Although Charlie Munger has had a significant influence on Warren Buffett’s success, Buffett is undoubtedly the most well-known investor of our time.
As a young investor, Buffett was encouraged to purchase high-quality, well-known brands rather than cheap, failing enterprises he derided as “cigar butts.” Munger, the vice chairman of Berkshire Hathaway, passed away on Tuesday at the age of 99.
Buffett followed Munger’s straightforward blueprint: acquire a fantastic company at a fair price, not a fair company at a fabulous price. It became the explanation for how Berkshire was able to expand into an empire with world-class companies in manufacturing, energy, retail, railroading, and insurance.
“Charlie Munger was the catalyst for me to overcome my cigar-butt tendencies and create a company that could balance enormous scale with acceptable earnings,” Buffett stated in the 2014 letter commemorating Berkshire’s 50th anniversary. “The layout of today’s Berkshire was Charlie’s most significant architectural achievement.”
Purchasing distressed businesses at steep prices, according to the “Oracle of Omaha,” is likened to finding a discarded cigar butt with one puff left in it. The puff would be free even if the counterfoil was unsightly and drenched. But after enjoying that fleeting thrill, nothing more was possible, he added.
Putting Buffett straight
After World War II, Buffett attended Columbia University and apprenticed under the renowned value investing pioneer Benjamin Graham, which helped him hone his amazing talent for selecting inexpensive stocks. He claimed that Munger helped him see that his cigar-butt investing approach could only go so far and would not be sufficient if he intended to significantly grow Berkshire.
The thought of purchasing mediocre companies at low prices, while realising that this was a meagre profit, “really smacked me over the head with a two by four,” Buffett remarked in an interview. “We were looking for genuinely excellent enterprises that we could buy at fair rates.”
Source (CNBC)
