Charlie Munger

““I observe what works and what doesn’t and why.” Life happens to Munger as it does to everyone, but unlike many people he thinks deeply about why things happen and works hard to learn from the experience.”

“MARGIN OF SAFETY.”

““Knowing what you don’t know is more useful than being brilliant.””

“Understanding how to be a good investor makes you a better business manager and vice versa.”

“price is what you pay, and value is what you get.”

“What is a margin of safety? Ben Graham’s definition of a margin of safety is “a favorable difference between price on the one hand and indicated or appraised [intrinsic] value on the other.”8”

““Most investors are primarily oriented toward return, how much they can make and pay little attention to risk, how much they can lose.”4 He added, “The payoff from a risk-averse, long-term orientation is—just that—long term.”5”

“The best thing a human being can do is help another human being know more. —CHARLIE MUNGER, BERKSHIRE ANNUAL MEETING, 2010”

“It’s not possible for investors to consistently outperform the market. Therefore you’re best served investing in a diversified portfolio of low-cost index funds [or exchange-traded funds].”

“What does the company sell and who are its customers and competitors? What are the key numbers that represent the value the business generates?”

“If you could take the stock price and multiply it by the number of shares and get something that was one third or less of sellout value, [Ben Graham] would say that you’ve got a lot of edge going for you. Even with an elderly alcoholic running a stodgy business, this significant excess of real value per share working for you means that all kinds of good things can happen to you. You had a huge margin of safety—as he put it—by having this big excess value going for you. —CHARLIE MUNGER, UNIVERSITY OF SOUTHERN CALIFORNIA (USC) BUSINESS SCHOOL, 1994”

“[Projections] are put together by people who have an interest in a particular outcome, have a subconscious bias, and its apparent precision makes it fallacious. They remind me of Mark Twain’s saying, “A mine is a hole in the ground owned by a liar.” Projections in America are often a lie, although not an intentional one, but the worst kind because the forecaster often believes them himself.”

“1.  Treat a share of stock as a proportional ownership of the business.    2.  Buy at a significant discount to intrinsic value to create a margin of safety.    3.  Make a bipolar Mr. Market your servant rather than your master.    4.  Be rational, objective, and dispassionate.”

“A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable and rapidly changing world. —SETH KLARMAN, MARGIN OF SAFETY, 1991”

“a private market intrinsic valuation for a Graham value investor requires that the asset generate free cash flow.”

“If you’re an investor, you’re looking on what the asset is going to do; if you’re a speculator, you’re commonly focusing on what the price of the object is going to do, and that’s not our game.”

“an investment is a net present value–positive activity (the likelihood of the net present value of the potential benefits minus the likelihood net present value of the potential losses is positive).”

“I don’t let others do projections for me, because I don’t like throwing up on the desk.”

“If you cannot accept investing underperformance in the short term in order to achieve long-term investment outperformance, then you are not a candidate for Graham value investing.”

“Munger strives to find investments for which a significantly positive outcome is obvious.”

“Private Market Value (PMV) is the value an informed industrialist would pay to purchase assets with similar characteristics. We measure PMV by scrutinizing on- and off-balance-sheet assets and liabilities and free cash flow. As a reference check, we examine valuations and transactions in the public domain. Our investment objective is to achieve an annual return of 10% above inflation for our clients.7”

“want to be a certain kind of mutant who is just completely different in their orientation to what’s an attractive investment for the rest of the market.”10”

““The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.”9”

“Mimicking the herd invites regression to the mean (merely average performance).”

“the investor must let go of his or her desire to make short-term predictions about the future.”

“Graham value investors do not spend time with top-down factors like monetary policy, consumer confidence, durable goods orders, and market sentiment in doing a business valuation or investing.”

“The idea of a margin of safety, a Graham precept, will never be obsolete. —CHARLIE MUNGER, WESCO ANNUAL MEETING, 2003 No matter how wonderful [a business] 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. —CHARLIE MUNGER, BBC”

“A Graham value investor puts short-term predictions about mass psychology in the too hard pile and focuses on what he or she can do successfully with far greater ease.”

““a stock is not just a ticker symbol or an electronic blip; it’s an ownership interest in an actual business, with an underlying value that does not depend on its share price.”1”

“Part of the benefit of creating a checklist is the process of writing down your ideas. I have always loved the point Buffett made about the importance of making the effort to actually put your ideas in writing. In Buffett’s view, if you cannot write it down, you have not thought it through.”

“I’m a great believer in solving hard problems by using a checklist. You need to get all the likely and unlikely answers before you; otherwise it’s easy to miss something important.”

“The Graham value investor’s job is to recognize mispriced assets when he or she sees them.”

“Margin of safety reflects the difference between the intrinsic value and the current market price.”

““Turn complicated problems into simple ones. Break down a problem into its components, but look at the problem holistically.”1 Keeping things as simple as possible,”

“Ben Graham [had] his concept of “Mr. Market.” Instead of thinking the market was efficient, he treated it as a manic-depressive who comes by every day. And some days he says, “I’ll sell you some of my interest for way less than you think it is worth.” And other days, “Mr. Market” comes by and says, “I’ll buy your interest at a price that’s way higher than you think its worth.” —CHARLIE MUNGER, USC BUSINESS SCHOOL, 1994”

“If you are an investor, you are trying to understand the value of the asset.”

““Simplicity has a way of improving performance through enabling us to better understand what we are doing.”2”

“Intrinsic value is the present value of future cash flows.”

“Simply put, your objective as a Graham value investor is to buy a share of stock at a sufficiently large bargain that you do not need to predict short-term price movements in the stock market.”

“Howard Marks pointed out that “active management has to be seen as the search for mistakes.”12”