Raamdeo Agrawal explains Charlie Munger’s compounding strategy, and why only a few get it

Agrawal said that Charlie Munger left a massive mark in the investing world

“Very few people understand what it takes for compounding,” said Rammdeo Agrawal, Chairman of Motilal Oswal, explaining a key tenet of Charlie Munger's wealth-building strategy.

Charlie Munger, the longtime friend and business partner of Warren Buffett, passed away on November 29. He was 99. For decades, Munger led Berkshire Hathaway as its vice chairman, helping Buffett build the company.

In a conversation with CNBC-TV18, Agrawal said that Charlie Munger left a massive mark in the investing world.

Also read: Invert, always invert: Charlie Munger's mental models that helped build his '30-second mind'

One of the famous quotes of Munger goes, "The first rule of compounding is to never interrupt unnecessarily."

Compounding was at the core of Munger’s long-term investment strategy. The idea was to buy high-quality businesses and hold onto them for a long time, allowing compounding gains to grow wealth.

Munger believed in value investing by maintaining a long-term view. He not only minimised the transaction costs that can erode investment returns; but also allowed compound interest to enhance his returns over time significantly, said Agrawal.

Munger used to say, big money is not buying or selling, but waiting.

Munger’s investment philosophy centred on value investing, assessing stocks based on long-term fundamentals. Despite facing a loss of $50 billion in Q1FY20, he maintained a conservative approach, focusing on liquidity over aggressive investments, he added.

Munger joined Berkshire Hathaway as vice chairman in 1978 and helped transform it from a small textile company into a big conglomerate. Berkshire Hathaway is now valued at more than $780 billion.

Charlie Munger's wealth is estimated to be at $2.6 billion. He has donated most of his wealth to charity during his lifetime.