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hey guys tom here from the investing with going to be the next installment in our guru investor series that we've been doing on the channel for the past few weeks now uh this is a series where i look at my favorite investors of all time and basically for each of those people i give you my top three lessons that i have learned from those investors so if you're interested in checking out all of the videos in this series i have put together a playlist so feel free to go and check out that guru investor series uh but for this video we're talking about my guy up here charlie munger warren buffett's long time partner at berkshire hathaway uh and a phenomenal investor in his own right now before we get into it i thought it would be useful to go through and look at charlie munger's actual performance record because i know a lot of times he just gets sort of lumped and has been warren buffett's partner warren buffett sort of sidekick but he has a phenomenal investment track record in his own right and i'm going to go through one of the appendices of the revised version of the intelligent investor by ben graham and it's actually from a lecture that warren buffett did called the super investors of graham and doddsville and it basically goes through all of the investors that sort of followed the principles of ben graham that he laid out in the intelligent investor and in his classes at columbia um and the students that sort of went on to run their own investment partnership so charlie munger did run his own investment partnership i'll try and put up screenshots of his results here but long story short even after coming out of the massive stock market crash of the early 70s uh he he ended up with a 19.8 compounded return over the lifetime of running his fund and i know uh that when he wound up his fund he only held sort of a handful of stocks i think it was roughly three stocks in that partnership um and they were still very cheap very discounted and he basically told his partners to continue holding onto those stocks even though charlie had gone and wound up the partnership so i have a feeling that if you extended this track record out a couple of years it would probably look even better but nonetheless close to a 20 compounded return is absolutely phenomenal um and if you can maintain that for any reasonable period of time uh you get very rich very quickly so that is charlie munger's performance track record he's obviously gone on to berkshire hathaway after this he's also made very successful in investments in businesses like costco and he also has put money to work with lilu which has done very very well uh also so that's a bit of background on charlie munger but for now let's get into my top three lessons now the first lesson i have from charlie munger is arguably his most famous and certainly the one that was the most transformational uh for his partner warren buffett now um this lesson goes something like this uh it's much better to buy a great business at a fair price than a fair business at a great price and essentially what this means is in the early days of warren buffett's career in charlie munger's career they really went down this very ben graham track of buying a heavily discounted businesses in other words they really didn't care that much about the qualitative aspects of the business um brands and things that would potentially give that business uh long-term competitive advantages they were really just looking for companies that were statistically cheap so perhaps businesses that were trading for less than the cash that they had in the in their bank account after you subtract out all the debts maybe it's a company that you could just liquidate sell all the assets and distribute that cash to the shareholders and make a profit on that that's basically the approach that um buffett and manga took in the early days it was buying these sagaba type businesses as they put it uh these little kind of worn out cigar butts that you see lying on the ground but they still had a little bit of puff in them and they were basically free they were trading at such cheap prices so um that was sort of the original investment model um but one of the things that happened as buffett and manga and berkshire hathaway grew into a larger and larger size and continued to generate so much cash that they had to redeploy into new investments is they really struggled to find these cigar butts it didn't scale that that well and when they got to managing billions and billions of dollars uh there wasn't a lot of these you know weird little uh discounted businesses around and they kind of had to switch their investment philosophy to businesses where they could still make good returns but they could hold forever they weren't looking to hold a business for a couple years or liquidate a company or anything like that they needed businesses that they could hold on to basically for a lifetime and that's where this great business at a fair price analogy comes in so you see this transformation from uh the berkshire hathaway investments going from uh terrible businesses but extremely cheap prices making them still very good investments um to basically the opposite so you have really high quality businesses but you're still paying some attention to price now you're probably not going to get these higher quality businesses at sub liquidation values or at the value of cash that they have in that company but you are still still going to be able to get them at less than their intrinsic value every now and then when we have big fluctuations in the market or the market doesn't understand a particular business that well and it's how we had birch hathaway get into investments like coca-cola like seas candy and these businesses that they've been able to basically just sit on hold forever collect the dividends and really just have to make that one decision to purchase the great company at a reasonable price rather than an extremely discounted price and just let the compounding uh internally in the business do