Warren Buffet and Charlie Munger’s thoughts on investments

In recent days, famed investor Charles (Charlie) Munger and right-hand man to Warren Buffett, passed away at the age of 99. Charlie Munger was the vice chairman of Berkshire Hathaway and a lifelong partner of Warren Buffett, who is widely recognized as one of the boldest investors of recent times. Together, Munger and Buffett grew Berkshire from a small textile manufacturer to a massive conglomerate with a market capitalization of approximately ~US$775bn and a broadly healthy financial position.  

Munger’s philosophy was deeply rooted in the concept of “multidisciplinary thinking,” emphasizing the importance of drawing insight from diverse fields of knowledge, including psychology, history and economics. Munger stood out in the investment environment for making decisions under a “fundamentals-based approach,” i.e., evaluating the essential aspects of an entity, such as its revenue sources, earnings potential, balance sheet health and market position, among other aspects. In this context, below we share some of the investment insights that he promoted along with Warren Buffet:

  • ” The big money is not in the buying and selling, but in the waiting.” This means, in terms of managing a portfolio, that Munger was not active in day to day buying and selling. Rather, he would strive to identify positions that he considered as safe as possible and hold them, often for several years.
  • “Buy wonderful businesses at fair prices.” Munger avoided stocks that other investors might buy simply because they appeared to be a good deal. Instead, he opted for investments in companies with strong fundamentals and reasonable valuations because he believed that eventually the market would recognize their intrinsic value (fundamental value) over the long term. 
  • “Great opportunities are rare.” Munger made investment decisions under the philosophy that “life is not showering you with unlimited opportunities.” Therefore, his goal was to rule out as many bad or unsubstantiated investment ideas as possible. Only those ideas that survived strict scrutiny would be considered for implementation. In this sense, he favored the implementation of significant moves at those rare moments when a tremendous opportunity presents itself, after thorough analysis has been performed.
  • “Good business are ethical business.” One of Munger’s favorite tenets was that “good business is ethical business,” and, conversely, that “a business model that depends on deception is doomed to failure.” Munger and Buffett built a reputation for closely analyzing the businesses they were considering investing in, looking for companies with excellent growth potential and models they considered fair, equitable and ethical.

Among his many reflections, perhaps one of the most significant was not focused on investments or business, but on a philosophy of life when he said: “The best thing a human being can do is to help another human being know more.”

Annual returns and intra-annual declines of the S&P 500

Note: Despite average intra-annual declines of 14.3%, annual returns were positive in 32 of the 43 years.

Source: JP Morgan

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