“Charlie Munger is truly the broadest thinker I have ever encountered.” – Bill Gates
Charlie Munger, best known for his role as Warren Buffett’s business partner at Berkshire Hathaway, is one of the more interesting personalities in our industry. He has been carefully studied and is extensively quoted throughout modern financial literature. Last week in The Right Stuff I reviewed 7 of the 13 characteristics of a successful investor as laid out by author Tren Griffin in Charlie Munger: The Complete Investor. As I mentioned, I personally found it interesting to read through these and reflect on the dynamics of how Elliott and I work together in managing our clients’ investment assets. This week I will pick up the list with #8 and review the final 6 characteristics, including a supporting quote or two from the book and my thoughts on how I think Season Investments ranks in each of the categories. (Note: Unless otherwise specified, all quotations are attributable to Charlie Munger.)
“I would argue that passion is more important than brain power.”
Author Tren Griffin observed that, “If you do not know about the link between passion and success you have not been paying attention.” Like anyone, we go through ups and downs in regards to our passion about this job. Some days are better than others! However, I can tell you with all honesty that our team has never felt as passionate about the work we do for our clients as we do right now, and I firmly believe this passion will translate to a greater level of success for both us and our clientele in the years to come.
“In my whole life, I have known no wise people who didn’t read all the time – none, zero.”
“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.”
I’ll admit my time dedicated to reading, studying and thinking is facing stiff competition from a plethora of other claims on my schedule and attention. The demands of small business ownership, a young family and all the “gray matter” that comes along with a full life tends to crowd out the time I can dedicate to being alone with my thoughts, my journal and a good book. That said, I can easily say that Elliott and I still spend vastly more time doing these things than your average investment advisor. We read books, newsletters and white papers on a regular basis as well as tuning into podcasts and documentaries across a wide variety of topics. As part of my 2016 goals I’m trying to settle into a more structured routine to allow for even more time dedicated to this. I feel I owe it to myself, my team and my clients to always be advancing my knowledge and understanding in the field of personal finance and investing.
“Even Einstein didn’t work in isolation. …Any human being needs conversational colleagues.”
“I hardly know anybody who’s done very well in life in terms of cognition that doesn’t have somebody trusted to talk to.”
I’m fully convinced that open and honest conversation is an extremely efficient and effective way to find solutions to problems, brainstorm new ideas and sharpen ones thinking. That said, I have to be personally honest and confess that I don’t do a very good job of this. I tend to be an internal processor, and as such I rarely invite other people to weigh in on the thoughts, ideas and opinions percolating in my head (just ask my wife!). I’m surrounded by thoughtful people, to include business partners, friends, family and clients, and I’d like to be more intentional in engaging those around me in trust-based conversation. This is one I really need to take to heart!
11) Sound Temperament
“Having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control.”
“Warren and I aren’t prodigies. We can’t play chess blindfolded or be concert pianists. But the results are prodigious, because we have a temperamental advantage that more than compensates for a lack of IQ points.”
This characteristic has everything to do with what has already been written last week about discipline, calmness, confidence, etc. The thing I found most interesting about this section of the book was that the author gave a hat-tip to quantitative strategies: “One very important new approach to the Graham value investing system involves using computers and software to take human emotions completely out of the process.” Of course our approach is quite different in many respects than the Graham value investing system, but any long-time reader of this blog will know that we certainly advocate the use of math systematic strategies to automate decision making and remove the human emotional element.
“Mozart overspent his income his entire life – that will make you miserable.”
Most of our clients don’t know this, but prior to our working relationship Elliott actually ran a financial blog on which he donned his alter-ego “Frugal Franco”! I’ve always considered myself to be fairly smart with my money, but I can honestly say that I’ve never met someone who can stretch a dollar quite as far as he does. I am slowly learning the art and science behind his techniques, and am benefitting tremendously on both a personal and professional level. I believe as a team we truly embody the mantra of “doing more with less”, and I think there is a flow through benefit to our clients as well - particularly as it relates to our commitment to reducing unnecessary fees and expenses wherever possible.
13) Risk Averse
“Using volatility as a measure of risk is nuts. Risk to us is 1) the risk of permanent loss of capital, or 2) the risk of inadequate return.”
“I don’t want to go back to Go [like in a game of Monopoly]. I’ve been to Go…A lot of our shareholder have a majority of their net worth in Berkshire, and they don’t want to go back to Go either.”
Ask any of our clients what it is that sets apart our portfolio management style, and I think one of the first things out of their mouth will be that we are extremely proactive in managing risk. We’ve written extensively about the importance of going beyond stocks and bonds to achieve true diversification as well as having a systematic discipline in place for managing exposure to large drawdowns. More specifically, we wrote at a high level about the very concept of investment risk roughly a year ago in Risky Thinking and Deviating On The Definition Of Risk. I’m sure our approach will continue to evolve and become more and more robust over time, but I do think that being risk averse is something we do exceptionally well.
Well, there you have it. Thirteen characteristics of a successful investor according to the wisdom of the great Charlie Munger. One of my favorite quotes from the book is, “I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up, and boy, does that help. Nothing has served me better in my life than continuous learning.” Taking these 13 characteristics one by one was a great learning experience for me, and I hope it was for you as well. We will continue pushing hard to develop The Right Stuff as we work to become the most effective advisory team we can possibly be for our clients.
Author David Houle, CFA is a founding member of Season Investments. He serves as the firm's Chief Compliance Officer as well as sitting on the investment committee overseeing the management of client assets. David spent nearly ten years in various roles primarily managing individual client assets prior to co-founding Season Investments. David graduated with a degree in Finance from Colorado University in Colorado Springs in 2003 and earned the Chartered Financial Analyst (CFA) designation in 2006. David and his wife Mandy have three children and spend most of their free time with friends and family.
Transparency is one of the defining characteristics of our firm. As such, it is our goal to communicate with our clients frequently and in a straightforward way about what we are doing in their portfolios and why. This information is not to be construed as an offer to sell or the solicitation of an offer to buy any securities. It represents only the opinions of Season Investments. Any views expressed are provided for informational purposes only and should not be construed as an offer, an endorsement, or inducement to invest.