Monday, March 23, 2009
The Tao of Charlie Munger
Charlie Munger, 84, is Warren Buffett’s principal sounding board and co-strategist. With his help Buffett has evolved from a successful but small-time money manager to the world’s richest man, with unparalled global influence – and on the eyes of some admirers, he wouldn’t be where he is without Munger.
I am one of his loyal fan and maybe one of the few Filipinos who seek his wisdom on investing. Let me share to you Munger’s five thoughts to help investors in today’s recessionary environment:
Avoid the Middleman. Maybe we should think twice about or brokers and mutual funds. Munger says that due to its middling performance and high fees, the money management industry as a whole “ gives no value added” to its customers. “They are croupiers taking profits out of the System”.
Pick Common Sense over Math. Another knock against the pros? Their obsession with statistical analysis – “boring gravel sifting,” as Munger calls it – obscures insights about which businesses are poised to succeed. “ These people od involved computations, and they are walking right by great boulders of gold.” Meanwhile, he and Buffett “just look for no-brainer decisions…..We don’t leap 7-foot fences.”
Think Like Ben Franklin. Munger believes in educating himself deeply about, well, almost everything , “invading other people’s territory” to develop a “mental latticework of theory” to shape his investing decisions. His poster boy for this approach: Ben Franklin. “He was a self-educated man who wandered over vast territory, “Munger says. “He recognized that he needed higher math, so he went out and learned algebra….. Learn your gaps, and fill them. That’s what I do.”
Sit on your assets, if you can. . While most investors associate Buffett and Munger with finding good stocks cheap, Munger points out that quality can trump price. “If you buy something because it is undervalued, you have to think about selling it when it approaches your calculation of its intrinsic value,” he says. That’s hard. But if you buy a few great companies, then you can sit on your ass. That’s a good thing.”
Source: Smartmoney interview; recent speeches; Poor Charlie’s Almanack