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The best of Charlie Munger 1994-2011


giofranchi
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Thank you for posting

 

Ditto, it's a treasure trove.  Especially appropos for us now are his remarks on and about page 75 about how it's prudent and better for a foundation to invest in as few as one to three well chosen equities than to think wrongly that they should be diversified.

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Ditto, it's a treasure trove.  Especially appropos for us now are his remarks on and about page 75 about how it's prudent and better for a foundation to invest in as few as one to three well chosen equities than to think wrongly that they should be diversified.

 

+1

 

giofranchi

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Ditto, it's a treasure trove.  Especially appropos for us now are his remarks on and about page 75 about how it's prudent and better for a foundation to invest in as few as one to three well chosen equities than to think wrongly that they should be diversified.

 

+1

 

giofranchi

 

Ah! Almost forgot!

Mr. Keynes had expressed exactly the same thought in a letter to the Chairman of Provincial Insurance, dated February 6, 1942:

 

“To suppose that safety-first consists in having a small gamble in a large number of different direction…, as compared with a substantial stake in a company where one’s information is adequate, strikes me as a travesty of investment policy.”

 

"As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for special confidence." (emphasis mine)

 

giofranchi

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Ditto, it's a treasure trove.  Especially appropos for us now are his remarks on and about page 75 about how it's prudent and better for a foundation to invest in as few as one to three well chosen equities than to think wrongly that they should be diversified.

 

+1

 

giofranchi

 

Ah! Almost forgot!

Mr. Keynes had expressed exactly the same thought in a letter to the Chairman of Provincial Insurance, dated February 6, 1942:

 

“To suppose that safety-first consists in having a small gamble in a large number of different direction…, as compared with a substantial stake in a company where one’s information is adequate, strikes me as a travesty of investment policy.”

 

"As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for special confidence." (emphasis mine)

 

giofranchi

 

I agree, but your success rate/strike rate should be considered. The person that gets 10 out of 10 picks right can concentrate more than the one that gets 6 out of 10 right. Buffett and Munger is rumoured to be in the high 90s

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Ditto, it's a treasure trove.  Especially appropos for us now are his remarks on and about page 75 about how it's prudent and better for a foundation to invest in as few as one to three well chosen equities than to think wrongly that they should be diversified.

 

+1

 

giofranchi

 

Ah! Almost forgot!

Mr. Keynes had expressed exactly the same thought in a letter to the Chairman of Provincial Insurance, dated February 6, 1942:

 

“To suppose that safety-first consists in having a small gamble in a large number of different direction…, as compared with a substantial stake in a company where one’s information is adequate, strikes me as a travesty of investment policy.”

 

"As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for special confidence." (emphasis mine)

 

giofranchi

 

I agree, but your success rate/strike rate should be considered. The person that gets 10 out of 10 picks right can concentrate more than the one that gets 6 out of 10 right. Buffett and Munger is rumoured to be in the high 90s

 

Mr B good point.

 

Even with a 50% batting average at picking a winner (say a double over 5 years), you can be ahead with just 4 picks I believe according to Kelly formula if I remember correctly. I was surprised number is 4.

 

The most important thing that concentrating in 3-4 ideas does in my mind, especially with sizable amounts of money (e.g a lifetime of savings), is it challenges your level of conviction, including the quality of your analysis. There have been a lot of things I have done in the past that I probably would not have done if I had to commit to 25%. I think it was Richard Rainwater who also said that if you don t have enough conviction to put in 25% then don't put any in. I am working on this myself.

 

Gio, thanks for posting- I need to take up speed reading-there is so much that can or should be read + not enough time.

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Gio, thanks for posting- I need to take up speed reading-there is so much that can or should be read + not enough time.

 

Guess we all share the same problem… As I have already pointed out in a previous thread (started by tombgrt), I have found audiobooks to be very helpful! I guess I will never again read a textbook, while sitting at my desk! Because now I can do it while driving, walking, exercising at the gym, etc.. It is amazing how fast I can finish a book today! So, at work I can concentrate on 10-ks, 10-qs, documents published by the companies I follow, various papers, etc..

