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Learning from legends: My reflections on Buffett and Munger's Berkshire approach

From the start when I began investing, I have studied how Warren Buffett and Charlie Munger run Berkshire Hathaway through their letters, their AGM speeches, and interviews.

Recently, I also broke down the Berkshire Hathaway Shareholders Letter into three main points and shared them on my Instagram. If you're interested, you can check them out there:

Ben, The Globetrotting Investor, shared his three key takeaways from the Berkshire Hathaway shareholder letter.

But in this article, I want to get a bit more personal.

I want to talk about something that's not just about business but also about their mindset. Let's explore together.

The significance of a partner like Charlie Munger

A great business partner, like Charlie Munger, is an invaluable asset.

He played a huge role in the success of Berkshire Hathaway. Together, Buffett and Munger form a complementary duo, each bringing unique strengths to the table.

Munger’s rationality and multidisciplinary thinking balance Buffett's investment approach, providing a broader perspective. His focus on quality businesses ensures sustained growth.

This partnership creates a culture of constructive debate, improving their decision-making process. Their combined wisdom mitigates risks and maximizes opportunities, creating enduring value for Berkshire shareholders.

Having a good and trustworthy business partner like Charlie Munger is important. It is like having a teammate who balances out your strengths and makes sure you make smart decisions.

Not all your investments will be winners

And that’s perfectly normal.

The key is to set up your investments so that if you make a mistake, it won’t hurt you too much.

Take Berkshire’s investments in Coca-Cola and American Express, for example. They didn’t bring huge gains right away, but over time, their value grew. Now, they make up a significant part of Berkshire’s portfolio.

Now, let’s imagine if Buffet had made a similar-sized mistake in the past, like putting money in a bond that grew little. It wouldn’t have a big impact on its overall worth now.

The lesson here is that small losses fade away when compared to big gains. Over time, a few successful investments can make an enormous difference.

So, start early and plan for the long haul. Also, avoid using borrowed money or investing too much into one stock.

That’s the real secret to success.

Warren Buffett and Charlie Munger on a white golf cart. Their investing mindset has always been the cornerstone of my investing philosophy.

Focus on the underlying business

I had probably repeated this a million times.

The heart of investing lies in understanding the actual business.

Study the company’s products, its competition, and its balance sheet. Ask yourself: does this business have a sustainable economic moat? Is it run by capable leaders? Will it still be thriving in a decade?

Think of buying a piece of business, like you would if you were opening a local store.

You’d want it to be in a good neighborhood, with a product people want, and managed by someone trustworthy.

The stock market is no different.

Look for companies with strong fundamentals. Don’t get caught up in short-term market swings or flashy trends. And ignore those forecasts.

This approach has also been the cornerstone of my investment philosophy, and it has served me well over the years.

Never expose yourself to potential financial ruin

This is absolutely crucial.

Manage your personal finances like how Buffett handles Berkshire Hathaway.

Build a safety net with emergency funds, ensuring you have a cushion for unexpected expenses. Resist the urge to borrow for investments; it amplifies risk unnecessarily. Maintain a frugal lifestyle; this not only safeguards your financial stability but also allows you to seize opportunities when they arise.

Remember, you build wealth steadily and not through high-stakes gambles.

These are my personal thoughts on how the duo run Berkshire and their mindset. Let me know yours in the comments.


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