Archive for the ‘Charlie munger’ Category.

 

I was reading the transcipts of the meeting on fool.com . There were several comments from munger which really impressed me.

– He referred to a “seamless web of deserved trust” which is necessary to run any large coporation. This is a profound idea. how companies in india work this way ?
– he talked out currency trading being a zero sum game. he would prefer equity where it is not a zero sum game
– he talked about lowering return expectations in the current environment. Annhieser busch could that example. A certain investment with lower return. This is important. Better to be sure of lower returns that optimisitic of fantastic results

Found the Q&A really fantastic.

 
 

I have been reading the biography and found the following thoughts from charlie worth noting- Adopt a multidisciplinary approach to investing. One should know the major ideas across varied disciplines such as physics, economics, mathematics etc.

– One should read with a purpose in mind and should array the fact with the major models from various disciplines. One should not just gather facts , but these facts should be used to prove or disprove the various mental models
– To be successful in investing and to constantly improve , one should always ask ‘why’ why’ why’
– one should adopt the approach of analyzing a problem for its most fundamental cause ( derived from physics ) which many times is the most simplest reason for the problem. As applied to investing this would mean that one should be able to zero down to the key factors in analyzing a business and focus on them

There is a good anecdote of charlie’s discussion with a professor on the dividend policy for companies. It is a fairly long one, but essentially it demonstrates the depth of his thinking and a commonsensical approach to complex issues. Charlie munger’s approach to dividend policy is that a company should retain earnings only if it can create more than a dollar of value for every dollar retained. In the discussion charlie also notes that cost of capital should not be a mathematical construct only…rather it should be looked at from opportunity cost point of view.

This is a very simple but powerful idea. for example if i am a very risk averse investor and my opportunity cost is say 6 % ( Bank FD ? ) , then i should discount a stock say by 6 % and to be safe ask for a high margin of safety.
compare this with an investor whose opportunity cost is 15 % ( current return on his portfolio maybe ). Then the investor should discount the stock with 15 % because if this stock cannot cross the 15 % hurdle , then the investor should not invest in the stock

This book contains a lot of gem of ideas

 
 

I have completed almost 100 pages of the biography. Several nuggets of wisdom and learnings come through. One thing which strikes is the honesty and fairness with which charlie has always conducted his affairs.

There is an incident in the book. Guerin ( if i have not got his name wrong ) joined charlie as a partner in the munger , wheeler and Co. ( which was an investment partneship modelled after the buffet partnership ). To start with guerin was not too rich when he joined munger in this partnership.
During the course of their dealing , they accquired a chemical company ( as an aside that too is an intersting tale of how they accquired it ). some time later , guerin wanted to cash out his portion of the deal. He valued it as 200000 usd and would have been happy with it. Munger remarked that he was wrong and it was closer to 300000 usd. His remark was to the effect ‘if you think hard about it , you will agree with me because you are smart and i am right’

As you go through the book, you realise that munger has always been fair and honest in all his dealing and has never tried to cut corners. This is admirable because there are enough examples of rich people who have cut corners. But buffet and munger are people who have achieved their success with out cutting corners. To use a quote from the book , which munger uses ‘To avoid envy from other , you should deserve your success’