Warren Buffett (Trades, Portfolio) is considered to be the greatest investor of all time but would this still be the case had he not met Charlie Munger (Trades, Portfolio)?

This is an interesting question to consider. Buffett and Munger make a great team, but it was Munger who originally inspired Buffett to move away from deep value toward a quality and value slant, which ultimately led him into his career building positions in stocks such as American Express (NYSE:AXP) and Coca-Cola (NYSE:KO).

Munger always has interesting things to say, but it’s debatable whether you can learn more from him or from Buffett. Munger tends to speak cryptically and really gives guidance on investing. His statements are usually related to life advice and general advice about the markets. I have gathered three quotes from Munger below, which I believe offer the most in-depth and rounded summary of the billionaire’s investing philosophy.

Hopefully, you’ll be able to take something useful away from the guidance.

Charlie Munger on the process of moat investing

Munger answers the question "How did you get an idea of investing in good quality companies instead of cigar butts?" at an annual meeting of the Daily Journal:

“Everyone has the idea of owning good companies. The problem is that they have high prices in relations to assets and earnings, and that takes all of the fun out of the game. If all you needed to do is to figure out what company is better than others, everyone would make a lot of money. But that is not the case. They keep raising the prices to the point when the odds change. I always knew that, but they were teaching my colleagues that the market is so efficient that no one can beat it. I knew people in Omaha who beat the pari-mutuel system. I never went near a business school so my mind wasn’t polluted by this craziness. People are trying to be smart – all I am trying to do is not to be idiotic, but it’s harder than most people think.”

Munger was never actually a devout value investor like Buffett. In fact, Munger severely disliked Benjamin Graham's style of investing as he explained in an interview with the Wall Street Journal during September 2014:

“I don’t love Ben Graham and his ideas the way Warren does. You have to understand, to Warren – who discovered him at such a young age and then went to work for him – Ben Graham’s insights changed his whole life, and he spent much of his early years worshiping the master at close range. But I have to say, Ben Graham had a lot to learn as an investor. His ideas of how to value companies were all shaped by how the Great Crash and the Depression almost destroyed him, and he was always a little afraid of what the market can do. It left him with an aftermath of fear for the rest of his life, and all his methods were designed to keep that at bay. “I think Ben Graham wasn’t nearly as good an investor as Warren Buffett is or even as good as I am. Buying those cheap, cigar-butt stocks was a snare and a delusion, and it would never work with the kinds of sums of money we have. You can’t do it with billions of dollars or even many millions of dollars. But he was a very good writer and a very good teacher and a brilliant man, one of the only intellectuals – probably the only intellectual – in the investing business at the time.” – Charlie Munger The Wall Street Journal September 2014

And back to the business of finding moats. In Munger's speech “A Lesson on Elementary, Worldly Wisdom As It Relates to Investment Management & Business” given in 1995 he stated that:

“How do you get into these great companies? One method is what I'd call the method of finding them small get 'em when they're little. For example, buy Walmart (NYSE:WMT) when Sam Walton first goes public and so forth. And a lot of people try to do just that. And it's a very beguiling idea. If I were a young man, I might actually go into it. “But it doesn't work for Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) anymore because we've got too much money. We can't find anything that fits our size parameter that way. Besides, we're set in our ways. But I regard finding them small as a perfectly intelligent approach for somebody to try with discipline. It's just not something that I've done. “Finding 'em big obviously is very hard because of the competition. So far, Berkshire's managed to do it. But can we continue to do it? What's the next Coca-Cola investment for us? Well, the answer to that is I don't know. I think it gets harder for us all the time. “And ideally and we've done a lot of this – you get into a great business which also has a great manager because management matters. For example, it's made a great difference to General Electric (NYSE:GE) that Jack Welch came in instead of the guy who took over Westinghouse – a very great difference. So management matters, too. “Occasionally, you'll find a human being who's so talented that he can do things that ordinary skilled mortals can't. I would argue that Simon Marks – who was second generation in Marks & Spencer (LSE:MKS) of England – was such a man. Patterson was such a man at National Cash Register. And Sam Walton was such a man. “These people do come along – and in many cases, they're not all that hard to identify. If they've got a reasonable hand – with the fanaticism and intelligence and so on that these people generally bring to the party – then management can matter much. “However, averaged out, betting on the quality of a business is better than betting on the quality of management. In other words, if you have to choose one, bet on the business momentum, not the brilliance of the manager. “But, very rarely, you find a manager who's so good that you're wise to follow him into what looks like a mediocre business.”

​Disclosure: The author does not own any stock mentioned.

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