Legendary American investor Warren Buffett’s lifelong business partner, Charlie Munger, passed away recently. You will hear a lot about him over the next few days or weeks. Nithin Kamath of Zerodha wrote on social media highlighting the importance of Munger’s inspirational wisdom in his day-to-day life. Others highlighted the investing lessons they followed from his life. He helped Buffett build a company that stands up for investors and investing.
You are already familiar with the context if you are a direct equity investor. If you are not into that, you should not bother. You should follow the advice of your professional financial advisor. However, if you wish to learn more about investing, there are a lot of takeaways.
It is not an exaggeration if a section of investors in India are emotional about Munger and Warren Buffett. Munger was a ‘fundamental’ investor. He believed in businesses that showed consistent financial performance.
A fundamental principle of investing is that you need to follow profits. In that context, Munger’s life was a textbook. He argued favouring businesses with market leadership in their respective sectors and a future that sees further growth in that position. Such companies can maintain a steady business and profit growth. You need to know about 12-13 such companies in different sectors and then own shares of at least two or three. He spoke about this at length at the last annual general meeting of Berkshire Hathaway. He dismissed the idea of a diversified multi-sector stock portfolio.
Munger attached a significant importance to learning among all things. He used to say that your educational background does not matter if you learn something new daily. That way, when you go to bed, you sleep knowing more than the previous day. The information about your money is out there. You need to learn to put it together and make sense of it. Learning about markets, companies, and their financial performance will only enhance how you look at your investments. Your actions will be based on your learning as it matters for all categories of investors.
If you are a beginner, you need to know things that affect your money initially, like interest rates and inflation. If you are not from the field of finance, you need to know how to connect the dots that affect your money. Your financial future depends on the knowledge you possess through your learning. For an active investor, timely information matters a lot. There is learning almost every day if you belong to that category. The life of an active trader is based on real-time information. Regarding your money, there is no excuse for not learning. All the information you need is available.
Just like everything else in life, nothing is perfect. It is hard to say that he was always right or never wrong. Berkshire Hathaway did not own a single technology company till they invested in Apple a few years back. Considering the unprecedented boom and bust technology shares witnessed, Munger perhaps did not find the correct value.
The complete lack of participation in India’s stock market is another case. Munger liked Indian workers who did well for themselves in the US. But he thought that the Indian system needed fixing. That perhaps explains Berkshire’s little or no interest in Indian equities.
Over the years, long-term investors have made a fortune in the Indian market. That includes foreigners and locals. In hindsight, you may argue about the view. The other way to look at that is to believe that Munger and Buffett chose to know less about India. Although they did buy a few international companies, their prime holdings were in the United States. They were firm believers of capitalism and felt that America was the best place to practice it.
Continuing to learn about investing fundamentals is the mantra you can take from the unprecedented life of Charles Thomas Munger.