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CHARLIE MUNGER Part Ten (C) Charlie ValueWalk Munger 2015 - All rights Reserved 40
CHARLIE MUNGER Conclusion In this concluding part of this series, I’m summing up the key points of Charlie Munger’s investment philosophy. 1. Quality over value Charlie Munger looks for quality businesses when investing. Unlike Warren Buffett, Charlie Munger is willing to pay a high price for a great business. “The ideal business is one that generates very high returns on capital and can invest that capital back into the business at equally high rates. Imagine a $100 million business that earns 20% in one year, reinvests the $20 million profit and in the next year earns 20% of $120 million and so forth. But there are very few businesses like this. Coke has high returns on capital, but incremental capital doesn’t earn anything like its current returns. We love businesses that can earn high rates on even more capital than it earns.” “…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.” 2. Be ready “…the big money’s been made in the high quality businesses. And most of the other people who’ve made a lot of money have done so in high quality businesses.” However, you need to wait for the perfect opportunity before you pounce. It pays to wait. Sometimes the best thing you can do is nothing. “The way to get rich is to keep $10 million in your checking account in case a good deal comes along…There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash — and I don’t want to go back.” “This great emphasis on volatility in corporate finance we regard as nonsense. Let me put it this way; as long as the odds are in our favor and we’re not risking the whole company on one throw of the dice or anything close to it, we don’t mind volatility in results. What we want are favorable odds.” “Move only when you have an advantage.” (C) Charlie ValueWalk Munger 2015 - All rights Reserved 41
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