For most about to read this, you may not be aware that the great Warren Buffett has a business partner, by the name of Charlie Munger. Charlie’s profile is high for investment aficionado’s but he isn’t quite as well known as Buffett’s is to the general populace.
These two men have together created a gigantic financial conglomerate, Berkshire Hathaway. But not only is their business acumen beyond reproach, they both also possess incredible investment knowledge and skill.
And amazingly they are both able to enunciate this knowledge in a basic, down to earth way. There’s certainly none of the ‘buzz word’ laced sentences for these two. Only sensible, straightforward advice that is eminently understandable.
Only an idiot would ignore what comes from these two. Their years of investing experience, distilled into one or two pertinent sentences. In fact, any investment quotes uttered by the two great men during Berkshire Hathaway’s annual shareholder meetings are received by investors somewhat akin to God suddenly delivering the 11th commandment.
For any long-term investor, there is much too learn from Warren Buffett and Charlie Munger. And be assured, their investment philosophy is just as effective today as it was 40 years ago. And it will re- main effective for as long as share investment continues.
So here is a sample of some real gems of wisdom from the less famous, but no less pithy, Charles Thomas Munger. Vice-Chairman of Berkshire Hathaway Corporation.
I have taken the liberty to add my own thoughts and interpretations.
“Value investing is a very simple set of ideas and the reason that our ideas about investing have not spread faster is they’re too simple. The professional classes can’t justify their existence if that’s all they have to say. It’s all so obvious and so simple … what they would have to do, for the rest of semester”
Wow, pretty scathing to a lecturer like myself. I do believe that when he uttered these words he actually exempted me by name! Anyway, investing certainly doesn’t have to be complex nor difficult.
In fact, successful investing has pretty much been the same for hundreds of years and exactly the same principles apply today as they did in 200 years ago. Have a look at this infographic, you’ll be surprised.
So take it from me, don’t get fooled by all the hype in the market today, making us believe that we need either a professional advisor, the services of a robo–adviser or enlist the help of a fund manager.
There’s a lot you can do yourself, once you know how.
“I think the reason why we got such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, “My God, they’re purple and green. Do fish really like these lures?” And he said, “Mister, I don’t sell to fish.”
I also recall once a pet food executive telling me that pet food is actually manufactured for humans and not animals. What, you cry “I certainly don’t eat pet food!” and that’s dead right. But pet owners actually judge the quality of the food for their pet on their own standards.
They like to see the rich brown meats, oozing gravy and the flecks of fresh vegetables throughout! Now, most dogs are comfortable consuming their own vomit. How the food is presented would make absolutely no difference.
So the moral is, not only are dog food and fishing lures marketed to people but so too are investments. When we invest our money we all like to see certain attributes that will build our confidence, peak our interest and tantalize us with the expectation of riches to come.
It is these triggers that institutions aim for when advertising their products. The fund management world has developed an absolute cornucopia of terminology in order to convince us of their sophisticated investment processes and caring ways.
As I like to say, ‘investments should be bought by you and not sold to you” Again, where possible do your own research.
” I don’t let others do projections for me because I don’t like throwing up on the desk.”
This pearl of wisdom was actually the very sentence that really focussed my attention on Charlie Munger. Until reading this phrase, for me, Charlie had been well and truly overshadowed by Buffett’s more famous investment homilies. But Charlies, straight-talking sentiment, certainly didn’t leave me wondering the intent of his statement – make sure you do your own research. (sound familiar)
“People calculate too much and think too little”.
Yes, Charlie, the investment world is full of calculations. For example, an average financial plan contains all sorts of projections, what ifs, variable outcomes and anything else planning software can spit out. And, I must add, they are all accompanied by a disclaimer, essentially making their contribution to your plan as useful as a “hip pocket in a singlet.”
Calculations only provide guidance. It is rather the “what-if’s” that will ‘bugger’ up their accuracy. Long-term Investor’s need to spend a lot more time canvassing the “what if’s”, and formulate plans ‘B’, ‘C’ and ‘D’ rather than just acting on the basis of the numerical outcomes of a mathematical equation.
“I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.”
If you do make a mistake as an investor, make sure to take a lesson from it. Reflect on what went wrong and why it went pear-shaped. Revisit and rethink over and over again, and make notes. This will make sure you won’t be doing anything like it again
“Almost all good businesses engage in “pain today, gain tomorrow” activities”.
All business at some time is going to have to change. And most times the financial pain of such actions, for the investor anyway, can be intolerable, to say the least. I have certainly experienced pain from shares that I have owned. And shall we say’ I was quite resentful’ of the drop in share price due to this restructuring?
But, sticking with the investment, and understanding why it was needed certainly rewarded me fur- ther down the track. Importantly as a long-term investor you also need to be able to distinguish the difference between a company restructuring for the future, and a last-gasp effort by management! Don’t let them take you down with them!
“If you want to get rich, you’ll need a few decent ideas where you really know what you’re doing. Then you’re going to have to have the courage to stick with them and take the ups and downs. Not very complicated, and it’s very old-fashioned.”
Staying the course is the ‘secret sauce’ for both Warren and Charlie. They are great proponents of sticking to your guns no matter what. Long-term investors really do need to adopt this formula as well. Markets will always move up and down, but if you do a thorough job with your initial research you will certainly have a great deal more confidence to ride out the short-term fluctuations.
There are actually businesses that you will find a few times in a lifetime, where any manager can raise the return enormously just by raising prices — and yet they haven’t done it. So they have huge untapped pricing power that they’re not using. That is the ultimate no-brainer.
Nothing more to add here.
So there you have it. Some thoughts from the great Charlie Munger. At 93 I guess there’s not going to be a lot more of his wisdom. So immerse yourself in his comments, and allow his thoughts to provide a solid backdrop of knowledge to improve your investing decisions.
