Warren Buffett’s Partner Says the Secret Is ‘Just Avoid Being Stupid’

  • Avoid meetings and read constantly, advises 95-year-old Charlie Munger

  • If you avoid doing stupid things, it’s easy to make money investing, he says.

  • Disciple of value investing godfather Benjamin Graham shares his best ideas.

Columnist Jason Zweig of the Wall Street Journal recently interviewed investment legend Charlie Munger at his Los Angeles home.

Munger, now 95, has a number of quirky personality traits as well as some sound fundamental principles he shares with his long-time partner, Warren Buffett, that has led to a prodigious history of successful investing.

Munger, a former attorney, left the law in 1965, after practicing for 13 years. He wanted to begin a process of wealth accumulation so he could build something for himself instead of his law firm clients.

He also left the law because he wanted “to have a lot of time in every day to read and think.” This desire for study and quiet contemplation is a trait he shares with Warren Buffett. Both men abhor meetings.

“Warren doesn’t go to meetings,” Munger notes. “There’s practically no meetings in the whole Berkshire culture. There are a few telephone calls and no meetings.”

Munger has always been a voracious reader, a practice he continues in earnest today. From an early age, Munger preferred learning by reading books, rather than by absorbing knowledge by listening to a teacher or professor lecture.

Today, Munger typically reads himself to sleep, sometimes retiring at 3:00 a.m. He is at work most days by 8:00 a.m. The books in his library include Shakespeare, Twain, biographies, histories, and anthologies of humor and short stories and poetry.

Another lesser-known interest of Munger’s is designing college dormitories. As an avid philanthropist, Munger takes a direct role in the architectural planning for dormitories that bear his name as donor.

It’s revealing to hear how Munger describes his involvement in building design. One can glean certain unmistakable similarities or traits in his design philosophy, that distinguish and color his approach to investing, most notably his habit of upending traditional design utilization of space at universities.

He calls his redesign an attempt to “fix that stupidity” by utilizing that empty space for creative and recreational activities. Munger calls it the “most obvious idea in the whole goddamn world. Just think of what sense it makes. Anything else is massively stupid.”

Investment Philosophy

Like Buffett, Munger is a disciple of Benjamin Graham, the father of value investing. Graham stressed the importance of making investment decisions by assiduously determining the intrinsic value of a stock and purchasing only those that are selling below their “intrinsic value.”

Doing so provides what Graham called a “margin of safety” for the investor, crucial for achieving an above-average long-term return.

Munger summarizes the core basic principles underlying value investing and the benefits that accrue.

“All good investing involves getting a better investment than you’re paying for. And you’re just looking for it in different places, just as a fisherman can fish in one place or another,” he says.

“But he’s always looking for more value than he’s paying for.”

Even though times and the investment climate may change, as Munger notes, this approach to investing will never go out of style.  “I mean, that is just basic and fundamental,” he says.

Like Buffett, Munger has maintained an unwavering belief in these fundamental principles of investing, values which have made Berkshire Hathaway one of the most successful funds of all time.

Munger likes to characterize his success by citing one key factor that seems to drive all other components of his investment prowess. He claims not to be gifted with vastly superior intelligence, but more importantly possessed of the self-knowledge to avoid making mistakes, or what he calls, “asininities.”

“We’re talking about very simple ideas of just figuring out the standard stupidities and avoiding them. And I actually collect them!” he says.

An integral aspect of avoiding calamitous mistakes is having the capacity of self-examination. Munger has an incredibly illuminating way of describing this essential quality of discipline and creative thinking.

“Part of the reason I’ve been a little more successful than most people is I’m good at destroying my own best-loved ideas.”

Munger realized in his early years that this quality “would be a useful knack and I’ve honed it all these years, so I’m pleased when I can destroy an idea that I’ve worked very hard on over a long period of time. And most people aren’t.”

Whether avoiding “asininities” is bucking entrenched wisdom or being patient, this discipline practiced by Munger has helped Berkshire provide phenomenal results for its shareholders.

Berkshire Hathaway

The management of Berkshire reflect the personalities of its two leaders. The fund is not a heavy, top-down organization with multiple committees. Berkshire has no legal department.

In fact, the former attorney has nothing but scorn for the legion of attorneys performing due diligence on potential acquisitions. “It’s all just pure bullshit make-work crapola. And yet they do it, and it’s very remunerative,” he says.

The fund eschews management complexity, as it can hamper creativity. Munger notes that, “part of Berkshire’s secret is, we don’t have the meetings, we don’t have the bureaucracy.”

Munger says self-deprecating humor “is a necessity” at Berkshire. It keeps its fund managers anchored, humble and mindful of human fallibility. This helps insure that those who work under Buffett and Munger don’t fall prey to asininities and the stupidity of the crowd mentality or the frequently-erroneous conventional wisdom.

This culture encourages managers to constantly challenge their own preconceptions and assumptions — an indelible trait displayed by Munger throughout his illustrious investing career.

Munger acknowledges that Berkshire’s returns have been relatively low for the past 10 years, failing to keep pace with the S&P 500. This may be due in part to its size; Berkshire Hathaway has a market capitalization of $600 billion.

“It’s hard to buy and sell billions and billions of dollars in securities and have this wonderful record. And if you care about taxes and so on, it gets even harder. And of course, the great records converge down as the assets managed goes up and up,” he says.

Munger also notes that the competition has improved since he and Buffett started. “We had idiot competition when we were young — now we’ve got tough competition scrounging every area and little niche with massive — no, it’s way harder.”

Given Munger’s emphasis on how avoiding stupidity in investment choices is a key component to Berkshire’s success, the words he prefers for his obituary should come as no surprise,

“Both Warren and I feel it’s our moral duty to be as rational as we can possibly be. A lot of people who are brilliant in some ways tend to make these utterly asinine decisions in other ways. We both tend to collect the asininities of the world in a kind of checklist. And we try to avoid everything on the checklist.”