“The Way of Munger” – Charlie Munger’s 1997 Speech at the Shareholders’ Meeting of Siko Finance

Original link: https://ljf.com/2023/08/21/1302/

1997 Speech at the Shareholders’ Meeting of Siko Finance

When we valued, we only performed a very rough discounted cash flow analysis. I’ve never seen Warren use the discounted cash flow method to accurately calculate the company’s value step by step. It’s not the kind of thing that we think is particularly suitable as soon as we turn our minds. We don’t need to think about it, so we don’t invest.

I personally think that even if the company analyzes the rationality of fixed asset investment, it is best to make that kind of investment that you don’t even have to think about.

Warren often talks about the difference between a good business and a bad one. He said that in a good business, every decision is easy and you don’t have to think about it; in a bad business, every decision is difficult, and you are always in a dilemma and struggling.

Good business is good business. Encounter some difficulties, suffer some blows, make a few wrong judgments, good business is still good business.

When I was young, I used to work as a lawyer for a mining company. The owner of this mining company is a kind old man. He once told me a sentence: “Charlie, a good mine is not afraid of poor management.”

To invest, choose a good business with a high fault tolerance rate. A little management problem, a little difficulty, a little mistake, a good business is still a good business.

Some companies, even if we buy at a very high price, are still far below their intrinsic value.

No matter how good the business is, the price is too high and it is not worth investing in. Isn’t this obvious? No matter how good the company is, it’s not worth the sky-high price.

The essence of investment banking, or the essence of modern finance, is that as long as it can make money, it will be everywhere

Also, on the face of it, the companies we invest in are all different. In fact, they have some commonalities, for example, the return on capital is very high.

We are not good at investing in natural resource companies. Natural resource companies produce common commodities. We are used to buying and holding for a long time. It may not be appropriate to use this model to invest in companies that produce ordinary commodities.

Telecommunications and utilities are not our areas of expertise. We can see some industries more clearly than others, and we are used to investing in such industries.

I never buy a stock for more than its intrinsic value. There are companies that do so well that we see higher intrinsic value than a traditional Ben Graham follower. However, we still insist on buying below intrinsic value.

If you meet an outstanding person in your life and have the opportunity to follow him, you know that he will not deceive you. Although he has not made achievements yet, but you believe that he will do it in the future, in this case, you can Consider taking chances.

There are very few outstanding people. If you have the opportunity to follow them and walk with them, it may be worth paying a premium, and you may get rich returns in the future.

In general, no matter you invest or we invest, we still insist on buying at a price lower than the intrinsic value. It’s just that we also need to realize that some companies’ business is particularly good, and their intrinsic value may be particularly high.

First of all, look for opportunities that you can understand, and don’t make investments that you don’t understand. Then, we must do a lot of practical work in a down-to-earth manner.

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