Quote of the day by Charlie Munger: ‘I’m a great believer in solving hard problems by using…’

Charles Thomas Munger, co-founder of Berkshire Hathaway alongside Warren Buffett, has built a following of his own among investors.

The late billionaire left behind a treasure trove of tried and tested investing advice over the years and even Buffett (95), known as ‘The Oracle of Omaha’ for his impeccable investment decisions over the years, credits Munger for a key principle on avoiding major mistakes: “Really good investment opportunities aren't going to come along too often and won't last too long, so you've got to be ready to act and have a prepared mind.”

In an obit piece after Munger passed away in November 2023, Bloomberg noted his importance as a “straight man and scold of corporate excesses” who provided a reality check and balance against Buffett's fame and wealth.

First, “we have to deal with things that we're capable of understanding, and then once we're over that filter, we have to have a business with some intrinsic characteristics that give it a durable competitive advantage,” he explained.

According to Munger, one cannot successfully invest in a business and get good returns without understanding what the business does, how it plans to make money, or what market opportunities exist for that business. You must also be aware of its USP, in case of high competition.

On the important third and fourth checklist aspects, Munger noted that we (him and partner Warren Buffett), “would vastly prefer a management place with a lot of integrity and talent; and finally, no matter how wonderful it is… it (the investment) is not worth an infinite price. So, we have to have a price that makes sense and gives a margin of safety considering the natural business of life”.

Buffett also repeatedly stressed on the importance of working with people he can trust. Speaking to an interviewer in 2014, he explained that while times have changed, he still prefers one-page deals. “I still would go for the one-page contract. I like to deal with people where I feel a one-page contract will do the job. If I have to have 50 pages in there to protect me against the guy I’m dealing with, I’ll always wonder whether I needed 51.”

Munger went on to note that these are a “very simple set of ideas” that have not spread faster because “they're too simple”. He joked: “The professional classes can't justify their existence if that's all I have to say. It's all so obvious and so simple, what would they have to do with the rest of the semester?”

A lawyer by training, Munger helped Buffett, who was seven years his junior, craft a philosophy of investing in companies for the long term. Buffett has credited him with shaping Berkshire Hathaway’s investing style and pushing the ‘Oracle of Omaha’ away from cheap “cigar-butt” stocks toward high-quality businesses at fair prices.

Under their management, Berkshire averaged an annual gain of 20% from 1965 through 2022 — roughly twice the pace of the S&P 500 Index. Decades of compounded returns made the pair billionaires and folk heroes to adoring investors.

Munger was vice chairman of Berkshire from 1978 until the day he died at 99 in 2023. He was also among the company's biggest shareholders, with stock valued at about $2.2 billion. His overall net worth was about $2.6 billion, according to Forbes.