Wednesday, September 03, 2008

The Wisdom Of Charlie Munger

On SmartMoney Magazine, there is an extremly nice feature on Charlie Munger titled, Warren Buffett's Best Man

I found the second page most interesting where it lists out five thoughts from Charlie.

  • The Tao of Charlie

    Volatile markets. A rough economy. In 43 years of partnership with Buffett, Charlie Munger has seen it all. Five thoughts to help investors in today's environment.

    Avoid the Middleman
    Maybe we should think twice about our 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 do involved computations, and they're 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's 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."

    Make Way for China
    Munger says that China's competitive advantage over the U.S. is big and growing, but he's sanguine about it. "If the Chinese displace the Mungers, my attitude is 'bon voyage,'" he says. Of America, he adds, "our standing in the commercial world was once ridiculously high. Now it's merely high."

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