Charlie Munger's passing at the age of 99 hit the investing world like an earthquake this week. For 45 years, Munger helped Warren Buffett transform Berkshire Hathaway from a textile manufacturer into an investing behemoth. Its range of businesses now includes everything from insurance to energy, retail to real estate.
Munger was also an early proponent of two stocks for which Berkshire Hathaway has since become famous. One of them is Apple (NASDAQ: AAPL). Today, Berkshire is the second-largest individual shareholder of the company and represents 22% of Berkshire Hathaway's total market value (including listed and unlisted investments).
The other, Chinese automaker BYD (SHE: 002594), was lauded by Munger as early as 2008. The investment is up over 3,000% since then.
My colleague Sara Allen has already written on some of Munger's most lasting investment lessons but in this piece, we're asking two fund managers how the Buffett/Munger brand of investing has influenced their own careers as money managers.
For Forager's Gareth Brown and Claremont Global's Bob Desmond, Munger's lessons were certainly all-encompassing. From lessons on life to lessons on investing, Munger had the ability to explain investing in an accessible way and do it in a way that applied to other parts of the human experience as well.
"Something as simple and foundational as thinking about stocks as an ownership slice of a business rather than a piece of paper," Brown said.
Desmond draws from this lesson as well.
"Buy a great business at a fair price rather than a fair business at a great price. I think that is the essence of what we're really trying to do at Claremont," Desmond said before adding "Don't make too many decisions. If you make one really good decision, that can last a lifetime."
Brown and Desmond both referenced Munger and the Berkshire team's patience and the mission to look for stocks that can outperform in the long term, rather than simply finding a 'flavour of the day'.
"The idea of markets acting as a pari-mutuel system is that it gets the odds mostly right most of the time. Your job is looking for the rare exceptions rather than the "Stock of the Day," Brown reflected.
What are your favourite investing adages/lessons from Charlie?
While Desmond shared some thoughts about investor psychology and the importance of reading widely, he said the best adages all live in Munger's most famous book.
"I would recommend to anyone Poor Charlie's Almanack. You'll learn more in that than you would from a business course or an investing course," Desmond said.
Desmond also referenced Munger's advice to read widely and learn consistently.
"You need to be learning all the time and building your knowledge base. Then when you get an opportunity, you need to go for it. But by the same token, when the facts change and you're wrong, don't hang around. Change your mind and get out of there quickly," Desmond added.
Brown took a leaf out of Berkshire's concentrated bets for his first favourite adage. Much like Berkshire and the Claremont Global flagship fund, the Forager International Shares Fund is heavily concentrated on investing in a small number of outstanding ideas.
"Over a lifetime of searching, you'll be lucky to find a handful of spectacularly mispriced bets. When you do, bet big. A younger Gareth Brown put 25-40% of his portfolio into a few of these and it was life-changing. A younger Charlie Munger put 150% of his portfolio into a few, an important difference, but Charlie was an inspiration on those big bets I did make," Brown said.
Brown also said Munger's approach to problem-solving influenced his investing style.
"Some hard problems are best solved backwards as is the idea of focusing on avoiding what you don't want in life rather than what you want," Brown said.
When I asked a question to Desmond and Brown about the stocks they hold that most align with the Berkshire principles, they both gave fascinating answers. Brown offered two current holdings which he says he would have loved to present to both gentlemen.
"We bought some US housing industry-related distribution businesses about 12 months ago when the market was very depressed. The largest position is Ferguson plc (NYSE: FERG). I'm sure Charlie could see some of the attractions of a company that links together an extremely disparate group of suppliers and customers, and he'd see how the scale operators have the edge. I'd particularly love to hear where he disagrees with our thesis," Brown said.
He then shared his thoughts on the banks. Buffett and Munger are famous for their large financial bets - chief among them, a huge holding in Bank of America (NYSE: BAC) and recent purchases in four Japanese trading houses. Brown revealed the fund recently made investments in several European banks.
"They've gone through their own Armageddon over the past 15 years and have the scars to prove it. That's a good thing, by the way. They're not without risk but are paying shareholders dividends plus buyback yields of 13-16% annually," Brown said.
Desmond took a different approach, saying Berkshire has bought some stocks that align with the Claremont Global portfolio before arguing he is amazed why the investing giant has not bought other like-minded names in those same industries.
Chief among them - Berkshire's third-largest individual stock holding is American Express (NYSE: AXP). In the Claremont Global portfolio, they own competitor Visa (NYSE: V) instead.
"I'm surprised they've never bought Visa. I can only think it's because they felt they were being disloyal to Amex. They understand that business so well, so that's an obvious one," he said.
We've already alluded in this piece to Berkshire's humongous stake in Apple. Desmond said this highlights their preference for companies with powerful brands - but again, he's amazed that they have not bought two staples of the Claremont Global portfolio - LVMH (EPA: MC) and Nike (NYSE: NKE).
The same could be said for technology behemoths Alphabet and Microsoft.
"The other one I've been really surprised they never bought is Alphabet (NASDAQ: GOOGL). Because they have owned newspapers in the past. They understand the business model and the network effects and they even freely admit that they use Google at GEICO," Desmond said.
"The other one I've been really surprised they never bought was Microsoft (NASDAQ: MSFT). They bought Apple but I personally think that Microsoft's a better business than Apple. I mean they could see that Apple was essential to running consumers' lives. But I think Microsoft is essential to running business lives but with much much higher margins and network effects. And I just think is a much harder business to dislodge," Desmond argued.
The Claremont Global portfolio owns both Alphabet and Microsoft as core holdings. Finally, Desmond noted that the fund he helps run will never own banks or energy companies, unlike the Berkshire portfolio which has substantial stakes in both sectors.
Of course, Desmond and Brown are not the only two Livewire contributors who have been influenced by the Berkshire Hathaway brand of investing. Far from it.
The NAOS Asset Management team have shared their thoughts on an ASX stock they think would pass Charlie Munger's filters.
We have also covered most of Berkshire Hathaway's AGMs and annual letters since the website was launched in 2013. Our most recent coverage can be found here (AGM) and here (annual letter) - both written by our own Kerry Sun.
In her piece, Sara discussed Munger's parting thoughts on life. From spouses to trust, he argued that to get what you want, you must deserve what you want. But I humbly submit that he had an even simpler piece of advice for life. Sitting down with CNBC's Becky Quick in 2019, he answered a question about the secret to a long and healthy life.
“You don’t have a lot of envy, you don’t have a lot of resentment, you don’t overspend your income, you stay cheerful in spite of your troubles. You deal with reliable people and you do what you’re supposed to do. And all these simple rules work so well to make your life better. And they’re so trite,” he said.
“And staying cheerful ... because it’s a wise thing to do. Is that so hard? And can you be cheerful when you’re absolutely mired in deep hatred and resentment? Of course, you can’t. So why would you take it on?”
And that overwhelmingly seems to be the feedback from the global investment community. It's not just about what Munger did as an investor. It's about how Munger gave away his millions to causes that meant so much to him and the world he wanted to leave behind. We can all learn something from staying cheerful - it's not hard and it may even let you live until you're 99!
This article was originally published on Livewire Markets.
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