Charlie Munger skipped insurance on his mansion, said all intelligent people ‘do it my way’. What did he mean?

ETMarkets.com

Speaking at Daily Journal Corporation's annual shareholder meeting in February 2023, just a couple of months before his death, Munger explained if he had enough money to absorb certain losses himself, he would not pay an insurance company to take a risk he could comfortably handle. He was replying to a question on large companies choosing to self-insure against certain risks.

"In my own life, I am a big self-insured and so is Warren," Munger said, referring to himself and Warren Buffett. He said it made little sense for him to carry fire insurance on his house because he could afford to rebuild it if it burned down. "You should insure against things you can't afford to pay for yourself. But if you can afford to take the bumps," an unexpected expense might not be worth paying someone else to cover, the market veteran explained.

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"And all intelligent people do that way," he said. "I don't say all, but—maybe I should say, all intelligent people should do it my way." It is important to note that he was not speaking against insurance. He simply explained that people should take insurance for risks they cannot absorb.

"There should be way more self-insurance in life," he said. "There's a lot of waste. You're paying when you buy insurance for the other fellows' frauds—and there's a lot of fraud in life."

Charlie Munger’s life

Charlie Munger was born in Omaha, Nebraska and left University of Michigan to serve in the Army as meterologist during World War II. He had a degree in law from the prestigious Harvard Law School. It was in 1959, that he met Warren Buffett at a dinner party and over the decades, the two built a long-standing business partnership. Munger joined Berkshire Hathaway in the 1970s and became the company’s vice chairman, helping shape its investment philosophy alongside Buffett. Munger died in November 2023 at the age of 99.

The legendary investor’s approach to building wealth was rooted in a simple habit that helped him become a billionaire. Long before he became Warren Buffett's trusted business partner, he had modest earnings, a family to support and no family money to fall back on.

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At the 2023 Berkshire Hathaway annual meeting, he explained that financial success often comes down to a combination of sensible spending, thoughtful investing and discipline. “Well, it's so simple to spend less than you earn, and invest shrewdly,” he said. He also advised people to avoid “toxic people and toxic activities”, keep learning throughout their lives and practise “a lot of deferred gratification”. In his view, these habits work together to improve a person’s chances of succeeding.