Would Charlie Munger 'average down' on losing assets? Are there any classic examples?

Okay, let's talk about this. This is an excellent question because it directly addresses a core, yet often misunderstood, practice in value investing.

Would Charlie Munger "Add to Falling Assets"? The Answer: It Depends, But It's Never Blindly "Averaging Down".

Many people see a stock drop and immediately want to buy more, thinking, "This will lower my average cost, so I can break even when it rebounds a little." In Munger's view, this mindset is very dangerous.

Munger and Buffett's approach is fundamentally different from the common idea of "averaging down." You can think of it this way:

Common "Averaging Down": Something I bought went down, I'm not happy about it, so I buy more to lower the average price. The core focus is on "cost".
Munger's "Opportunistic Adding": I bought a fantastic company for $100. Now the market is panicking, and others are dumping it for $80. The company's value hasn't changed at all; it might even be growing. Of course, I'll buy more. The core focus is on the gap between "value" and "price".

Simply put, the core difference lies in answering one question: "What is the reason for the stock price decline?"

If the company's fundamentals have deteriorated (e.g., products aren't selling, management problems, technology obsolete), then the price drop is justified. Adding more in this case is what Munger often calls "bailing water into a leaking boat" – it's foolish. This isn't investing; it's catching a falling knife.
If it's caused by market sentiment (e.g., a broad market crash, investor panic over bad news, Wall Street analysts downgrading for short-term reasons), but the company's core business, strong brand, and good management remain intact. Then, in Munger's view, this is a gift from heaven. Mr. Market, in a bad mood, is willing to sell you something worth $150 for $80 – why wouldn't you buy more?

Therefore, Munger's prerequisite for adding is: He has a very deep understanding and unwavering confidence in the company's intrinsic value, and after reassessment, confirms his original judgment is sound. The decline is simply a "discount coupon" sent by Mr. Market.

What Are Some Classic Examples?

There are many such examples in Buffett and Munger's investment careers, as a significant part of their enormous success stems from having the courage to place big bets when others are panicking.

Example 1: Coca-Cola – The Century's Great Bargain

This is the most classic case. In 1987, the US stock market experienced the infamous "Black Monday," plummeting over 20% in a single day. The market was in despair; all stocks were being frantically sold off, including Coca-Cola.

What did Munger and Buffett think? They asked themselves: Because of this Wall Street crash, would people around the world stop drinking Coke tomorrow? Would the Coca-Cola brand disappear? Would its powerful distribution and consumer mindshare be shaken?
The answer: Obviously not. The crash was just financial market panic, having nothing to do with Coca-Cola's core business of selling soda. The company's intrinsic value was completely unharmed, but its price had been deeply discounted.
Action: Subsequently, Berkshire Hathaway invested over $1 billion in the following months to buy large quantities of Coca-Cola stock. This was a huge sum at the time. It proved to be one of their most successful investments.

This case perfectly illustrates their philosophy: When a great company (high intrinsic value) encounters market panic (plunging price), add decisively.

Example 2: American Express – The "Salad Oil Scandal"

This earlier case was primarily led by Buffett, but the thinking was identical to Munger's.

In 1963, a subsidiary of American Express faced massive losses due to the "Salad Oil Scandal" (a company used fake salad oil inventory as collateral for a loan from Amex). The market believed American Express might go bankrupt, and its stock price plunged nearly 50%.

What did Buffett think? He didn't listen to the market panic. Instead, he did his own research. He went to restaurants, banks, and travel agencies to observe if people were still using American Express credit cards and traveler's checks.
He discovered: Consumers and merchants didn't care about the scandal at all. American Express's core business – payments and credit – was rock solid. Trust in the "American Express" brand hadn't wavered.
Action: Buffett concluded that the market had mistakenly magnified an isolated subsidiary problem into an existential crisis for the entire company. He invested 40% of his partnership's net assets to take a large position in American Express. Two years later, the stock price had tripled.

This case highlights the importance of independent thinking and investigation. When the price falls, you must be able to judge whether it's a "real crisis" or a "false alarm."

Example 3: Wells Fargo – Opportunity in the Financial Crisis

During the 2008 financial crisis, all bank stocks became dirt cheap. People feared the entire financial system would collapse.

What did Munger and Buffett think? They believed that while the industry faced a crisis, the strongest, best-managed banks would survive and emerge even stronger. In their view, Wells Fargo was one of them.
Action: At the peak of market panic, they aggressively added to their Wells Fargo position. History proved that Wells Fargo was indeed one of the fastest banks to recover, and this investment generated substantial returns. (Of course, Wells Fargo later faced the fake accounts scandal, representing a change in company culture and fundamentals, leading Berkshire to significantly reduce its stake in recent years. This later event actually reinforces their principle of "exit when fundamentals change").

To Summarize

So, back to your question: Would Charlie Munger "add to falling assets"?

Yes, but his "adding" is completely different from the "averaging down" you and I might talk about.

He adds to positions only in "great companies" that he deeply understands and firmly believes have enduring competitive advantages.
He adds only when Mr. Market, due to "irrational panic," offers a "bargain price" far below intrinsic value.
His confidence to add stems from extreme conviction in his own judgment, which in turn comes from deep thinking and research.

For the average investor, without Munger's profound insight into business models, blindly adding to a falling stock is likely not grabbing a bargain, but paying a more expensive tuition for a mistaken judgment.

Therefore, Munger isn't "averaging down"; he's "increasing bets on high-conviction opportunities." This is the essence of value investing.