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Brian Flores
Brian Flores
Articles (126)  | Author's Website |

Munger on the Keys to Berkshire's Success

Charlie Munger elaborates on Berkshire's intangible competitive advantages

July 20, 2016

"Poor Charlie's Almanack" is just one of those books that needs to be re-read over the years. The main reason is there are so many insights that every time we re-read it, its concepts and ideas become clearer. There is a small chapter that discusses the keys to Berkshire's success, according to Charlie Munger's point of view. What he says is full of common sense, but also, some aspects are full of brilliance on how to behave to achieve success.

1) It is occasionally possible for a tortoise, content to assimilate proven insights of his best predecessors, to outrun hares that seek originality or don't wish to be left out of some crowd folly that ignores the best work of the past. This happens as the tortoise stumbles on some particularly effective way to apply the best previous work, or simply avoids standard calamities. We try more to profit from always remembering the obvious than from grasping the esoteric. It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.

2) We don't claim to have the perfect morals, but at least we have a huge area of things that, while legal, are beneath us. We don't do them. Currently, there's a culture in America that says that anything that won't send you to prison is okay. We believe that there should be a huge area between everything you should do and everything you can do without getting into legal trouble. I don't think you should come anywhere near that line. We don't deserve much credit for this. It helps us make more money. I'd like to believe that we'd behave well even if it didn't work. But more often, we've made extra money from doing the right thing.

Remember Louis Vincenti's rule: Tell the truth, and you won't have to remember your lies. It's such a simple concept.

The first point discusses the logic on repeating patterns that helped deliver success on previous occasions. This also works in an inverse way, that is, avoiding patterns that lead to failure. It is very important for us as investors to remember constantly that no points are awarded for investing in complicated things, that generally the obvious tends to work just as fine. This connects well with another aspect (which was not mentioned here directly) about being patient and waiting for the right pitch. Without strike calling in the investing game, an investor can sit back and wait until the right opportunity presents itself. Generally, a good, solid idea is one that we fully understand after the important factors have been identified and there is a mispricing.

Elaborating on Munger's second point, I believe that this attitude of stretching the legality of our actions until its maximum point is very common these days not only in the workplace, but it is applied generally in different areas. As Munger says, if we expand our mental time horizon, very commonly we can find out that acting ethically eventually leads to a better reputation and that also, to more business and better relationships. With so many examples of financial scams and greed-driven activities, Munger's words light up the way for the modern businessman. The last remark is also critical, avoiding lies does not require a sharp memory.

Overall, I believe that these two factors, as Munger mentions, have widened Berkshire's moat and have provided access to deals that otherwise could not have been reached. Integrity and mastery of certain golden and proven rules can lead to tangible competitive advantages, not only in the investing business, but in life.

What do you think?

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About the author:

Brian Flores
"I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you." - Charlie Munger

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