Charlie Munger, Warren Buffett’s close partner for almost sixty years, was a smart investment expert too. He shared valuable investment knowledge that generations of investors could benefit from.
Warren Buffett learned about investing from Benjamin Graham, a famous figure in value investing, at Columbia University after World War II. Buffett became really good at picking inexpensive stocks. However, Munger expanded his strategy to also look at high-quality companies. This helped Berkshire Hathaway become a big conglomerate involved in insurance, railroads, and consumer goods.
A notable instance was when Berkshire acquired See’s Candies in 1972, influenced by Munger. The price was much higher than what Buffett was typically comfortable paying for businesses.
In 1998, Munger expressed, “It’s not very enjoyable to purchase a business where you genuinely wish it sells off before facing financial trouble.”
Say No to Diversification
Contrary to the investment approach often found in textbooks, Munger didn’t support diversification, which involves spreading investments across various types to reduce risk. In fact, the vice chairman of Berkshire referred to it as “insane” to insist on diversification when investing in stocks.
Munger expressed his views during Berkshire’s recent meeting, stating, “It’s not sensible to insist on having a wide variety of investments. It’s not easy to find many excellent opportunities that are easily recognized. If you only have three, I’d prefer to focus on my best ideas rather than my worst.”
Recognize Your Strengths
Similar to Buffett’s idea of the “circle of competence,” Munger believed that wise investors should concentrate on areas where they have expertise and strength to avoid errors.
“We’re not extremely intelligent, but we have a good understanding of the limits of our intelligence … That’s a crucial aspect of practical intelligence,” Munger emphasized.
Munger placed significant value on the influence of strong brands and devoted customers. He was considered one of his most successful investments to be in Costco Wholesale Corp., which he was invested in before its merger with Price Club in 1993.
“I have a friend who says the first rule of fishing is to fish where the fish are. The second rule of fishing is to never forget the first rule. We’ve become adept at fishing where the fish are,” Munger shared at Berkshire’s 2017 meeting when he was 93 years old.
Making Big Money Involves Being Patient
The experienced investor Munger held the view that patience is rewarded in the world of investing. He believed that achieving success in picking stocks often involves waiting for the right moment and then taking decisive action with determination.
Munger expressed, “The substantial gains come not from constantly buying and selling, but from patiently waiting.” He also appreciated the term “assiduity” because, in his words, “it means sit down on your ass until you do it.”
Virtue of Sitting on Sidelines
The conglomerate faced frequent inquiries regarding its substantial cash reserves and the absence of transactions, especially when interest rates were close to zero. Munger consistently justified Berkshire’s decision to stay inactive, emphasizing the value of waiting for the right opportunity.
Munger remarked, “There are circumstances worse than having a lot of cash and just waiting. I recall times when I didn’t have an abundance of cash, and I wouldn’t want to return to that.”
Currently, Berkshire’s extensive cash holdings are generating a significant return, with short-term interest rates exceeding 5%.
Doesn’t Like Cryptocurrency
Munger maintained a skeptical stance on cryptocurrencies for a long time, expressing his criticism candidly. He described digital currencies as a harmful combination of deceit and misconception.
In 2021, Munger stated, “I don’t appreciate a currency that’s so advantageous to criminals like kidnappers and extortionists. I also don’t like the idea of simply handing over billions of dollars to someone who created a new financial product out of thin air.”
He didn’t mince words when referring to bitcoin, calling it a “turd,” “worthless, artificial gold,” and dismissing the trading of digital tokens as “just dementia.”
Furthermore, Munger opposed commission-free trading apps, which often facilitate momentum-driven trading by amateur investors, as seen in the meme stock craze of 2021.
Dies at Age 99
Billionaire Charlie Munger, the investing sage who made a fortune even before he became Warren Buffett’s right-hand man at Berkshire Hathaway, has died at age 99 on 28 November 2023.
According to a press release from Berkshire Hathaway. The conglomerate said it was advised by members of Munger’s family that he peacefully died this morning at a California hospital. He would have turned 100 on New Year’s Day.
“Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation,” Buffett said in a statement.
Summary
Charlie Munger, the investing sage and long-time partner of Warren Buffett, has passed away at 99. His wisdom shaped Berkshire Hathaway, contributing to its success. Munger’s insights emphasized patience, focusing on strengths, avoiding diversification, and being cautious about cryptocurrency. His legacy leaves a lasting impact on the investment world.
