Forbes recently published the last part of Charlie Munger’s comments from the DJCO Annual Meeting. In the article you will find more questions than the two I discuss here, I chose these two because I believe they possess the greatest amount of wisdom.
Q: What do you think is the least talked about or most misunderstood moat around a business?
Mr. Munger: Everybody would really like to have a misunderstood moat. You’re the greediest fellow that’s spoken. All you want to know is if I have a moat that you can understand that other people don’t. A modest wish. You’re going to ask a 91-year-old man how to do it? Reminds me of one of my favorite stories. A young man comes to Mozart and says, “With your help I want to compose symphonies.” Mozart says, “You’re too young to be composing symphonies.” He says, “Look, you were doing symphonies when you were 10 years of age. I’m 21.” Mozart says, “Yes, but I wasn’t running around asking other people how to do it.”
Comment: To me this answer is all about independence of thought and the ability to produce and reach our own conclusions. After reviewing several and collecting data, and reading through hundreds or thousands of financial statements, getting an edge is still a difficult task. Munger then goes and states the fact that you cannot expect to receive the product of hours and hours of diligence, since it would remove all of the learning process. His Mozart story combines all of these points, to put in the work and then form an opinion (create something on our own).
Q: What separated Teledyne’s Henry Singleton from the other people who developed conglomerates, and why did you and Warren respect him?
Mr. Munger: We respect Henry Singleton for a very simple reason: He was a genius. Henry Singleton never took an aptitude test where he didn’t score an 800 and leave early. He was a major mathematical genius, a Putman Fellow. Even when he was an old man, he could play chess blindfolded, at just below the Grand Master level. He had an awesome intellect, well into the top 1/1,000 of one percent.
This was an extreme analytic. Of course, he did create a conglomerate because it was legally allowed at the time. He did it the way everybody else was doing it, he did it better, and he made a lot of money. When they ran out of favor, the stock went way down, he bought it all back for less than it was worth.
Of course, he died a very wealthy man. He was a totally rational human being in things like finance. What I found interesting about Henry Singleton, which has interesting educational implications, is that in watching both Henry and Warren invest and operate at the same time, we had two great windows of opportunity to examine human nature.
Henry was very rational. He was quite similar to Berkshire in some ways. Henry never issued a stock option. He had certain commonalities with Warren that were just logical outcomes.
What was interesting to me was how much smarter Warren was at investing money than Henry. Henry was born a lot smarter, but Warren had thought about investments a lot longer. Warren just ran rings around Henry as an investor even though Henry was a genius, and Warren was a mere almost-genius.
Here it is very important to highlight that diligence and hard work, combined through a long period of time, can outweigh the natural abilities and intelligence in some ways. Although I believe that Warren Buffett (Trades, Portfolio) possesses an above-average intelligence, it was his passion, dedication and focus what allowed him to become one of the best capital allocators of all time.