 

giofranchi

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Ditto, it's a treasure trove.  Especially appropos for us now are his remarks on and about page 75 about how it's prudent and better for a foundation to invest in as few as one to three well chosen equities than to think wrongly that they should be diversified.

 

+1

 

giofranchi

 

Ah! Almost forgot!

Mr. Keynes had expressed exactly the same thought in a letter to the Chairman of Provincial Insurance, dated February 6, 1942:

 

“To suppose that safety-first consists in having a small gamble in a large number of different direction…, as compared with a substantial stake in a company where one’s information is adequate, strikes me as a travesty of investment policy.”

 

"As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for special confidence." (emphasis mine)

 

giofranchi

 

I agree, but your success rate/strike rate should be considered. The person that gets 10 out of 10 picks right can concentrate more than the one that gets 6 out of 10 right. Buffett and Munger is rumoured to be in the high 90s

 

 

If one has Warren's lifetime of experience, it would be unproductive to go outside one's area of confidence, but there is merit for most of us in trying new things on a relatively small scale while concentrating mostly on very high conviction ideas.  Otherwise, we would never have invested in Lancashire because it would have been disqualified by our standards in 2006 as a recent IPO.  One great idea can more than make up for a few failures.

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Thank you for posting

 

Ditto, it's a treasure trove.  Especially appropos for us now are his remarks on and about page 75 about how it's prudent and better for a foundation to invest in as few as one to three well chosen equities than to think wrongly that they should be diversified.

 

I never understand these kinds of comments.  That is, those that imply there is a better way to invest in terms of diversification or concentration.  Schloss would take dozens of small positions.  His performance over almost a 45 year period is better than most of those from the town of Graham and Doddsville (in fact possibly the best save for Buffett himself).  I don't understand why it's "wrong" to think that one can take more than 1 to 3 positions.  I am not saying doing that is wrong, it isn't obviously.  If someone can do it, go ahead.  I'd venture of course that very few people on this board who preach excessive concentration actually are at 1 to 3 positions.  In my view, there are many ways to skin a cat.  No way is right or wrong.  There is no absolute truth to any one philosophy.  The thing is though that it's those who preach concentration typically say that that is the best way and that any other way is protecting against ignorance.  One never heard Schloss saying similar things about those who concentrate.  In fact, he often was very self deprecating and said he wasn't very bright and that's why he took this approach.  Not true obviously, but shows a different approach to describing stylistic differences.

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Thank you for posting

 

Ditto, it's a treasure trove.  Especially appropos for us now are his remarks on and about page 75 about how it's prudent and better for a foundation to invest in as few as one to three well chosen equities than to think wrongly that they should be diversified.

 

I never understand these kinds of comments.  That is, those that imply there is a better way to invest in terms of diversification or concentration.  Schloss would take dozens of small positions.  His performance over almost a 45 year period is better than most of those from the town of Graham and Doddsville (in fact possibly the best save for Buffett himself).  I don't understand why it's "wrong" to think that one can take more than 1 to 3 positions.  I am not saying doing that is wrong, it isn't obviously.  If someone can do it, go ahead.  I'd venture of course that very few people on this board who preach excessive concentration actually are at 1 to 3 positions.  In my view, there are many ways to skin a cat.  No way is right or wrong.  There is no absolute truth to any one philosophy.  The thing is though that it's those who preach concentration typically say that that is the best way and that any other way is protecting against ignorance.  One never heard Schloss saying similar things about those who concentrate.  In fact, he often was very self deprecating and said he wasn't very bright and that's why he took this approach.  Not true obviously, but shows a different approach to describing stylistic differences.

 

Walter was a lot more discerning than many realize.  When he spotted a balance sheet bargain, he would go back and read 10 years of 10K's and satisfy himself that he was investing in a solid company with capable, ethical management.  Then he might wait to see if that stock went down even more, perhaps with EOY tax loss and portfolio dressing before pulling the trigger.

