Credit: Shutterstock photoWhen Charlie Munger ( Trades , Portfolio ) came to Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) in the late '60s, Warren Buffett (Trades, Portfolio) was still running the business and investing how his teacher, Benjamin Graham, had taught him to - by buying a selection of cigar butt type companies and holding for many years.
Unlike Buffett, who had essentially grown up under Graham's wing, Munger had no such attachment to the godfather of value investing. Instead, Munger seems actually to dislike deep value investing:
When he arrived at Berkshire, Munger actively tried to push Buffett away from deep value toward quality at a reasonable price, which he did with much success.
All you need to do is to look at Buffett's acquisition of See's Candies in the late 1960s to realize that without Munger's quality over value influence on Buffett, Berkshire wouldn't have become the American corporate giant it is today.
A love of high quality
Munger always had a fascination with buying high-quality businesses, and in the early days, his style differed greatly from that of Buffett. He always placed a premium on the intangible assets of a company, those assets that had no financial value to other companies but were worth billions in the right hands.
Munger understood that it's these businesses where big money is made as the high returns on capital, and a nonexistent need for capital investment ensures shareholders are well rewarded over the long term.
For example, in his 1995 speech, "A Lesson on Elementary, Worldly Wisdom As It Relates to Investment Management & Business," Munger said:
Buffett added some meat to this statement at the 2003 Berkshire Hathaway meeting:
These quotes do a great job of summing up Munger and Buffett's investment strategy. Even though there are thousands of pages of investment commentary from both of these billionaires, their investment style can be summed up with the simple description of quality at a reasonable price, and the above quotes show exactly why they've both decided this style is best.
Disclosure: The author owns no stock mentioned.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
