Warren Buffet and Charlie Munger Basics

On May 5^th, I attended the 2007 Berkshire Hathaway (BRK) shareholder meeting (a.k.a. “Woodstock for Capitalists”) with 27,000 attendees in Omaha, Nebraska. Warren Buffett and Charlie Munger, (Buffett’s “partner” and Vice-chairman) shared their wisdom and advice on investment success in a 6 hour Q&A session.
While admittedly Buffett has been getting a lot of press and fanfare in the media lately, I have been on his bandwagon for years. However, I continue to be amazed by how deep Buffett and Munger’s simple, plain-spoken answers really are!

Their teachings are not complex -- some even trite; but they are tested and true. Over the years I have been more successful in my investments because of them. Here is a summary of the Buffett / Munger wisdom that has helped me:

Become a learning machine

• Read everything possible, annual reports, biographies, papers, etc.

Have a “Circle of Competence”

• Make sure you understand the business and industry.
• Have a “too tough file.” (A place for decisions that are too hard)

Invest as if buying entire business (even if you are just buying 1 share)

• Does the business have a “sustainable competitive advantage”-a “moat”?
• How good is management? Do they think like owners?
• “A great business at a fair price is superior to a fair company at a great price.”

Understand Ben Graham’s “Mr. Market” analogy: Market Price may not be equal to value

• Don’t pay attention to market unless it is to your advantage.
• “Berkshire buys when the lemmings are headed the other way.”

Minimize risk: “Be deeply suspicious when it seems to good to be true”

• Have a “margin of safety” for every investment.
• “Wait for no-brainers.”
• “With 5 good ideas, you’ll get very rich.”
• Only buy investments that you’re okay with if market closes for 5 years.

Non- investment wisdom:

• “Give your kids enough to do whatever they want, but not enough to do nothing.”
• “I don’t measure my life by the money I’ve made.”- Warren Buffett
• In 2006, Warren Buffett began donating $40 billion+ of BRK stock to 5 foundations.

I have more information if you’re interested. These guys have made themselves and BRK shareholders lots of money. Perhaps utilizing these strategies will benefit you as well.

Lindsey Torbett

May 16, 2007