Charlie Munger's Rules

Investment Manager's Letter May 2000

I, as investment manager, always come away from the Berkshire Hathaway Annual meetings with the feeling that Charlie Munger managed to steal the show. While Warren Buffett is always brilliant, concise, and funny, Charlie Munger manages every year to come up with one or two comments that I remember the longest. This year he out did himself with the three best comments of the day:

  1. Charlie Munger described the joys of investing in the Internet in culinary terms. If you mix a great technology with a speculative investment bubble (the worst he has seen in his lifetime); the result is still not palatable. "When you mix raisins and turds, you still got turds."
  2. In addition he Introduced to the people gathered in Omaha a new school of investment analysis. You have value investing, and growth investing, but now we also have "sit on your ass investing", which is better. The problem with value investing is it requires too much work. First you have to find an undervalued stock and buy it cheap. Then you have to sell it when it the price reaches or exceeds your calculated figure for its intrinsic value. Because this requires many decisions over a long period of time, Charlie Munger prefers his own Method in which all you have to do is pick a really great company when it is attractively priced, and then just sit on your ass. The great advantage being that it only requires one decision.
  3. But for me, as investment manager, the perfect Mungerism Saturday was about the impact of the Internet on corporate profits. "For society the Internet will be wonderful, but it is way more likely to make business less profitable, than more profitable. This is perfectly obvious, but very little understood".

Obvious to Charlie Munger at least, but perhaps not too the rest of the Planet.

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