I was reading an excerpt from a Charlie Munger interview taken before his death at age 99. For those unfamiliar with who Charlie Munger was, Charlie was the longstanding business partner of Berkshire Hathaway co-owner Warren Buffett.

During the interview Charlie illustrated his business acumen, his shrewdness and his risk averse outlook. Both Warren and Charlie reviewed the business cycle, they knew when a market was overheated and heading for a correction, they would be criticised for missing the easy money at the top of a boom when they would start converting assets to cash, Berkshire Hathaway had a very large cash reserve ready for a downturn. They would cash out of a hot market, move reserves into a stable investment instrument such as cash or the short term money market and buy back in during a downturn.

A feature of Charlie’s perceptive outlook was the way he lived his personal life. Both Warren and Charlie were pretty frugal, they did not get caught up in excessive consumerism, Warren was famous for residing in Omaha, Nebraska, whilst Charlie lived Pasadena, California for much of his working life before returning home to Omaha. The line from the interview that caught my attention was “The three ways a smart person can go broke are liqueur, ladies and leverage.” Ok, so Charlie was a family man and was not known for his indulgence, at least I can stay away from leverage.