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kulman
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   Posted: 27/Mar/2007 at 1:00pm |
Question: You've said previously that 15 or so great investments have made the difference for Berkshire. What have been some of their common characteristics?
Charlie Munger: Well, they all worked. But they have been very different. It does emphasise just how few great investments you really need in a lifetime. Patience and aggressive opportunism are part of our game. People who have to make an acquisition every month, will eventually crater.
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basant
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Posted: 29/Mar/2007 at 5:36pm |
This compared to Buffet's famous 20 hole punchcard. He advocated that any investor should not think of buying more then 20 stocks during his life time and he should do well.
I think anybody who has made serious money in this market can count the number of stocks which helped him make that wealth. If he cannot count them then it means he was holding too many or in other words has done only as good as the market.
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Vivek Sukhani
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Posted: 29/Mar/2007 at 9:16pm |
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Very true Sir. Although, I am a strict advocate of diversification, yet the laodings can never will be equal. If you keep a diversified portfolio, markets will take care of the weightages.... and with no churning, the performers weightage will increase. In the end, Pareto's principle will hold. I admit diversification is an admission of lack of confidence, but I have seen people with confidence losing hell lot of money in no time. Am not saying that its forever the case, but small investors should always adopt highest degrees of risk management.
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kulman
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Posted: 29/Mar/2007 at 11:09pm |
Question: What about benchmark risk?
Charlie Munger: If you're an investment manager and you're going to get fired if you don't beat your benchmark, then you'll do some strange things to make sure that doesn't happen. We are in a benchmarking world right now. You often get investors who are really closet indexers, in which case you're being played for a sucker. These guys have 85 per cent of their assets linked to the index, and they charge big fees.
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kulman
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Posted: 30/Mar/2007 at 11:16am |
So, economics should emulate physics' basic ethos, but its search for precision in physics–like formulas is almost always wrong in economics.---Charlie Munger
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kulman
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Posted: 01/Apr/2007 at 5:41pm |
Thanks to Devesh, I got to read an excellent article he sent me. Following is just an excerpt. Complete article is available here
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I personally believe Munger’s influence at Berkshire and on Buffett’s thinking goes, regrettably, unsung. Very unsung. If Munger hadn’t been around, Buffett arguably would not have gained an appreciation of buying great businesses rather than cigar butts. Munger helped make Berkshire’s returns phenomenal, while allowing for scalability that could not have otherwise been achieved. In other words, Berkshire could never have been scaled to its huge size by purchasing cigar butts — there aren’t enough of them, and the returns are not “continuing” (i.e. when they reach fair value, there’s no further upside. You must sell it and move on). Berkshire, therefore, needed to invest in great businesses that it could hold on to.
Charlie Munger is a staunch proponent of a type of interdisciplinary model of thinking in which one draws on the accumulated wisdom of many different disciplines (including, but certainly not limited to, psychology, physics, biology, economics, etc.) and understands how they interact. This “latticework” of mental models ultimately becomes worldly wisdom. And it is a structure for thinking, solving problems, and, yes, finding investments.
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basant
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Posted: 01/Apr/2007 at 5:54pm |
What an observation:
"Berkshire could never have been scaled to its huge size by purchasing cigar butts — there aren’t enough of them, and the returns are not “continuing” (i.e. when they reach fair value, there’s no further upside. You must sell it and move on)"
Maybe Munger was the guiding force that made the Buffet of today different from what he started as a student of Graham.
While Buffet is the proponent of the instrinsic value theory most of Buffet's investments are in vauable businesses Insurance, Banking, Rating agencies, Media, Consumer comapnies have never appeared to be cheap whether you look at it from the PE basis or a typical analyst's perspective of book value/dividend etc but yet he continued to make money out of them year after year maybe for two reasons:
1) His purchase price was very attractive - this can only help you in your first year not after that because by then the valuation gap closes down.
2) Those businesses became cheap every six months. That is the EPS kept on growinmg and growing interest rates or no interest rates these are busiensses any one can dream of holding.
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kulman
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Posted: 01/Apr/2007 at 6:48pm |
You are absolutely right. Buffet has best of both Graham & Munger.
By the way, Basant jee while going through previous letters by WB to shareholders, I came across a very interesting concept called 'look- through earnings'.
Quote
We also believe that investors can benefit by focusing on their own look-through earnings. To calculate these, they should determine the underlying earnings attributable to the shares they hold in their portfolio and total these. The goal of each investor should be to create a portfolio (in effect, a "company") that will deliver him or her the highest possible look-through earnings a decade or so from now. An approach of this kind will force the investor to think about long-term business prospects rather than short-term stock market prospects, a perspective likely to improve results.
Unquote
For example.....
| Company |
Shares held |
Earnings Per Share |
Dividends Per Share |
Undistributed Earnings/Share |
Look-through Earnings |
| American Express |
151,610,000 |
$3.09 |
$0.48 |
$2.61 |
$395,702,100.00 |
| Coca Cola Co. |
200,000,000 |
$2.04 |
$1.12 |
$0.92 |
$184,000,000.00 |
& so on.......to determine how much 'real' growth is there in investments!
WB used to mention that his aim was to achieve min 15% CAGR in 'look-through earnings' so as to achieve growth in Berkshire's intrinsic value.
Edited by kulman - 01/Apr/2007 at 7:21pm
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