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The Tao of Charlie - VALUEx Vail 2012 Notes

August 01, 2012
Later in the day (VALUEx Vail, 2012) Jim Bassili made a brilliant presentation, titled “The Tao of Charlie [Munger].” Unfortunately, Jim asked me not to share the PDF of his presentation, so I will try to summarize my impressions and interpretation of it, with which Jim may or may not agree. Value investors come from a deep heritage of value ancestors – Ben Graham, Warren Buffett and Charlie Munger, et al. Most value investors can quote them by heart. Though there is a lot of good that comes with having a rich heritage, if we blindly follow our value ancestors, then the heritage will not leave us on fertile ground but instead be a ceiling for our growth as investors. This quote from the poet Basho nicely summarizes Jim’s first point: “Do not seek to follow in the footsteps of the wise men of old; seek what they sought.”

Known and popular wisdom boxes us in and limits our thinking. We can learn a lot from the greats, but if we follow blindly in their footsteps we’ll never be more than just followers –poor replicas of the original.

Jim’s other message was think (and do) different. Don’t just look for stocks where everyone else does. Most value investors look at the same stock screens and do things in a very automatic, number-driven manner. In solely focusing on numbers – the quantifiable things such as price –we are limiting ourselves. This quote from Albert Einstein summarizes Jim’s point “Not everything that counts can be counted.” We (present company included) are focusing too much on numbers, because they are searchable, they are objective. There is a lot of subjectivity in investing.

Certain things are not quantifiable. For example, a CEO forgoes his pay and takes the bulk of his compensation in stock. That little fact should maybe have more weight in our analysis than the quantifiable fact that the company has return on capital of 14.2% when its competitor is at 18.3%.

About the author:

Vitaliy Katsenelson

Vitaliy N. Katsenelson, CFA, is Chief Investment Officer at Investment Management Associates in Denver, Colo. He is the author of The Little Book of Sideways Markets (Wiley, December 2010). To receive Vitaliy’s future articles by email or read his articles click here.
Investment Management Associates Inc. is a value investing firm based in Denver, Colorado. Its main focus is on growing and preserving wealth for private investors and institutions while adhering to a disciplined value investment process, as detailed in Vitaliy’s book Active Value Investing (Wiley, 2007).


Visit Vitaliy Katsenelson's Website


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