 

That method worked well overall for Walter, but Ben Graham said that buying secondary issues at a bargain price was not apt to lead to profits when the market was exuberant.  We saw evidence of this big time in 98 and 99, which led up to a great time to buy all sorts of bargains after the market rolled over in 2000.  Same after the crash in 08 & 09.  Walter's strategy will beat anything else after a crash.

 

Walter had enormous patience.  He was interviewed not long after Y2K.  The interviewer asked him if he thought Stanley Furniture was a bargain worth buying. It paid a high dividend, a red flag for a company with mediocre returns in a cyclical industry.  Walter took a look at it and expressed the opinion that they might pass their dividend.  That's exactly what happened.  When the market and that stock price turned down, Walter bought it for 20 cents on the dollar compared to its price earlier. A couple of years later, Walter had a 4 bagger.  :)

 

Even Warren used the Schloss method successfully in recent years, picking up quite a few bargains in the Korean market after it crashed over a decade ago. :)

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Thank you for posting

 

Ditto, it's a treasure trove.  Especially appropos for us now are his remarks on and about page 75 about how it's prudent and better for a foundation to invest in as few as one to three well chosen equities than to think wrongly that they should be diversified.

 

I never understand these kinds of comments.  That is, those that imply there is a better way to invest in terms of diversification or concentration.  Schloss would take dozens of small positions.  His performance over almost a 45 year period is better than most of those from the town of Graham and Doddsville (in fact possibly the best save for Buffett himself).  I don't understand why it's "wrong" to think that one can take more than 1 to 3 positions.  I am not saying doing that is wrong, it isn't obviously.  If someone can do it, go ahead.  I'd venture of course that very few people on this board who preach excessive concentration actually are at 1 to 3 positions.  In my view, there are many ways to skin a cat.  No way is right or wrong.  There is no absolute truth to any one philosophy.  The thing is though that it's those who preach concentration typically say that that is the best way and that any other way is protecting against ignorance.  One never heard Schloss saying similar things about those who concentrate.  In fact, he often was very self deprecating and said he wasn't very bright and that's why he took this approach.  Not true obviously, but shows a different approach to describing stylistic differences.

 

Walter was a lot more discerning than many realize.  When he spotted a balance sheet bargain, he would go back and read 10 years of 10K's and satisfy himself that he was investing in a solid company with capable, ethical management.  Then he might wait to see if that stock went down even more, perhaps with EOY tax loss and portfolio dressing before pulling the trigger.

 

That method worked well overall for Walter, but Ben Graham said that buying secondary issues at a bargain price was not apt to lead to profits when the market was exuberant.  We saw evidence of this big time in 98 and 99, which led up to a great time to buy all sorts of bargains after the market rolled over in 2000.  Same after the crash in 08 & 09.  Walter's strategy will beat anything else after a crash.

 

Walter had enormous patience.  He was interviewed not long after Y2K.  The interviewer asked him if he thought Stanley Furniture was a bargain worth buying. It was a bargain that paid a high dividend.  Walter took a look at it and expressed the opinion that they might pass their dividend.  That's exactly what happened.  When the market and that stock turned down, Walter bought that stock for 20 cents on the dollar compared to its price earlier. A couple of years later, Walter had a 4 bagger.  :)

 

Even Warren used the Schloss method successfully in recent years, picking up quite a few bargains in the Korean market after it crashed over a decade ago. :)

 

I couldn't agree more with what you just said.  I am not sure what it has to do with your earlier statement however.  There is no requirement that in order to be discerning one must only hold a handful of stocks.  I think Schloss was incredibly discerning.  But this is a different discussion.    You said "especially appropos for us ow are his remarks . . .  about how it's prudent and better . . . to invest in as few as one to three well chosen equities than to think wrongly they should be diversified."  That assertion mirrors others about how diversification is not a cure for ignorance and the like.  So my point is that why does it matter?  Schloss was diversified and did incredibly well.  Munger was not diversified and did incredibly well.  So what?  And I don't believe for a second that Schloss thought he had to have dozens of positions, I think he found dozens of positions worth holding.  It sounds though as if we are certainly in agreement on Schloss.

