The BBC’s Evan Davis talks to an avuncular Warren Buffett and a waspish Charlie Munger.
A few snippets below with links to the interviews.
Interview with Munger
Q: How worried are you by the declines of the share price of Berkshire Hathway?
CM: Zero. This is the third time Warren and I have seen our holdings in Berkshire Hathway go down, top tick to bottom tick, by 50%. I think it’s in the nature of long term shareholding of the normal vicissitudes, of worldly outcomes, of markets that the long-term holder has his quoted value of his stocks go down by say 50%. In fact you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.
Q: Munger and Buffett’s checklist for picking a company to invest in.
CM: We have to deal with things that we’re capable of understanding and then, once we’re over that filter we need to have a business with some characteristics that give us a durable competitive advantage and them, of course, we would vastly prefer management in place with a lot of integrity and talent and finally, no matter how wonderful it is, it’s not worth an infinite price. We have to have a price that makes sense and gives a margin of safety considering the normal vicissitudes of life It’s a very simple set of ideas and the reason that our ideas have not spread faster is they’re too simple. The professional classes can’t justify their existence if that’s all they have to say. It’s all so obvious and so simple what would they have to do with the rest of the semester?
Interview with Buffett
Q: Buffett on the trouble with stockmarkets.
WB: The very liquidity of stockmarkets causes people to focus on price action. If you buy an apartment house, if you buy a farm, if you buy a MacDonald’s franchise you don’t think about what it’s going sell for tomorrow or next week, or next month, you think about how is this business going to do. But stocks with this huge liquidity suck people in and they turn what should be an advantage into a disadvantage ... You are focusing on the right thing if you look at the stream of income that an asset is going to produce over time.
Related Articles: The Buffett-Munger Paradox, Investing Like Berkshire Hathaway, Is Intrinsic Value Real?
A few snippets below with links to the interviews.
Interview with Munger
Q: How worried are you by the declines of the share price of Berkshire Hathway?
CM: Zero. This is the third time Warren and I have seen our holdings in Berkshire Hathway go down, top tick to bottom tick, by 50%. I think it’s in the nature of long term shareholding of the normal vicissitudes, of worldly outcomes, of markets that the long-term holder has his quoted value of his stocks go down by say 50%. In fact you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.
Q: Munger and Buffett’s checklist for picking a company to invest in.
CM: We have to deal with things that we’re capable of understanding and then, once we’re over that filter we need to have a business with some characteristics that give us a durable competitive advantage and them, of course, we would vastly prefer management in place with a lot of integrity and talent and finally, no matter how wonderful it is, it’s not worth an infinite price. We have to have a price that makes sense and gives a margin of safety considering the normal vicissitudes of life It’s a very simple set of ideas and the reason that our ideas have not spread faster is they’re too simple. The professional classes can’t justify their existence if that’s all they have to say. It’s all so obvious and so simple what would they have to do with the rest of the semester?
Interview with Buffett
Q: Buffett on the trouble with stockmarkets.
WB: The very liquidity of stockmarkets causes people to focus on price action. If you buy an apartment house, if you buy a farm, if you buy a MacDonald’s franchise you don’t think about what it’s going sell for tomorrow or next week, or next month, you think about how is this business going to do. But stocks with this huge liquidity suck people in and they turn what should be an advantage into a disadvantage ... You are focusing on the right thing if you look at the stream of income that an asset is going to produce over time.
Related Articles: The Buffett-Munger Paradox, Investing Like Berkshire Hathaway, Is Intrinsic Value Real?
Thanks to Alex Bossert for this: Charlie Munger mentions the "four filters" at around the 6 min mark during an interview: http://news.bbc.co.uk/2/hi/business/8326369.stm
ReplyDelete"The Four Filters Invention of Warren Buffett and Charlie Munger" examines each of the basic steps they perform in "framing and making" an investment decision. This book is a focused look into this amazing invention within "Behavioral Finance." The genius of Buffett and Munger's four filters process was to "capture all the important stakeholders" in a "multi-variable" equation or formula. Imagine...Products, Enduring Customers, Managers, and Margin-of-Safety... all in one mixed "qual + quant" formula. http://www.amazon.com/dp/0615241298
Other important ideas are embedded in each chapter. The book can be used as a supplemental textbook in a Valuation or Decision Sciences course.
You are focusing on the right thing if you look at the stream of income that an asset is going to produce over time.
ReplyDeleteIf this is so (it is), then Passive Investing makes no sense. The stream of income is obviously not the same when stocks are priced at three times fair value as it is when stocks are priced at one-half of fair value.
Buffett of course gets this. But he has on numerous occasions given his "okay" to the continued promotion of Passive Investing by numerous investing "experts." He's a genius. But he failed us big-time re this one, in my assessment. No one's perfect.
Rob