Some lesson from Charlie Munger
In the
investment world, if you want to learn fundamental of investment you cannot
ignore Warren Buffett and Charlie Munger. Almost all fund manager and banker
across the globe learn the investment principal from both investment icons. Buffett
admits in his one letter that before 50 year, Charlie had given him one advice
that it is far better to buy a wonderful business at a fair price than to buy a
fair business at a wonderful price.
Munger has given a lot of stress on the
multiple mental models. In this model there are need to understand the various
dynamics surrounding an investments both in its internal and external
environment. One doesn't need to be an academic to tap these different models,
including the modern Darwinian synthesis model from biology or cognitive
misjudgment models from psychology. Indeed, Munger himself acknowledges
that his understanding of these models is entirely self-taught.
According to Munger that any ordinary
investor should follow preparation, patience, discipline, and
objectivity. When practiced correctly, these attributes should result in
buying great businesses at good prices and keeping one's portfolio turnover
low. Munger considers every aspect of a business when considering a candidate
for investment, evaluating management's character and capital allocation
decision-making. He also analyzes a business' competitive advantages,
mindful that few businesses endure for multiple generations. Thus,
understanding a business' sustainable competitive advantages is
critical. Munger pays close attention to the company's operating and
regulatory environment, the impact on it from changes in technology, hidden
exposures, and the current and future impacts of stock options, pension plans,
and retiree medical benefits.
Munger holds the view that he should
stick to his knitting when evaluating investment
candidates. "Yes" candidates are easy-to-understand businesses
with distinct and sustainable competitive advantages with a dominant franchise.
He immediately dismisses other possibilities, especially in health care and
technology, into what he calls the "too tough to
understand" pile. Some of the core investment principles
that Munger has espoused can be found in the excellent 2005 book Poor
Charlie's Almanack, a collection of Munger's best talks, quotations, and
thoughts.
If you want more information
regarding investment or you have any other query about investment feel free to
ask us.
Warm regards,
Arvind Trivedi
Certified
Financial Planner