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Thank you for posting

 

Ditto, it's a treasure trove.  Especially appropos for us now are his remarks on and about page 75 about how it's prudent and better for a foundation to invest in as few as one to three well chosen equities than to think wrongly that they should be diversified.

 

I never understand these kinds of comments.  That is, those that imply there is a better way to invest in terms of diversification or concentration.  Schloss would take dozens of small positions.  His performance over almost a 45 year period is better than most of those from the town of Graham and Doddsville (in fact possibly the best save for Buffett himself).  I don't understand why it's "wrong" to think that one can take more than 1 to 3 positions.  I am not saying doing that is wrong, it isn't obviously.  If someone can do it, go ahead.  I'd venture of course that very few people on this board who preach excessive concentration actually are at 1 to 3 positions.  In my view, there are many ways to skin a cat.  No way is right or wrong.  There is no absolute truth to any one philosophy.  The thing is though that it's those who preach concentration typically say that that is the best way and that any other way is protecting against ignorance.  One never heard Schloss saying similar things about those who concentrate.  In fact, he often was very self deprecating and said he wasn't very bright and that's why he took this approach.  Not true obviously, but shows a different approach to describing stylistic differences.

 

Walter was a lot more discerning than many realize.  When he spotted a balance sheet bargain, he would go back and read 10 years of 10K's and satisfy himself that he was investing in a solid company with capable, ethical management.  Then he might wait to see if that stock went down even more, perhaps with EOY tax loss and portfolio dressing before pulling the trigger.

 

That method worked well overall for Walter, but Ben Graham said that buying secondary issues at a bargain price was not apt to lead to profits when the market was exuberant.  We saw evidence of this big time in 98 and 99, which led up to a great time to buy all sorts of bargains after the market rolled over in 2000.  Same after the crash in 08 & 09.  Walter's strategy will beat anything else after a crash.

 

Walter had enormous patience.  He was interviewed not long after Y2K.  The interviewer asked him if he thought Stanley Furniture was a bargain worth buying. It was a bargain that paid a high dividend.  Walter took a look at it and expressed the opinion that they might pass their dividend.  That's exactly what happened.  When the market and that stock turned down, Walter bought that stock for 20 cents on the dollar compared to its price earlier. A couple of years later, Walter had a 4 bagger.  :)

 

Even Warren used the Schloss method successfully in recent years, picking up quite a few bargains in the Korean market after it crashed over a decade ago. :)

 

I couldn't agree more with what you just said.  I am not sure what it has to do with your earlier statement however.  There is no requirement that in order to be discerning one must only hold a handful of stocks.  I think Schloss was incredibly discerning.  But this is a different discussion.    You said "especially appropos for us ow are his remarks . . .  about how it's prudent and better . . . to invest in as few as one to three well chosen equities than to think wrongly they should be diversified."  That assertion mirrors others about how diversification is not a cure for ignorance and the like.  So my point is that why does it matter?  Schloss was diversified and did incredibly well.  Munger was not diversified and did incredibly well.  So what?  And I don't believe for a second that Schloss thought he had to have dozens of positions, I think he found dozens of positions worth holding.  It sounds though as if we are certainly in agreement on Schloss.

 

Yes, I think we agree.  Let me clarify that I meant to say diversification, merely for the sake of diversification, is only a good idea if one wants to spread his ignorance around and follow the herd as most fund managers do. There is a time for everything: a time to buy quality at a good price, and a time to buy balance sheet bargains.  I like to have it both ways; that's tough in this market.  BRK at < 1.2 times forward BV is one of the few that comes close to meeting that double standard, especially with the safety of the Buffett Put.  My personal preference would be to have a lot of my eggs in that basket.

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