The Timeless Investing Wisdom of Charlie Munger, Buffett’s No. 2

https://www.nytimes.com/2023/12/06/opinion/charlie-munger-warren-buffett.html

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The investor Charlie Munger, who died last week at age 99, liked the word “lollapalooza.” The word appears 27 times in the new abridged edition of “Poor Charlie’s Almanack: The Essential Wit and Wisdom of Charles T. Munger.”

I think Munger’s fondness for that fanciful term — which he meant as either a big gain or a big loss — reveals a lot about his investing philosophy and that of his longtime partner, Warren Buffett. It’s worth pondering what he meant, even though the style of investing he did isn’t suitable for most of us.

Lollapalooza effects “can make you rich, or they can kill you,” Munger wrote in his Benjamin Franklin-style “almanack.” As I understand it, his advice is to minimize the risk of bad lollapaloozas because they destroy so much value that even good lollapaloozas won’t be enough to dig you out of the hole you’re in. Math is unforgiving that way: If you go down 80 percent and then up 80 percent, you will still be down 64 percent.

I had arranged with Munger’s book publicists to interview him a day or two after Christmas. I’m sorry to have missed that opportunity. Still, the book speaks for itself. It combines his own writings and speeches with observations about him from others.

There’s an impression that Buffett and Munger got rich by being good at picking stocks and entire companies to buy for Berkshire Hathaway, the Omaha-headquartered holding company of which Buffett is chairman and chief executive and Munger was vice chairman. They made their share of mistakes, though. In 2017, for example, Buffett and Munger told shareholders they had erred by loading up on IBM shares and giving Amazon, Google and Walmart a pass. Buying shares in USAir in 1989 was another famous misstep.

I think the real secret to their success — and it’s not really a secret, since they talked about it all the time — is everything else they did aside from their initial choices of what to buy. That includes, for companies that Berkshire Hathaway owns outright, choosing chief executives carefully and then leaving them alone.