On moats and how to get an advantage
"Everybody with any sense at all knows that some companies are better than others. What makes it difficult is they sell at higher prices in relation to assets, and earnings and so forth, and that takes the fun out of the game. If all you had to do was figure out which companies were better than others, an idiot could make a lot of money. But they keep raising the prices to where the odds change.
"I always knew that. They were teaching my colleagues that the stock market was so efficient that nobody could beat it. But I knew people who beat the pari-mutuel system in Omaha by knowing more about horses than other people. I knew it was bull. When I was young I never went near a business school so I didn’t get polluted by the craziness.
"I never believed it. I never believed there was a talking snake in the Garden of Eden. I had a gift for recognizing twaddle, and there’s nothing remarkable about it. I don’t have any wonderful insights that other people don’t have. I just avoided idiocy slightly more consistently than others.
"Other people are trying to be smart; all I’m trying to be is non-idiotic. I’ve found that’s all you have to do to get ahead in life, be non-idiotic and live a long time. It’s harder to be non-idiotic than most people think."
Charlie starts out by discussing his approach in the early '60s. He always places emphasis on how hard it is to identify durable moats and not only that, but also how important it is not to overpay for competitive advantages. I believe the most important part of his comments is the fact that he really understands businesses before investing in them; in that way, the number of candidates you have is reduced greatly.
The other parts of his comments that I found remarkable were 1) the modesty he has and 2) the approach to being brilliant which starts, as Jacobi said, by inverting and seeking to avoid stupidity.
On investing and achieving success
"Achieving success through investments has been pretty easy in my lifetime. If you were rational and disciplined, and you had a tailwind of a 10 percent per annum on average from carefully selected stocks going for you, pre tax, that was a big tailwind. If you saved your money, and you lived within your means, were shrewd and so forth, that was enough to take care of you. A little discipline in saving, and the passage of time will do it.
"Now, if the world is going to get 10 percent out of indexes in the future, and I don’t think it will, in real terms, getting more has proven to be quite difficult. Some of you who come along later are finding that if you stay in the big stocks, it’s damn near impossible for most people. When things are damn near impossible, maybe you could stop trying.
"That was not my system, but I do not recommend my system to everybody. I do, as a way of life, but I don’t think all you have to do is read Charlie Munger (Trades, Portfolio) and you’ll get rich. If it were that easy, this place would be a football stadium."
From DJCO’s CEO:Â "Charlie says the way to get rich is to keep $10 million in your checking account in case a good deal comes along."
There are critical comments here: 1) how hard will it be for overall markets to produce 10% returns in the future and 2) how critical it is to be patient and then swing for the fences whenever the right pitch comes along. By saving money patiently, and not misusing it in mediocre opportunities, we can then take advantage of the right ones when they come along. This involves not only the discipline to save money, but the discipline and patience to remain calm when everyone else is getting easy money in bull markets.
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