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Some Lessons From Charlie Munger's Daily Journal Meeting

- By Rupert Hargreaves

Earlier this month, Charlie Munger (Trades, Portfolio), the 95-year-old vice chairman of Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) and chairman of the Daily Journal Co. (DJCO), hosted the Daily Journal's annual meeting.


Munger spoke for about two hours on various topics and answered several questions from the audience at the end of his prepared remarks.

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Whenever Munger speaks, it always pays to listen. On this occasion, it was no different. The guru spoke at length about why Berkshire Hathaway has been able to succeed where so many other active investment managers have failed.

It pays to be patient

Both Warren Buffett (Trades, Portfolio) and Munger have said in the past they believe most investors shouldn't try and beat the market. Instead, they should place their money in a low-cost index fund and let the market do the work for them.

At the Daily Journal meeting, however, Munger told his audience. "I do think that index investing, if everybody does it, won't work." He went on to say, "For another considerable period, index investing is going to work better than active stock picking where you try and know a lot."

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There has been plenty of discussions recently about whether or not index investing is good for the market, and active stock pickers will see a comeback at any time. It seems Munger is suggesting index investing will continue to produce superior returns for investors for the foreseeable future, particularly if active investors keep trying to be smart. Indeed, the vice chairman of Berkshire Hathaway followed up with: "We've done better than average, and now there's a question why has that happened...We tried to do less."

It all comes back to Buffett and Munger's desire to stay within their circle of competence, only act when they see a convincing opportunity and trade too much. Munger went on to say:


"We never had the illusion we could just hire a bunch of bright young people, and they would know more than anybody about canned soup and aerospace utilities and so on and so on. We never had that drink...We worked very hard to find a few things where we are right. The few things were enough and that that was a reasonable expectation. That was a very different way to approach the process."



Munger was taught this approach by his mother's grandfather, who "came out to Iowa with no money but youth and health." According to Munger's story, his great-grandfather worked hard to buy land in Iowa cheaply. He was "aggressive and intelligent" and bought land when it was "not much more than a dollar an acre." He was "eventually the richest man in the town," Munger concluded. The main lesson from this story is that the penniless man who moved to Iowa understood that you only needed a few opportunities in life to make a fortune for yourself, and if you acted with conviction when the opportunities came along, you would do just fine in the long term.

This is not a new revelation from Munger. He has spoken many times before about how important it is to concentrate on your own circle of competence, and not stray outside. It may not be a new revelation, but it remains an important lesson for any investor who wants to achieve a comfortable living for themselves.

You don't need to be the next Albert Einstein to be a successful investor. All you need to do is focus on what you know and be patient.

It might not be the most exciting way to get rich, but it is a tried-and-true method that has helped Buffett and Munger get to where they are today.

The main takeaway from this lecture is, then, to be a successful investor, you need to do less, not more.

Disclosure: The author owns shares of Berkshire Hathaway.

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This article first appeared on GuruFocus.