2024 will mark the first time in many decades that Berkshire Hathaway’s legendary Chairman, Warren Buffet won’t be joined onstage at the annual meeting by his longtime sidekick and Berkshire Vice Chairman Charlie Munger. Munger, who died late last year shortly before his 100th birthday was credited with being the “architect” of Berkshire Hathaway, with Buffet acting as the “general contractor.” Over the course of more than half a century, the duo influenced countless investors, and became known for their financial acumen and homespun wisdom.
Berkshire’s annual meeting, often dubbed the “Woodstock of Capitalism”, takes place on May 4, 2024. Ahead of that gathering, here’s a look at some of the duo’s most famous quotes, as well as what investors everywhere can take away from them.
“The difference between successful people and really successful people is that really successful people say no to almost everything.1” – Warren Buffet
Here at Pure Financial Advisors, we constantly evaluate new opportunities, as well as ways to expand or enhance our current offerings. But, like a duck gliding across the water while its legs churn, unseen, beneath the surface, much of our effort never sees the light of day. That is because, like Buffet, we hold a high bar on what we say “yes” to. We firmly believe our planning and investment approach, backed by decades of research, experience, and expertise, are well designed to help our clients succeed. That means that while we are very open to change, we also don’t want to mess with success. The good news is that means that when we incorporate something new, it’s because we have a high level of conviction that it’ll elevate what we’re already doing.
“A great business at a fair price is superior to a fair business at a great price.2” – Charlie Munger
Value stocks are great, but there’s a difference between something that’s a “value” and something that’s just “cheap.” Sometimes, things are cheap for a reason, and just because the price of a security has fallen doesn’t mean it can’t fall further. That is why, while we are value investors, we also combine profitability and quality screens into what we do. The desired outcome is, like Munger said, to own a broad swath of quality companies at fair prices. Done consistently, this approach should produce attractive returns over time.
“Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.1” – Warren Buffet
The possibility of loss is inherent in every investment. In fact, if there were no risk of loss, you wouldn’t get any return. But, it’s also true that if an investment loses half its value (50%), it must then double (+100%) for the investor to be back to breakeven. The bottom line is that very large losses significantly impair an investor’s ability to meet their long-term goals. That is why we generally prefer a diversified approach to investing, even though we know that diversification lowers the ceiling on potential returns by guaranteeing that an investor won’t be solely concentrated in the best performing asset class, sector, or security. Of course, that same logic means that an investor won’t be solely concentrated in the worst performing asset class, sector, or security. That trade off makes sense to us, because what most investors need to meet their goals is the fat middle of returns; avoiding the highs and lows, staying the course, and meeting the required rate of return determined from their financial planning.
“We have the same problem as everyone else: It’s very hard to predict the future.2” – Charlie Munger
This inability to predict the future didn’t prevent Munger and Buffet from building Berkshire into one of the ten largest companies in America, which proves that predicting the future isn’t necessary for investment success. Not to mention that it’s pretty darn hard to do again and again, over time. At Pure Financial, we are very sensitive to the future, and we act accordingly, particularly during extreme market or economic dislocations. But we also rely heavily on historical and empirical research, logic, and our accumulated experience and wisdom to structure and manage portfolios.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.1” – Warren Buffet
Emotions and the madness of crowds can be an investor’s greatest enemies. Even if we know what we should do, it’s hard to stick to the plan when the going gets tough. That is why we are such big proponents of having a written financial plan, developed in a time of relative calm, that you can refer back to when emotions start running high. After all, investors are human, and as such we are subject to emotions such as fear and greed. But good investors stay the course even when their emotions urge them to take action. Great investors, as Buffet references above, act contrary to their emotions, acting greedily when they are afraid, and cautiously when they feel greedy.
“You never know who’s swimming naked until the tide goes out.1” – Warren Buffet
There is an old saying in financial markets: “Never confuse a bull market with brains.” That concept is what Buffet is alluding to above. Soaring valuations in broad markets or specific sectors can create geniuses and paper millionaires, but financial success is a long run game. Just like in sports, where a team’s true test doesn’t start until the playoffs begin, market reversals and changing environments determine an investor’s true skill. For example, just think back to the 1990s; skillful investors weren’t ones who made money plowing into dot-com stocks during the boom, but rather those that kept their money when tech valuations collapsed in the early 2000s. The same was true during the real estate boom and bust of the 2000s, and during every other market cycle in history. Remember, if you wait until the tide turns to check if you’re still wearing a bathing suit, you’ve waited too long.
“Once you get into debt, it’s hell to get out. Don’t let credit card debt carry over. You can’t get ahead paying eighteen percent.2” – Charlie Munger
This simple quote from Charlie Munger is financial planning 101. Thoughtfully and carefully using debt to purchase cash flow producing assets might make sense for some, and debt can be used (thoughtfully and carefully) for temporarily paying expenses if your income fluctuates. But it’s nearly impossible to meet your financial goals if you consistently spend more than you make, and use high interest debt to do so.
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you’ll do things differently.1” – Warren Buffet
This is the last and most important of the Berkshire Duo’s quotes highlighted in this article. Here at Pure Financial Advisors, we think of this constantly. It’s in our name (Pure) and in everything we do. We think keeping this quote in mind can help us, and others, consistently do the right thing.
