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Allison Schrager: The Unshakeable Investor

In an industry of fads and algorithms, Charlie Munger never lost faith in a fundamental approach: buy good companies at a good price. Charlie Munger had an extraordinary life. He lived 99 years, had a way with language, fathered nine children, and made a fortune. But he's best known for being one of the finest investors of his generation. His investment philosophy, stunningly sensible–buy good companies at a good price–has gone out of fashion in a world where algorithms and fads dominate. Investing is always prone to changes reflecting market trends that can turn on a dime. Munger's success demonstrated that smart, principled investing never goes out of fashion and that one should never bet against growth over the long term.

Munger was not big on gimmicks or fads. "To me, it's just dementia," he memorably said of crypto currency. "It's like somebody else is trading turds and you decide you can't be left out." He steered his partner Warren Buffet away from traditional "value" investing. Buffet described it this way: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner."

In today's market, where tech stocks dominate and lots of the glamour and money is going to an opaque private equity market, this advice sounds almost quaint. And as John Authers at Bloomberg notes, the Munger strategy did not outperform in the last decade, when betting that expensive tech companies will get even more expensive was the way to earn big returns. This may have been made possible by a near-zero interest rate environment, which seemed to upend the rules of investment. Munger, right up to the end, was a fan of tech stocks and thought they were worth owning, even if their prices were high.

Markets are unpredictable; fads come and go, invalidating the latest best advice in an instant. Interest rates may fall and stay low for a decade, but they come back up eventually. Good investing involves taking a view, usually not the trendiest one, and sticking with it because markets are changeable and impossible to outguess.

Munger's investment philosophy may sound simple, but finding good companies at fair prices is easier said than done. Many investors appear to figure it out; they outperform the S&P 500 for a while, maybe even a decade or two. But then markets change and their strategy runs aground. Munger and Buffet were often held up as examples that stock-picking worked, but their outsize success really demonstrated what a very rare and unusual skill it is. It explains why they developed a cult-like following.

Though Munger was sometimes thought of as a pessimist, his investing style implies an optimism as well, a confidence that good companies will continue to grow, and that the economy will grow along with them. The future looks highly uncertain today–interest rates may stay high and disrupt the economy, tech may fail to live up to its promise–but the American economy was built on good companies that create value, a premise that has boosted the bottom lines of millions of people, and made some very rich. Charlie Munger was one of them.

Allison Schrager is a senior fellow at the Manhattan Institute and a City Journal contributing editor.

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Posted: November 29, 2023 Wednesday 03:44 PM