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Charlie Munger: A tribute to a giant of investing

Find a company that works, pay the right price, wait patiently for its value to grow, and live for almost 100 years, all while building the world’s largest investment conglomerate. 

Seeing the world through Charlie Munger’s eyes, success in life and investments is a recipe that requires few ingredients. Munger, who passed away this week on 28 November, just a month before turning 100, indelibly linked his name to the extraordinary trajectory of Berkshire Hathaway and that of the world’s wealthiest investor, Warren Buffett.

The encounter between the two was written in the stars; as a teenager, Munger worked at Buffett & Son, a grocery store owned by Warren’s grandfather. However, their first meeting only occurred in 1959 through a mutual friend. A doctor in their hometown of Omaha, Edwin Davis, told Buffett that he trusted him because his style reminded him of Charlie Munger.

“I like this Munger,” replied Buffett. Later, Davis arranged a meeting between the two, and they immediately hit it off both personally and from a financial vision perspective.

At the time, Munger was still practising law. In 1962, he founded his own investment firm, achieving extraordinary results in the following 13 years with a portfolio growth of 19.8% annually compared to the 5% of the Dow Jones Industrial Average.

He joined Berkshire Hathaway as vice president in 1978, contributing to the transformation of a struggling textile company into a conglomerate worth $780 billion. In a recent interview, Munger said, “When we started, Warren Buffett and I didn’t expect to reach $100 million, let alone hundreds of billions. We were a little less crazy and stupid than most people and had the luck to live up to 90 years, which gave us more time to develop our investments. We also became wiser in the process.” This acknowledgement underscores the crucial importance of time in investments, a cornerstone of Munger and Buffett’s philosophy.

Recognising Munger’s crucial role in BH’s success, Buffett highlighted how he influenced the modification of his approach to investments. Buffett was a staunch advocate of value investing and a follower of Ben Graham. Buffett’s expansion strategy involved seeking out low-cost companies and bargain prices.

While never giving up the search for these opportunities, Munger convinced Buffet to aim for the acquisition of large companies at reasonable prices. If a company can generate sustained profits in the long term, the initial purchase price becomes increasingly less significant.

A prime example is the duo’s most recent and successful investment: Apple. Entering in 2016, BH benefited from the enormous growth of the stock price and now owns 5.8% of the Cupertino company, valued at approximately $164 billion. Apple represents nearly 50% of Berkshire’s stock portfolio.

Munger’s philosophy, articulated through pithy and impactful phrases that provide ample material for quote enthusiasts, focuses on long-term investments. “Big gains don’t come from the buying or selling, but from waiting,” he often said. Munger frequently argued that good opportunities are rare and success comes over time through a few right choices. According to Munger, when opportunities arise, it’s crucial to seize them; keeping an open mind is essential for achieving success.

Speaking at the annual Berkshire Hathaway shareholders’ meeting in Omaha in May, he said, “The recipe for financial success is simple: spend less than you earn, invest wisely, avoid toxic people and activities, and strive to keep going, always learning, and defer gratification. Those who follow this path are almost certain to succeed. Otherwise, a lot of luck is needed.

Munger, one of the most successful stock pickers in history, was also an advocate for ETFs and passive strategies as a solution for the average investor. While broad diversification may limit gains, these funds offer consistent results, lower fees and are the best place to accumulate savings. “Buy an S&P 500 index fund,” he said in 2017. “Keep investing in good and bad times, especially in bad times.”

 

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