its thing now the second lesson i have from charlie munger is that the money to be made in the stock market is not made from the buying or from the selling it's made from the waiting and basically what charlie mung is getting at here is that really good investment opportunities are extremely rare and when they do come along you have to be very patient first of all to to wait for them and make sure that they are a perfect pitch that you can head out of the park essentially uh when you make that particular investment and you're not reaching for things outside of your circle of confidence or that are maybe trading at too high a price but when these things do come along you have to get into them at scale and uh an amazing example of this uh that charlie munger actually went through him himself and i'll try and leave a link down in the description to a video that someone just filmed on their phone of charlie talking about this one time um was when charlie munger talked about an investment he made after seeing the company mentioned in barons now uh charlie munger at that point had been reading barons for over 50 years uh and in each edition of barons there are stock tips uh and it worked out that you know if he got two stock tips every week over 50 years it was thousands and thousands of stock tips over those 50 years of reading barons uh and after those 50 years he made one investment he saw barron's talking about this dinky little auto parts company called teneco charlie munger ended up putting 10 million dollars into tenneco as he describes by taking very little risk and having this uh unique sort of uh risk reward profile where um it was an extremely cheap stock and his downside was very very limited but there was a lot of upside potential and basically what happened is over the following two years he turned that 10 million dollars into 80 million dollars he then gave that 80 million dollars to lee liu and and himalaya capital and lilu had at that time uh turned that cash into something like four or five hundred million dollars so there was really one uh key decision that he made he waited a long long time uh to make that investment and although he was already rich what he's kind of getting at uh is that you don't need many of those decisions to to do very very well financially uh through your life so that was my second lesson from charlie munger the money is not made in the buying or selling but in the waiting now my third and final lesson from charlie munger is actually a slightly more recent one and it's one that i already had sort of in my head but it's been nice that charlie munger has actually gone out and just straight up said this and i think it's made the idea um much more mainstream so basically the idea is that all intelligent investing is value investing now um often value investing gets thrown in this boat where um you're often just looking at low pe companies or low price to book companies or you know these cigar but type businesses that we talked about earlier in this video but really value investing fundamentally is just buying something for below its intrinsic value what it is what it's basically worth so you know whether you're looking at a company that has no cash flows and it just has a bunch of assets and you can buy it for less than the value of those assets uh or whether this is a company that is going to grow and produce a lot of cash flows out into the future and you can buy that business at less than the present value of their future cash flows both of those are examples of buying a business below its intrinsic value and both of those are value investing so the idea that value investing is different from growth investing which is different from growth at a reasonable price or whatever it is is ridiculous growth is a major major component of valuing a business if you have a company that you buy for 10 times earnings and the earnings go down to basically nothing over the next decade that can be a very expensive purchase and if you buy another company at 40 times earnings but those earnings 10x over the next 10 years that 40 times earnings can turn out to be actually a very cheap investment on the surface of things now you have to be careful on how much growth you sort of assume over the next decade or however long you intend to hold the business when you're making these investments but fundamentally and just looking at a simple metric like a pe or a price to book or anything like that that is not value investing that is um some sort of quantitative metrics that give you a little bit of a hint about where a particular company might be but really value investing is about buying something below its intrinsic value and growth and value are joined at the hip as as charlie and warren like to say so all intelligent investing is value investing you can buy tesla for example and have it be a value investment if you truly believe that the price today more than justifies the cash flows that tesla will produce out into the future um and that's really all there is to it you have to buy a company below its intrinsic value uh if you don't do that or if the company doesn't perform quite as well as you might have hoped and you don't have that margin of safety from buying below intrinsic value your returns aren't going to be good and that's just just that's just the fact of life and that's the way that the world works so that's my third and final lesson from charlie munger all intelligent investing is value investing so that's all for me today and those are my top three tips from the absolute legend charlie munger um if you have anything you think i've missed from charlie or any great lessons you've picked up from the guy let me know down in the comments below uh and let me know also which investors you would like to see next i'm certainly open to suggestions and i will be continuing to do this series on the channel because it has been pretty well received so i hope you enjoyed the video but that's all from me today and i hope you have a great day cheers
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