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Jelly Roll Capital Equity Research |
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Market Analysis, Education, and Wall Street-Quality Stock Reports |
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Behind Buffett’s Berkshire Hathaway: Charlie Munger |
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Recently I started reading Damn Right!, a biography of Charlie Munger, the lesser-known of the two Berkshire Hathaway billionaires. As the title may indicate, Munger is known for his somewhat surly attitude, and his harsh statements and lack of folksy charm have not endeared him to the public. Although a contrasting personality to Warren Buffett, Munger and Buffett share many similar traits when it comes to looking for investments. I thought Charlie nicely summed up my preferred investment philosophy - value investing - with this quote: “All intelligent investing is value investing - to acquire more than you are paying for. Investing is where you find a few great companies and then sit on your ass.” I’m in no position to argue with Charlie over investing, and I wouldn’t want to. My process of finding companies is largely inspired by the Berkshire Hathaway methodology of selecting great companies trading at discounts to fair value, although I will admit I’m more liberal in applying that criteria into industries like technology that Berkshire would pass by. What I wanted to focus on here is the two main points I see Charlie Munger making in that quote. First: as much as there is a distinction made by the investing community over “growth vs. value,” such an argument ignores that no investor ignores value, they just have different ways of judging it. Investors buying a stock obviously don’t think they are paying too much - so every purchase is (at least in the mind of the buyer) a value investment. The tricky part of investing, obviously, is judging what a company is really worth. How does one really know whether a stock is undervalued, or if a gain will only be made should a “greater fool” come along and purchase the shares at a higher price? This brings us to the second point… Two: Finding a few great companies, and, um, waiting to be rewarded (my mother reads this site). Exhibiting patience during the investing process is undoubtedly one of the most difficult pieces of the puzzle; and studies indicate a lack of patience is responsible for many individuals having sub-par returns. And while many people can identify great large-cap companies, typically from brand recognition, finding smaller companies that are nonetheless high quality is not as easy. We prefer companies that are positioned to profit for the next decade or more, and we advise investors to be patient and only consider selling in the case of a drastic shift in fundamentals. To review: … all of which calls to mind Warren Buffett saying that “Investing is simple, but not easy.” |