Book Cover

Pragmatism! Do what suits your temperament. Do what works better with experience. Do what works and keep doing it. That’s the fundament algorithm of life - REPEAT WHAT WORKS.

# Review

Warren Buffett and Charlie Munger are perhaps two of the most legendary investors in America. When I worked as a fundamental investor we took their words as gospel for sound investing; my colleagues would even travel to Omaha to attend the “capitalist version of Woodstock”, the Berkshire Hathaway Annual Shareholders Meeting. I’ve never actually got the chance to attend the meeting and this book is a good primer on the topics of discussion during the long question and answer sessions between the shareholders and the two gurus.

The book covers 30 years of shareholder meetings. 30 years is a long time but throughout the years, Buffett and Munger have both stayed consistent on their messaging and both have not been swayed by outside forces. It’s interesting to read about the sages’ advice in different market environments. For instance, to offset the inflation and trade deficit of the late 1980s, Buffett recommends buying companies which employ little capital, throws off lots of cash, and has pricing flexibility. It’s also interesting reading about what happened behind the scenes during times of crises, such as Berkshire’s dealings with Swiss Re in the aftermath of the 2008 financial crisis. The book does get a tad repetitive, as Buffet and Munger touch on many of the same points in different years; despite this, there are many nuggets of wisdom being applied which are worth learning from.

If you’ve read any of Buffett or Munger’s works, then the contents of the book will be very familiar to you as it largely rehashes many of the points which they’ve publicized already. Despite this, I appreciated the various anecdotes such as how they managed to scale GEICO’s market share by investing heavily in advertising and their views on different facets for the market such as China (very bullish), terrorism (worried about nuclear or biochemical attacks), and the American healthcare system (very broken).

Here are my three key takeaways:

1. Intrinsic business value is what the duo look at when assessing companies. Buffett highlights that they do not care about economic outlooks but instead focuses on what a company would bring if sold to a knowledgeable buyer. In particular, they look for businesses that are low-risk with sustainable competitive advantages and strong capital structures.
2. Berkshire has a very pragmatic view on management assessment and compensation. They believe that management should be assessed based on how well they treat the business and how well they treat the owners. They also believe using options as compensation can work but there has to be a cost of capital associated with the compensation and the compensation must be tied directly to performance.
3. Munger highlights the importance of having integrity in business, staying away from legal but dubious accounting practices and deceptive operations involving derivatives. Munger also advocates for recognizing and staying within one’s circle of competence (while trying to increase that circle) in order to avoid making ill-informed decisions.

While much of what Buffett and Munger champion seem simple and straightforward, actually putting the ideas into practice as they’ve had over the decades is the toughest part.

# Conclusion

An amazing introduction into the ideas and minds of Buffett and Munger.

# Overall rating: 7.8

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