Charlie Munger, right-hand man of Warren Buffett, dies aged 99 Warren Buffett

Charlie Munger, right-hand man of Warren Buffett, dies aged 99 Warren Buffett

Speaking on a 63-year record built at Graham-Newman Corp., Buffett Partnership, and Berkshire Hathaway during which he averaged an unleveraged annual return of over 20%, he states that his experiences provide a fair test. And neither the advent of the steam engine, the harnessing of electricity nor the creation of the automobile changed the formula one iota- nor will the Internet. This is no easy task; many property and casualty insurers have much difficulty generating an underwriting profit, and the cost of their float can be quite expensive as a result. Berkshire’s cost-free float, while carried on its books as a liability, has proven to be one of its greatest assets.

  • Munger was vice chairman of Berkshire and one of its biggest shareholders, with stock valued at about $2.1 billion as of March 2, 2022.
  • As an advocate of investing in the stock market myself, I am encouraged by the fact that Buffett still feels there is value out there to be had; if he didn’t, he wouldn’t have suggested that is where BRK will be focusing its investment dollars in the near-term.
  • Munger, who started working as Berkshire’s vice-chairman in 1978, was credited with helping Buffett choose how to invest its capital – and swiftly pointing out any potential mistakes.

This is why Buffett characterizes them as “moats” and why they are such an integral part of his long term investment decisions. In his letters, Buffett often speaks of how investors should respond to fluctuations in market prices. Market” concept illustrated in chapter eight of Graham’s The Intelligent Investor. Comparatively, an $18 investment in the S&P 500 in 1965 would have compounded at an annual rate of 9.4% and been worth $1,343 in 2012.

Never invest because you think a company is a bargain

The two both worked at a grocery store owned by Buffett’s grandfather as teenagers, but didn’t really get to know each other until a dinner in 1959, when Munger happened to be in Omaha after the death of his father. In its annual report filed alongside Buffett’s letter, Berkshire details exactly how it got to the $29 billion tax bill-related benefit. That CAGR of 11.8% over the 77 years would have turned an investment of $1M into roughly $5.3B. However, if you reduce the return to 10.8% (as you would if paying investment fees of 1%), the return is $2.65B, or half of the actual return.

Todd Combs and Ted Weschler, who help Buffett run Berkshire’s $300 billion-plus common stock portfolio – about half of which is in one stock, Apple (AAPL.O) – appear in line to take over all of it. Investors will have to wait until Abel takes over to see his willingness to shed businesses that are underperforming or have mediocre outlooks – his predecessors liked to buy and hold businesses forever – or whether Berkshire might pay its first dividend since 1967. A lifelong hockey fan, Abel graduated in 1984 from the University of Alberta, worked at PricewaterhouseCoopers and energy firm CalEnergy and joined the company, then known as MidAmerican Energy, in 1992, which Berkshire took over in 2000. Abel said he and Jain regularly consulted with one another, and in particular when something unusual was happening at one of Berkshire’s businesses. “There is no question that the relationship Warren has with Charlie is unique and it’s not going to be duplicated,” Jain said.

Buying Dexter Shoe would have been a mistake either way, but using Berkshire stock to buy the company made the problem even worse. Instead of spending cash, Buffett spent a percentage of a business that proceeded to dramatically outperform the S&P 500 for the next decade. Each year that followed, his acquisition of Dexter Shoe became more and more expensive in retrospect, rubbing salt in the wound.

We hope only will also express their thanks to the Titans if the book review brought wisdom into their lives. Buffett is often asked why he does not split the stock to make it more affordable and accessible for a larger number of people. His response is that he is attempting to attract a certain class of buyers, and that splitting the stock to make it sell more cheaply would ultimately lead to a decrease in the quality of ownership of Berkshire. Berkshire first entered the insurance industry in 1967 with the acquisition of National Indemnity and National Fire and Marine Insurance Company. Berkshire’s presence in the insurance industry has grown enormously over the years, especially with the acquisition of GEICO at the beginning of 1996 and General Re in 1998.


