Lessons from Warren Buffett's mentor

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It’s rare to see investors agree on a topic, but when Livewire recently reached out to Roger Montgomery, Ben Rundle, and Jason Teh to find out which ‘super investor’ had influenced them the most, they all agreed: Charlie Munger. Perhaps this shouldn’t be so surprising, given Munger’s influence over his business partner, Warren Buffett. There are few better ways to learn than by listening to the wisdom of the greats, so we also asked our three contributors for one of their favourite lessons from him, and some suggestions for further reading.  

"If I have seen further it is by standing on the shoulders of Giants." - Sir Isaac Newton 

What makes a great business? 

Ben Rundle, NAOS Asset Management  

As cliché as it is, Warren and Charlie have had the biggest influence on how I think about investing. However, a lot of that has to do with how much of their time they have spent educating people on how they invest as well as how clearly and rationally they are able to articulate their thoughts.  

The mistake many people make with these two is they view them as traditional Benjamin Graham value investors trying to buy $1 for 50 cents. While that was true of them in their early years, their investing style has evolved a great deal over their journey to focus more on truly great businesses that can compound their returns.  

Charlie Munger wrote an article called ‘The Art of Stock Picking’ which steps through this.  

“The bulk of the billions in Berkshire Hathaway have come from the better businesses. Much of the first $200 or $300 million came from scrambling around with our Geiger counter. But the great bulk of the money has come from great businesses.”  

So, what then makes a great business in his eyes? They can come in many forms, however I think it’s best described with the following statement from the same article.  

“Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result.”  

It is one of the best articles I have read on investing and I highly recommend anyone who is serious about investing to read it themselves.   

Business and investing 

Roger Montgomery, Montgomery Investment Management 

Successful investing requires both intelligence and the right temperament.  At Berkshire Hathaway, I believe Buffett brings the temperament to bet big, while Charlie was the thinker. It should be remembered that Munger introduced Buffett to a superior strategy to that which he had been hitherto employing and which was taught to him by Ben Graham. As Buffett said, “Boy, if I had listened only to Ben, would I ever be a lot poorer.'' 

For me, the most important lesson has been that running and observing a business makes you a better investor, and being an investor makes you a better business person. 

The book I would recommend is Damn Right by Janet Lowe

Voracious learning is the key to success 

Jason Teh, Vertium Funds Management 

When I read about Warren Buffett, I realised it was Charlie Munger’s ideas that resonated with me the most. Munger promotes the idea that people should be learning machines and become multi-disciplinary.  

A ‘worldly wise’ person has the best chance to succeed in investing, because investing is essentially about making decisions under uncertainty. Thinking clearly and drawing knowledge from multiple mental models leads to less decision mistakes and hence better investment results. 

I often compare Munger’s multi-disciplinary thinking to a mixed martial artist versus a karate expert. The highly skilled specialist is good, but he will have blind spots. Munger would refer to this specialist as a man with a hammer because everything looks to him like a nail. The mixed martial artist will work on every aspect of their style to ensure weaknesses are limited. 

There are not many books written about Munger, but to learn more about how the great man thinks I recommend starting with his speech “The Psychology of Human Misjudgement”. This is a classic and timeless speech about the frailties of human decision making. 

And if you want to learn more about how to make better decisions I would recommend books like Predictably Irrational by Dan ArielyInfluence by Robert CialdiniThinking Fast and Slow by Daniel KahnemanSuperforecasting by Phil Tetlock and Dan Gardner, and Thinking in Bets by Annie Duke

Munger’s voracious learning attitude is a common trait among other ‘super investors’ such as Jim Simons at Renaissance Technologies and Ray Dalio at Bridgewater Associates. Despite these ‘super investors’ having different investment disciplines they all share the universal goal of seeking out truths through the process of learning. 


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