1: Warren Buffett is one of the most successful investors in history. His company, Berkshire Hathaway, is valued at more than $1 trillion.
His business partner and Vice Chairman Charlie Munger describes what Warren tells business school students about his approach to investing: “I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches, representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. . .
“Under those rules,” Warren says, “you’d really think carefully about what did, and you’d be forced to think carefully about what you did, and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”
In his book Poor Charlie’s Almanack, the Wit and Wisdom of Charlie Munger, Charlie describes the essence of the two men’s investment strategy as “extreme patience combined with extreme decisiveness.”
“We just look for no-brainer decisions,” Charlie explains. “As Buffett and I say over and over again, we don’t leap 7-foot fences. Instead, we look for 1-foot fences with big rewards on the other side. So we’ve succeeded by making the world easy for ourselves, not by solving hard problems. . .
“We’re always looking for something where we think we have an insight that gives us a big statistical advantage. Sometimes it comes from psychology, but often it comes from something else. And we only find a few, maybe one or two a year. . .
“If you wait for the big opportunity and have the courage and vigor to grasp it firmly when it arrives, how many do you need?”
2: Once they invest, they look to hold. Charlie says: “We’re partial to putting out large amounts of money where we won’t have to make another decision. If you buy something because it’s undervalued, then you have to think about selling it when it approaches your calculation of its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.”
There are many benefits of this strategy, Charlie believes: “You’re paying less to brokers. You’re listening to less nonsense. And if it works, the governmental tax system gives you an extra 1, 2, or 3 percentage points per annum compounded.
Charlie contrasts their approach to that of the typical investment advisor: “And you think that most of you are going to get that much advantage by hiring investment counselors and paying them 1 percent to run around, incurring a lot of taxes on your behalf? Lots of luck.”
One of the challenges for investment managers is that “clients expect them to know a lot about a lot of things,” he notes. “We didn’t have any clients who could fire us at Berkshire Hathaway. So we didn’t have to be governed by any such construct. And we came to this notion of finding a mispriced bet and loading up when we were very confident that we were right. So we’re way less diversified. And I think our system is miles better. . .
“And it makes sense to load up on the very few good insights you have instead of pretending to know everything about everything at all times.”
3: Getting better at getting better is what RiseWithDrew is all about. Monday through Thursday, we explore ideas from authors, thought leaders, and exemplary organizations. On Fridays, to begin 2025, I am sharing some of Charlie’s wit and wisdom.
One of the biggest drivers of Berkshire Hathaway’s success is buying and investing in high-quality businesses.
Warren says of Charlie: “From my perspective, Charlie’s most important architectural feat was the design of today’s Berkshire. The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.”
Charlie explains: “We’ve really made the money out of high-quality businesses. In some cases, we bought the whole business, and in some cases, we just bought a big block of stock. But when you analyze what happened, the big money’s been made in the high quality businesses. . .
“So you do get an occasional opportunity to get into a wonderful business that’s being run by a wonderful manager. And, of course, that’s hog heaven day. If you don’t load up when you get those opportunities, it’s a big mistake.
“That is a model you want to look for. And you may find one or two or three in a long lifetime that are very good,” he observes. “And you find 20 or 30 that are good enough to be quite useful.”
Are there any dangers in Warren and Charlie’s approach? Of course.
“Everything in life has dangers,” Charlie explains. “Nothing is automatic and easy. But if you can find some fairly priced, great company and buy it and sit, that tends to work out very, very well indeed—especially for an individual.
More next week!
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Reflection: Am I focusing my efforts on a few high-quality opportunities, or am I spreading myself too thin by chasing too many possibilities?
Action: Identify one area in my life or work where I can simplify and focus on the highest-value opportunities, applying patience and decisiveness to achieve better results.
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