on a broad range of subjects, to enable us to read widely.

One book I would recommend borrowing is Poor Charlie's Almanack: The Wit And Wisdom Of Charles T. Munger, which offers further insights into his investment philosophy.

As Mr Munger will attest, the benefits of reading are immense. It not only increases our knowledge but also enhances our view of the world. In the process, it sharpens our critical thinking skills and turns us into better investors.

But simply reading is not good enough. The goal is to analyse what you read and evaluate the value of the information provided, and make the useful bits part of the lattice of ideas which we use to make our decisions - financial or otherwise.

Also, learning does not have to be confined to sedentary activities such as reading. The public libraries and community centres feature talks on a wide range of subjects where readers can pick the brains of speakers.

In our quest to become more knowledgeable, we can also choose to participate in the courses under the SkillsFuture credit scheme and meet other like-minded people. This is a government programme which gives each Singaporean aged 25 and older $500 credit to pay for skills courses on subjects as diverse as Japanese and brewing speciality coffee.

A further incentive to learn is on offer for Singaporeans aged 50 and above. They need pay only half the fees (capped at $500 per course) for a variety of short courses run by our institutes of technical education, polytechnics and universities. Better still, on top of the course subsidies, they can use the SkillsFuture credit to pay for the approved courses.

The courses cover subjects such as finance, business and humanities studies - the sort of knowledge Mr Munger says that we must acquire to hone our skills to become better investors.

For those ready for even bigger intellectual challenges, there are advanced financial courses organised by the Singapore Exchange for which they can also use their SkillsFuture credit to make payment.

These courses cover subjects such as high-frequency trading, portfolio management and products like bonds and structured warrants. They are designed for financial professionals but they are also useful to investors who want to gain a better understanding of how they can navigate the increasingly complicated financial world we now find ourselves in.

Mr Munger says that in his long life - he is now 92 - nothing serves him better than continual learning. The quest has also turned him into an incredibly successful investor. Putting our hearts into lifelong learning may reap similar benefits for us.

•Goh Eng Yeow will be giving a talk, Stock Market Outlook: Gain Or Pain, at library@orchard at 7pm on Friday, Aug 26. Admission is free. Sign up at http://str.sg/4SN8

A version of this article appeared in the print edition of The Sunday Times on July 31, 2016, with the headline 'Billionaire's advice on how to get rich'. Print Edition | Subscribe