This year, Charlie Munger (Trades, Portfolio) is 96 years of age. Despite his years, the billionaire investor is just as sharp today as ever, and his experience in life in the world of investing is only increasing.
Unfortunately, Munger, who is Warren Buffett (Trades, Portfolio)'s right-hand man at Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial), does not give that many interviews. Still, those that he does give are full of invaluable advice on life, investing and philosophy.
In April of last year, Munger gave one of his most detailed interviews with Wall Street Journal reporters Nicole Friedman and Jason Zweig. He spoke to the Journal reporters for six hours over dinner, and an edited transcript of the conversation was later published in the newspaper.
Munger's ideas for first-time investors
One of the questions the reporters asked the billionaire was his thoughts on advice to give first-time investors. Specifically, they asked, "If you were just starting out as an investor, what approach would you take?"
Munger started his answer by saying:
"Well, the original [Benjamin] Graham approach of looking for cases where you're getting more than you're paying for is correct. All good investing involves getting a better investment than you're paying for. And you're just looking for it in different places, just as a fisherman can fish in one place or another. But he's always looking for more value than [he's] paying for. That will never go out of style. I mean, that is just basic and fundamental."
However, he went on to add that it is not sensible to use the same approach when everyone else is doing the same. It is better to fish where the fish are:
"And knowing that, of course, one of the tricks is knowing where to fish. Li Lu [of Himalaya Capital Management LLC in Seattle] has made an absolute fortune as an investor using Graham's training to look for deeper values. But if he had done it any place other than China and Korea, his record wouldn't be as good. He fished where the fish were. There were a lot of wonderful, strong companies at very cheap prices over there.
Let me give you an example. One guy in Korea, he cornered the sauce market. And when I say cornered, he had like 95% of all the sauce in Korea. And he couldn't stand anybody else ever selling any sauce. So he could have made two or three times as much if he wanted to by raising the prices.
Li Lu figured that out. It's called Ottogi. And of course we've made 20 for 1. There was nothing like that in the United States."
No set template
If you are looking for a simple solution to be a good investor, these comments do not provide much comfort.
However, in investing, there's no set template you can follow to be successful, and that's what Munger understands. The only way to beat the market is to do something different.
It takes time and effort to figure out where the fish are and what tools you require to catch them, but once you have established which pond you are going to fish in and your circle of competence, you have an edge.
So, that's Munger's advice for first-time investors. If you want to be a successful investor, you need to fish in the markets other investors have ignored, find cheap assets and work to your own strengths. It takes time to understand all of these qualities.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
- Charlie Munger's Advice on Learning From Mistakes
- Pabrai's GrafTech: What's New?
- Compound Interest: Why You Need to Understand This Core Concept
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