Warren Buffett / Charlie Munger “words of wisdom” by Norman Brodeur
What are the best investments?
As an answer, we can share a lesson from one of the most famous investors in America, Warren Buffet.
Warren is currently Berkshire Hathaway’s Chairman and CEO, and one of the world’s wealthiest persons. He is regarded as the “Wizard of Omaha”, “Oracle of Omaha” or “Sage of Omaha” due to his skills in value investing and frugality.
As a young man, Warren Buffet was inspired by the book “The Intelligent Investor” written by Benjamin Graham. He recommends it as “the best book about investing ever written.”
He went under apprenticeship under Graham to learn his ways and work for him.
Warren followed in the footsteps of Graham, starting from what was essentially zero and reaching the peak of Financial Independence.
Charles Thomas Munger, known as Charlie Munger, was the chairman of Wesco Financial Corporation, which has become a fully-owned subsidiary of Berkshire Hathaway. In the present day, Charlie Munger is the Vice-Chairman of Berkshire Hathaway and is known for his association with Warren Buffet.
They share their admiration for Benjamin Graham and a similar philosophy when it comes to investments. When deciding what investments to make, Warren and Charlie categorize their options by putting them into metaphorical baskets labeled “in”, “out” or “too tough”.
The “too tough” basket represents businesses that aren’t ideal for investing in. Munger advises investors to eliminate everything they do not understand or is too hard from their choices and focus on opportunities that can be stacked at the top of the pile of options.
Warren Buffet would only make a purchase if there is no better opportunity in buying anything else in the world. While Buffet agrees with purchasing a mediocre business for the sake of portfolio diversification, Munger considers that “The idea of diversification is madness,” and that “It emphasizes feeling good about not having your investment results depart very much from average investment results.”
Warren Buffet and Charlie Munger consider investments in the airline business as a risky one to invest in. Warren states that “The big problem is not aggregate costs, but costs versus competitors. If your costs are out of line, you’re going to get killed eventually.”
From the two famous investors, we can learn that investment opportunities must be carefully weighted and that the least reliable of the choices must be eliminated from the list.
