The Hindu Business Line : Investment Nuggets

Though not the most recognised public face of Berkshire Hathaway, Charlie Munger’s contributions to the philosophy of value investing cannot be overlooked. Notably, Warren Buffet credits Munger with Berkshire’s investments in high quality companies at fair price and the move away from the cigar-butt, short-term value arbitrage approach followed before. Mungerisms, as his investment philosophies are popularly known, are as forthright and simple as they can get. Here are a few samplers:

“The number one idea is to view a stock as an ownership of the business (and) to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash flow than you’re paying for. Move only when you have an advantage. It’s very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favour.”

“A single stock can make up 50 per cent of the value of the entire portfolio. Holding a concentrated number of stocks, that you know extremely well, will in the long term produce superior returns.”

“The mental habit of thinking backward forces objectivity. One of the ways you think a thing through backward is you take your initial assumption and say, Let’s try and disprove it. For example, if you were hired by the World Bank to help India, it would be very helpful to determine the three best ways to increase man-years of misery in India — and, then, turn around and avoid those ways. So think it backward as well as forward. It’s a trick that works in algebra and it’s a trick that works in life. If you don’t, you’ll never be a really good thinker.”

“Rationality is not just something you do so that you can make more money, it is a binding principle. Rationality is a really good idea. You must avoid the nonsense that is conventional in one’s own time. It requires developing systems of thought that improve your batting average over time.”

“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts… Slug it out one inch at a time, day by day, at the end of the day — if you live long enough — most people get what they deserve.”

“The idea of caring that someone is making money faster (than you are) is one of the deadly sins. Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?”.

“To avoid envy from other, you should deserve your success.”

“Never wrestle with a pig, for if you do, you will both get dirty, but the pig will enjoy it.”

“The ethos of not fooling yourself is one of the best you could possibly have. It’s powerful because it’s so rare.”

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