I’ve been listening to the audio book version of Poor Charlie’s Almanac during September. For those unfamiliar with the book it is about Warren Buffett’s legendary business partner Charlie Munger. The main part of the book contains speeches that Munger made over the years.

One speech stood out for me. Munger was speaking to a business school class at the University of Southern California in the early 1990s. The topic of the speech was the art of stock picking. But in typical Munger fashion he had some other things to say. He started the speech talking about what he coined ‘worldly wisdom’.

Why start a discussion about picking shares with worldly wisdom? Munger wanted to make a point about what it takes to be successful at investing or anything else in life. He said, “the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.”

I haven’t stopped thinking about that quote this month. I follow a lot of ‘finfluencers’ on social media. A finfluener is a derivation of the social media influencer. But instead of promoting a certain lifestyle a finfluencer promotes investing. The content is 99% inspiration and 1% investing guidance.

One term that is constantly thrown around is compounding. And I have no doubt that the finfluencers and many of their followers can recite the definition of compounding. But in the Munger sense do they know compounding?

One of the hard things about building wealth is that it takes patience and consistency. And you are constantly presented with decisions – should you save or spend, sell this share and buy that share, or react to this scary sounding event or stay the course. If you don’t know concepts like compounding there is no ‘latticework of theory’ to govern those decisions. Which makes it awfully hard to be patient and consistent.

In the spirit of Munger’s speech I put together 3 charts that unlock the secret of building wealth. It was gratifying to get emails from a lot of the older readers who had amassed enough for a comfortable retirement agreeing with the premise of the article. It seems like they were already in on the secret.

Munger’s quote was also the inspiration for my article on the rule of 72. Unfamiliar with the term? It is simply a trick to figure out how long it takes to double an investment. Just divide 72 by the annual return and you have your answer. I covered the implications of this rule on the way each of us invests.

Want a chane to win $250? Read my article on the ‘perfect’ ETF and complete our survey at the end to put your name in the mix for a random drawing. What is the perfect ETF? Well that was the challenge my boss gave me. The article is my answer.

Speaking of ETFs, I wrote an article on the approach taken by income ETFs. Investors interested in growing their passive income may be disappointed by the outcome from these ETFs if they don’t understand how they work.

This month I talked to a reporter from the ABC about housing. She read my article about renting for life and seemed very sceptical that anyone could have financial security that didn’t own a home. What I should have said is that I know lots of people who own a home and are in financial distress. After the interview I decided I would write an article for all the renters in Australian who face the same scepticism. Here is how to build wealth and security as a renter.

I continued the series answering reader questions. You can read those articles here. If you have a question please email me at [email protected] 

Read all of my articles here

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Mark LaMonica