No business that is not generating value over the long term is worth holding on to, and holding on to a bad business is never going to be a good investing strategy. This observation is important for Buffett, and for his overall conservative strategy in the market. The approach of the more mature Buffett is to never invest in a company that can be a success if held for a short period of time.

Buy stock as an owner, not a speculator

It is surreal (and almost humorous) to look at the astounding amount of change that has taken place during his forty-eight years at the helm. Munger was for many years more bullish than Buffett when it came to investing in China. Berkshire became the biggest shareholder of Chinese automaker BYD Co., for instance, years after Munger began buying its stock, though Berkshire began trimming that stake in 2022. Not satisfied with the income potential of his legal career, Munger began working on construction projects and real estate deals. He founded a new law office, Munger, Tolles & Hills, and, in 1962, started an investment partnership, Wheeler, Munger & Co., modeled on the ones Buffett had set up with his earliest investors in Omaha. Munger’s fortune was small compared to Buffett’s, but he was still a billionaire twice over.

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While Buffett does disagree with executives who buy back their company’s shares simply because they have the cash to do it or to inflate earnings, he also believes in buying stocks when they’re underpriced. In uncertain or chaotic times, Buffett believes that savvy investors should continue looking at the fundamental value of companies, seeking companies that able to sustain their competitive advantage for a long time, and investing with an owner’s mentality. If investors can do that, they’ll naturally tend to go in the opposite direction of the herd — to “be fearful when others are greedy and greedy only berkshire hathaway letters to shareholders when others are fearful,” as he wrote in 2004. In the aftermath of the crisis, retail and institutional investors offloaded massive numbers of stocks in businesses weak and strong. Buffett, however, went on a personal buying spree, even penning an impassioned New York Times op-ed titled “Buy American” about the billions he had spent buying up marked-down stock. Rather than getting too caught up in the price or recent movement of a stock, Buffett says, buy from companies that make great products, that have strong competitive advantages, and that can provide you with consistent returns over the long term.

Much of Berkshire’s early success came down to the intelligent use of leverage on relatively cheap stocks, as a 2013 study from AQR Capital Management and Copenhagen Business School showed. But Buffett’s main problem is not with the concept of debt — it is with the type of high-interest, variable-rate debt that consumer investors must take on if they want to use it to buy stocks. His frustration with investment banker math reached its boiling point in his 1986 letter to shareholders, in which he dissected the value of Berkshire’s latest acquisition, the Scott Fetzer Company. “Not long ago, I looked at the proxy material of a large American company and found that eight directors had never purchased a share of the company’s stock using their own money.

Companies are eager to find these kinds of directors, Buffett says, but counterintuitively short-change those who have a large amount of their net worth tied up in the companies they serve. These directors, despite “possessing fortunes very substantially linked to the welfare of the corporation,” are ignored and deemed “lacking in independence.” Instead of being valued for the amount of skin they have in the game, they’re pushed aside. And the result is a set of incentives that isn’t good for companies, Buffett argues. On the other hand, he is deeply suspicious of what he sees as the modern-day trend of corporate boards incentivizing directors to be passive accomplices to whatever a CEO wants to do.

Effectively, some retained earnings are worth more than 100 cents on the dollar, while some are worth considerably less. Much in the same way, a durable competitive advantage can protect a business and its returns on invested capital from the threat of competition and lessen the impact of other outside forces that can cripple average businesses. Buffett encourages “moat-widening” actions from his operating managers and actively seeks to invest in businesses possessing a durable competitive advantage, such as Coca-Cola and Gillette.

Each manager, in other words, received a portion of the company’s profits minus the amount that they spent, in terms of capital, to generate those profits. H. Brown had to “stand in the shoes of owners” and truly weigh whether the cost of a project was worth the potential results. Readers gain a framework for how to view risk, markets, and investing, as well as an understanding of how truly great businesses should operate. Buffett makes it clear that investing is far from a science and that there is much more to being a successful investor than being the smartest person in the room. In this case, if stocks are traded based on market price, shareholders of the company with the more overvalued stock will ultimately benefit at the expense of shareholders of the other company (similar to the benefits of trading with an overvalued currency). Buffett is a proponent of purchasing extraordinary companies at fair prices, rather than average companies at bargain prices.

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