This is the last part of a ten part series on the life and career of Charlie Munger, value investor, lawyer, philanthropist, Vice-Chairman of Berkshire Hathaway Corporation and Warren Buffett’s right hand man. He is also chairman of the Daily Journal Corporation and a director of Costco Wholesale Corporation. Parts one through nine of this series can be found at the links below.
- Charlie Munger — Part One: The Beginning
- Charlie Munger — Part Two: Quality Over Value
- Charlie Munger – Part Three: Sit On Your A$$
- Charlie Munger — Part Four: Investment Advice
- Charlie Munger — Part Five: Checklist Investing
- Charlie Munger — Part Six: The Daily Journal
- Charlie Munger — Part Seven: Poor Charlie’s Almanack
- Charlie Munger — Part Eight: Berkshire At 50
- Charlie Munger — Part Nine: Colorful Charlie And The Cinderella Principle
The full series on Charlie Munger, as well as series’ on a number of other famous investors can be found under the ‘Timeless Reading’ tab above.
Charlie Munger -- Part ten: Conclusion
In this concluding part of this series, I’m summing up the key points of Charlie Munger’s investment philosophy.
1. Quality over value
Charlie Munger looks for quality businesses when investing. Unlike Warren Buffett, Charlie Munger is willing to pay a high price for a great business.
“The ideal business is one that generates very high returns on capital and can invest that capital back into the business at equally high rates. Imagine a $100 million business that earns 20% in one year, reinvests the $20 million profit and in the next year earns 20% of $120 million and so forth. But there are very few businesses like this. Coke has high returns on capital, but incremental capital doesn’t earn anything like its current returns. We love businesses that can earn high rates on even more capital than it earns.”
“...if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.”
“...the big money’s been made in the high quality businesses. And most of the other people who’ve made a lot of money have done so in high quality businesses.”
2. Be ready
However, you need to wait for the perfect opportunity before you pounce. It pays to wait. Sometimes the best thing you can do is nothing.
“The way to get rich is to keep $10 million in your checking account in case a good deal comes along…There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash — and I don’t want to go back.”
“This great emphasis on volatility in corporate finance we regard as nonsense. Let me put it this way; as long as the odds are in our favor and we’re not risking the whole company on one throw of the dice or anything close to it, we don’t mind volatility in results. What we want are favorable odds.”
“Move only when you have an advantage.”
When you keep cash on hand, you need to be patient and wait for the perfect opportunity. Patience is a fundamental element of Charlie Munger’s sit on your ass strategy:
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