An Underrated Secret of Success in Life and Investing

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The Art of Value Investing: Chicago and New York

I am organising a couple of sessions on Value Investing in the US –

• Chicago: Sunday, 28th April 2024
• New York/New Jersey: Sunday, 12th May 2024

If you are in or around these cities and wish to attend, kindly register here.

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In its obituary, The New York Times wrote this about Charlie Munger in December 2023 –

Although overshadowed by Mr. Buffett, who relished the spotlight, Mr. Munger, a billionaire in his own right had far more influence at Berkshire than his title of vice chairman suggested.

Mr. Buffett has described him as the originator of Berkshire Hathaway’s investing approach. “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,” Mr. Buffett once wrote in an annual report.

That investing strategy was a revelation for Mr. Buffett, who had made his name in the 1950s buying troubled companies at deep discounts. (He called them “cigar butts,” because investing in them, he said, was like “picking up a discarded cigar butt that had one puff remaining in it.”)

Mr. Munger counseled Mr. Buffett that if he wanted to build a large, sustainable company that would outperform other investors, he should buy solid brand-name companies. “He was the architect and I was the general contractor,” Mr. Buffett said of their relationship.

Buffett used the “architect-contractor” analogy in his 2023 letter to Berkshire’s shareholders –

Charlie was the “architect” of the present Berkshire, and I acted as the “general contractor” to carry out the day-by-day construction of his vision. Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades. In a way his relationship with me was part older brother, part loving father. Even when he knew he was right, he gave me the reins, and when I blundered he never – never –reminded me of my mistake.

In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten. Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect.

The impact of Munger on Buffett’s life and career is a classic example of how certain individuals can significantly alter the trajectory of another’s life.

Before Munger, Buffett was primarily influenced by the teachings of Benjamin Graham, the father of value investing. Graham’s approach was largely quantitative, focusing on undervalued assets and a margin of safety.

While Buffett excelled in this strategy, Munger introduced him to a more qualitative approach. he believed in investing in high-quality businesses with strong competitive advantages, even if it meant paying a fair or slightly higher price.

This was a significant pivot from Buffett’s original Graham-inspired principles, marking a turning point in his investment philosophy.

Munger’s influence led Buffett to make some of the most successful investments in Berkshire Hathaway’s history, including acquisitions like See’s Candies and investments in Coca-Cola and Apple.

Beyond investments, Munger’s broader worldview also impacted Buffett personally and professionally.

Known for his wit, wisdom, and ethical standpoint, Munger was a voice of reason, often advocating for simplicity and clarity in business and life. His emphasis on rationality, discipline, and lifelong learning resonated deeply in Buffett’s speeches and letters.

Their partnership exemplified how the right mentor or partner can change one’s approach to their profession and life.

It underscored the significance of intellectual camaraderie and the profound effect a like-minded yet independently thinking individual can have in shaping one’s legacy.

Finding the right role models, like Munger was for Buffett, can be a game changer…in investing and life.

Role models act as beacons for us, guiding us through the fog of uncertainty and complexity, much like Munger did for Buffett, altering his investment philosophy and, consequently, his destiny.

It’s important to remember that our paths are often shaped not just by our own decisions but also by those we admire and learn from. And it is not just about acquiring skills or strategies but about shaping our character, ethics, and worldviews.

Munger did not just offer Buffett investment advice, but a lens through which to view the world, underlining the significance of patience, understanding, and integrity.

This kind of mentorship, if we are lucky to find it, moulds us subtly yet profoundly, altering our approach to our careers and to life itself.

However, the true essence of this idea lies in recognizing that role models are not blueprints for our lives but rather catalysts for self-discovery and growth.

They ignite a spark within us, inspiring us to pursue our unique paths with renewed perspective and vigour.

In this way, finding a role model is not about copying a path to success, but about unlocking our own potential and charting a course that is authentically ours.

Before I close, I must say that finding the right role models has been highly instrumental in my development toward investing sensibly and successfully in the stock market. Sensible investing is something you either pick up instantly or you don’t. So I have been lucky to get introduced to the writings of Buffett and Munger.

I just fell in love with what they had to say and implemented their lessons in my own life. That, I believe, has made a huge difference.

As I understand, you become the average of five people you spend the most of your time with. Buffett, Munger, and the likes have helped me build a sensible process for investing. And not just investing, they have helped me tremendously in becoming a better human being than I was a few years back.

I want to leave you here with a brilliant quote from Guy Spier’s book The Education of a Value Investor. He writes about the criticality for a budding investor to find his role models early in life –

…there is no more important aspect of our education as investors, business people, and human beings than to find these exceptional role models who can guide us on our own journey.

Books are a priceless source of wisdom. But people are the ultimate teachers, and there may be lessons that we can only learn from observing them or being in their presence. In many cases, these lessons are never communicated verbally. Yet you feel the guiding spirit of that person when you’re with them.

Role models are highly important for us psychologically, helping to guide us through life during our development, to make important decisions that affect the outcome of our lives, and to help us find happiness in later life.

The journey of Buffett, influenced yet distinct from Munger, is a reminder that while we may walk in the footsteps of giants, our shoes are our own to fill.

If you haven’t yet, find your own role model(s). It’s one of the best things you will do in becoming a better investor and a better human being.