Buffett’s 45-year friend Munger’s investment philosophy: “Develop non-common sense.”

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Charlie Munger, who died a month before his 100th birthday, was a business partner of investment sage Warren Buffett for 45 years and was as famous for his sarcastic quotes as for his astronomical return on investment.

He experienced a pivotal period of economic transformation, from the Great Depression in the 1930s to the financial crisis in the early 2010s. It is no exaggeration to say that he left behind a unique legacy of investment against the backdrop of technological advancement and geopolitical upheaval.

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One thing that runs through Buffett and Munger is that they value intrinsic value. But the biggest influence Munger gave Buffett was a new and different perspective. According to Reuters, Buffett acknowledged that Munger broadened his horizons so that he could buy good companies at a fair price, rather than simply buying good companies at a good price.

Buffett once said that Munger suggested to him, “As Ben Graham, the father of value investing, said, do not simply buy cheaply.”

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According to the Financial Times (FT), Munger considered the biggest error in Graham’s approach to be looking for low-price buying opportunities to avoid the pain experienced in the Great Depression of 1929.

The FT explains that Graham’s approach means ‘you’re missing out on a lot of great companies trading at fair prices’.

Thanks to this change in approach, Berkshire Hathaway, an investment company led by the two, was able to achieve astronomical returns.

By the end of 2022, Berkshire had risen approximately 3.8 million% since 1964, significantly outpacing the market (S&P 500) return of 24,000% over the same period. The FT expressed that it was this gap that made Buffett and Munger the John Lennon and Paul McCartney of the investment world.

According to the FT, Munger devoted his investment career to understanding the misjudgments that influenced his decision-making. Because of this, the FT explained that Berkshire was passive in technology investment in the early days when technology companies led the U.S. market.

However, the FT reported that Buffett and Munger were willing to invest when they had the opportunity to make a lot of money, like they did in Apple.

Munger often recalled, “I honed my business skills in the military and while playing poker as a young lawyer.” He also said, “When the odds are against you, you have to give up early and seize the opportunity when it comes.” He also said, “Opportunities come, but they don’t come often.”

He told his students, “You have to accept reality even if you don’t like it,” and emphasized that “there is no single formula” for success in business or investment.

In an interview with the FT earlier this year, Munger was asked about the mark he left on the world and answered, “The legacy I want to leave behind is the constant determination to develop and use uncommon sense.”

Source: Donga

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