Achi news desk-
To say that Charlie Munger lived a long, full and rich life is putting it mildly and literally.
The Berkshire Hathaway sidekick of billionaire Warren Buffett died in November just weeks short of his 100th birthday. His estimated net worth? Only $2.2 billion, according to Forbes.
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Indeed, Munger was an investing legend – and filled with such a font of wisdom and no-nonsense wit. As for the extravagant purchases that consumers love, he once said, “Who the hell needs a Rolex watch?”
As investors, we arguably need to measure time in a different way: that is, ticking off the seconds until we trade big-ticket spending for even an ounce of Munger’s golden investment guidance.
In one video capturing Munger’s remarks from the 2022 Daily Journal ($DJCO) Annual Meeting, he shares the story of a big win … and the following year, a bad flop.
Munger’s best investment ever
Munger’s thoughts on the extremes of his financial life were sparked by a certain Wes in Miami, who asked him, “In your storied investment career, what investment did you like the most?”
“Well, that’s rather interesting,” replied Munger, his trusty Diet Coke can sit in front of him. He mentioned the World Book Encyclopedia, which he remembered from his youth as a product that was sold door to door. “It was easy for a kid who wasn’t necessarily a great student.”
And as an investment, the World Book provided volume after volume of wealth. “Berkshire made $50 million pre-tax a year out of that business for years and years and years. I was always so proud of him because I grew up with him and he helped me.”
The World Book win follows a pattern of Buffett and Munger buying into successful businesses whose products they loved, including Dairy Queen, See’s Candies, and yes, Coca-Cola.
Berkshire Hathaway also followed a model that almost seems old-fashioned today: it invested in companies whose stocks were undervalued; that is, when the intrinsic value of the share falls below the current market share price.
Read more: Suze Orman says Americans are poorer than they think – but getting a dream retirement is so much easier when you know these 3 simple money moves
It was only when, as Munger noted, World Book stopped returning monstrous profits, “a guy named Bill Gates came along and decided he was going to give away a free encyclopedia with every damn piece of software.”
The World Book success story hinges on the kind of simple principle Munger loved so much: buy companies whose products and profit potential you believe in, especially after you’ve studied the numbers and market dominance.
“It’s still a great product,” Munger said, “and it wasn’t good for us to lose what World Book was doing for this civilization. World Book helped me move forward in life.”
Charlie’s folly
But even the most successful market gurus have their crash-and-burn moments. Munger had no trouble remembering the dud that bothered him at the Daily Journal meeting in 2023: Alibaba “was one of the worst mistakes I’ve ever made.”
Munger said he was “too fascinated” by online retail and “got out of focus” when it came time to invest his money in Alibaba. In fact, Munger acknowledged that he used leverage to buy the stock – a tactic he has frowned upon in the past – because “the opportunities were so ridiculously good that I thought it was desirable to do so.”
Munger initially bought about 165,000 shares of Alibaba in the first quarter of 2021 and that increased to 602,060 shares in the fourth quarter. But that was then cut back to 300,000 shares in the first quarter of 2022.
The lesson Munger learned that we can especially benefit from today is that the bright shiny objects of the market can distract us from doing our homework. E-commerce, he said, was not a slam dunk but just another type of retail where a business has to prove its viability, just like a brick and mortar store.
This story should be familiar to anyone who has jumped on an IPO from a highly hyped company, only to see its stock plummet days later. Trump Media, for example, recently fell below $30 per share, compared to an IPO price that rose above $70.
When it came to his particular market fervor, Munger’s response was pure Munger: “I rub my own nose in my own mistakes like I do now because I think it’s good for [me].”
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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