Tags: Charlie Munger | Berkshire Hathaway | invest | patience

Charlie Munger: An Investor Has Got to Know His Limitations

By    |   Monday, 15 September 2014 09:29 AM

What has accounted for the stunning success of Berkshire Hathaway over the years, with an annualized return of 8.6 percent since 1999, beating out the S&P 500 by more than 4 percentage points a year?

Humility is party of the answer, says Berkshire Vice Chairman Charles Munger, Warren Buffett's right-hand man.

"Warren and I know better than most people what we know and what we don't know. That's even better than having a lot of extra IQ points," Munger told The Wall Street Journal.

Editor's Note:
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"People chronically misappraise the limits of their own knowledge. That's one of the most basic parts of human nature. Knowing the edge of your circle of competence is one of the most difficult things for a human being to do. Knowing what you don't know is much more useful in life and business than being brilliant."

In addition, Berkshire has stability. Other companies, such as General Electric, "long had a history of moving [division leaders] around internally, and that's like asking an oboe player in the symphony to perform on the piano and expecting the quality of the music not to suffer," Munger said.

That's not the case at Berkshire.

Munger told The Journal that he hasn't invested in anything for his personal accounts in at least two years and he doesn't see anything that would get him to do so right now.

The requirement for successful investing is "this crazy combination of gumption and patience, and then being ready to pounce when the opportunity presents itself, because in this world opportunities just don't last very long," he explained.

"It's waiting that helps you as an investor, and a lot of people just can't stand to wait," Munger noted. "If you didn't get the deferred-gratification gene, you've got to work very hard to overcome that."

Morningstar analyst Greggory Warren likes the company, though he offers caveats.

"While Berkshire is likely to continue putting money to work in value-creating projects in the near to medium term, much as it has in the past, we think the huge sums of cash that it generates and maintains on its balance sheet will ultimately limit its ability to produce outsize returns," Warren writes on Morningstar.com.

Editor's Note: Seniors Scoop Up Unclaimed $20,500 Checks? (See if You qualify)

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What has accounted for the stunning success of Berkshire Hathaway over the years, with an annualized return of 8.6 percent since 1999, beating out the S&P 500 by more than 4 percentage points a year?
Charlie Munger, Berkshire Hathaway, invest, patience
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2014-29-15
Monday, 15 September 2014 09:29 AM
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