In all the literature and articles that have been published on what has helped Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) achieve their record performance, one of the factors that appears to be most understated is the power of patience and the impact it has had on their returns.
Most discussions on Buffett and Munger mention these two investment gurus are not afraid to wait for the perfect opportunity, or perfect pitch as they would put it. But it's often glossed over just how long they are prepared to wait.
If we go back through the archives, it is clear that Munger is far more patient than his colleague at Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial). Buffett has an advantage in that he owns Berkshire Hathaway and can do what he likes with the conglomerate's cash pile. Munger, on the other hand, does not have as much say, but he does control the equity portfolio at the Daily Journal (DJCO, Financial).
At the Daily Journal, the guru waited for decades for the perfect opportunity to begin investing the company's money. When the financial crisis struck in 2008, he started aggressively buying shares of Wells Fargo (WFC, Financial), Bank of America (BAC, Financial), U.S. Bancorp (USB, Financial) and Posco (PSCO, Financial). The company still owns these stocks today with tens of millions of dollars in unrealized profits. For the past decade, Munger has left these positions alone, letting the profits build up.
This is just one of the many examples of extreme patience Munger has exhibited over the course of his career.
Following the Daily Journal annual meeting in 2017, Munger stuck around to answer some questions from attending shareholders. In this post-meeting meeting (which one shareholder recorded), Munger shared why he and Buffett had studied the airline industry for over five decades, but only decided to make a move on the sector in 2016:
"Q: When industries like airlines or railroads rationalize and turn around, how do you and Warren know?
CM: We don’t know. It was easy to see in the railroad. We waited till it was all over before we went in. In the airlines, it’s not over but it’s a little bit the same story. Years of consolidations and bankruptcies. Three, four, five, six big bankruptcies already in the airlines.
Q: So for fifty years you’ve continually read about these industries even though you have disdain for them?
CM: Yes. I talked about patience. I read Barron’s for fifty years. In fifty years, I found one investment opportunity in Barron’s of in which I made about $80 million with almost no risk. I took the $80 million and gave it to Li Lu who turned it into $400 or $500 million. So I’ve made $400 or $500 million out of reading Barron’s for fifty years and following one idea.
Now, that doesn’t help you very much, does it? I’m sorry but that’s the way it really happened. If you can’t do it, I didn’t have a lot of ideas. I didn’t find them that easily, but I did pounce on one."
Base Hit Investing has more detail from Munger on long-term investing from the same meeting:
"At the meeting, Charlie talked about how his grandfather built a fortune in the Midwest by focusing on just one or two really good ideas. I believe Munger said he owned banks, and then at a few key times, opportunistically bought farms during recessions. The concept of doing nothing for years and then capitalizing on opportunity makes a lot of sense in most areas of business, but rarely is practiced in the stock market. Munger is probably the closest I’ve seen to someone actually implementing this concept."
For more on the topic, I highly recommend you check out Munger's speech, "The Art of Stock Picking."
The bottom line
This is only a small portion of what Munger has said and done on the topic of long-term investing. There is plenty more to the issue. I feel this only scratches the surface of what is an elementary principle: patience.
It is an elementary principal that few investors and shareholders manage to grasp and appreciate fully, which is interesting considering how little effort patience requires. It is not enough to just read Munger's writings and speeches on the topic. Being a patient investor requires plenty of practice and experience as well.
Disclosure: The author owns shares of Berkshire Hathaway.
