Charlie Munger’s #1 Investing Rule : Fish Where the Fish are
Fish where the fish are
Warren Buffett is undoubtedly the greatest investor to have ever lived, but is his success ever going to be replicated?
This is an exciting question and one that deserves plenty of attention. Warren Buffett has achieved an outstanding record, but what percentage of this record is due to his genius, and what portion is due to a favorable backdrop?
All just luck?
In Malcolm Gladwell’s book, “Outliers,” the author speculates that many successful people have only become successful because of the environment they were born into. Their intelligence and focus have helped accelerate their success and enabled them to make the most of the opportunities offered, but for the most part, luck was the standout factor.
So, does this mean that there will never be another Buffett? As always, it’s impossible to answer a question like that with accuracy, as there are so many different moving parts. However, at the Daily Journal Annual Meeting, Warren Buffett’s right-hand man, Charlie Munger, voiced his thoughts on the matter.:
“Another place that’s threatened. Suppose you’re charging say 1 and 20, one percent off the top and twenty percent of profits…or even worse, two percent off the top and twenty percent of profits…and you’ve got $30 billion or so under management and an army of ambitious young people, all of whom want to get unreasonably rich very fast. What are your chances of doing better for your clients? Well, the average entity that charges those fees, the chances the clients will do well is pretty poor. That’s the reason Warren won that bet against the hedge funds. Where he bet on the S&P averages and they bet on a carefully selected bunch of geniuses charging very high fees. And of course, the high fees will just kill you. It’s so hard in a competitive world to get big advantages just buying securities, particularly when you’re doing it by the billion, and then you add the burden of very high fees and think that by working hard and reading a lot of sell-side research and so forth, that you’re going to do well. It’s delusional. It’s not good to face the world in a delusional way. And I don’t think, when Berkshire came up, we had an easier world than you people are facing this point forward, and I don’t think you’re going to get the kind of results we got by just doing what we did. That’s not to say what we did and the attitudes that we had are obsolete or won’t be useful, it’s just that their prospects are worse.
There’s a rule of fishing that’s a very good rule. The first rule of fishing is “fish where the fish are,” and the second rule of fishing is “don’t forget rule number one.” And in investing it’s the same thing. Some places have lots of fish, and you don’t have to be that good a fisherman to do pretty well. Other places are so heavily fished that no matter how good a fisherman you are, you aren’t going to do very well. And in the world we’re living in now, an awful lot of places are in the second category. I don’t think that should discourage anyone. I mean life’s a long game, and there are easy stretches and hard stretches and good opportunities and bad opportunities. The right way to go at life is to take it as it comes and do the best you can. And if you live to an old age, you’ll get your share of good opportunities. It may be two to a lifetime, that may be your full share. But if you seize one of the two, you’ll be alright.”
It seems that Munger believes that there are still opportunities out there, you just have to keep your eyes open. As value investing has grown significantly since Warren Buffett first set out, and today there are thousands of investors chasing ever fewer opportunities, it is unlikely any investor will be able to replicate Warren Buffett’s success in the same way he did.
However, that does not mean that the world is devoid of opportunities, and you only need to find one or two of these opportunities to have a transformational effect on your wealth.