In my recent column about Warren Buffett's annual meeting, I mentioned how scores of his faithful followers were to be seen staggering to the airport clutching copies of a new book about his long-serving business partner, Charlie Munger. At 480 glossy pages, and weighing in at something that feels rather heavier than a Christmas turkey, Poor Charlie's Almanack is certainly not a tome that the faint-hearted reader will want to be taking on their holidays.
Nor is it cheap. OK, the book has been privately produced and the proceeds go to charity, but at $49 (about £27) for an unsigned copy and $99 for a signed one (not to mention a similar amount for shipping), it is not exactly priced for the cheapskate reader.
So is the Charlie Munger book worth the price? A couple of readers have asked me that question, and I have been debating the issue in my mind for the last couple of weeks since lugging it back from Omaha.
The first thing to be said is that there is an immediate cultural issue to be confronted. In this country, we still find it quite hard to laud worldly success - something that has rarely, I think it fair to say, been an issue in American culture. If you find eulogistic treatments of individual success a problem on stylistic grounds, then you are going to find a lot of Poor Charlie's Almanack quite hard going.
Before he teamed up with Buffett, Munger had already carved out a successful career as a lawyer (graduating summa cum laude from Harvard), moved into property development and run his own successful investment partnership for a number of years.
This is a man who does not suffer from having a misplaced view of his own talents. He is notoriously prone to giving blunt and withering assessments of those who do not agree with him, and he knowingly compares himself to Ben Franklin in wanting to tell the world how to behave. It's a recipe for an exercise in didacticism that some readers, I suspect, will find rather hard to take when spread over the best part of 500 pages.
However, it has to be said that a good deal of what Munger has to say is fresh, invigorating and (in my judgement) almost entirely right.
A good chunk of the book is taken up with verbatim transcripts of the series of talks Munger has given to students on the secrets of investment and worldly success. I know several successful fund managers who swear that these are among the best things about investment they have ever come across. Buffett himself also credits Munger with giving him many of the insights that have enabled him to sustain his remarkable performance over so many years - and that is no mean endorsement.
The first and most important plank in the Munger approach to investment is simply that it pays to be rational - something that most people, for temperamental reasons as much as failings of intellect or understanding, find difficult to achieve.
Common sense, he argues, will then point you in the direction of only investing in things you really understand, looking for bargains in the area of your competence, betting big when you find one, but also being willing to pay up for the best if that is what you have to do.
He compares the stock market to a parimutual betting system - that is, something like the Tote, in which the odds are automatically adjusted in response to the amount of money wagered. "It is not given to human beings to have such talent that they can just know everything about everything all the time," Munger says. "But it is given to human beings who work hard at it - who look and sift the world for a mispriced bet - that they can occasionally find one."
The wise ones, he goes on to say, "bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple."
Buffett's take on this is that, for most people who want to capture the bulk of the returns from the stock market, an index fund will do a decent job. But he warns that it won't ever put them at the top of the performance tables and won't prevent them from losses, which is what the truly smart investor should be aiming for.
This philosophy helps to explain why Buffett is now sitting on so much cash waiting for the next no-brainer opportunity to come along - the patience not to buy less attractive things just for the sake of doing something is a key corollary of being selective.
However, the miracle, says Munger, is that so few people actually do invest the way his philosophy suggests you should. Indeed, the whole business of Wall Street and other financial markets, he argues, is geared towards persuading people to invest in exactly the opposite way to what reason suggests.
"A huge majority of people have some other crazy construct in their heads. Instead of waiting for a near cinch and loading up, they apparently ascribe to the theory that if they work a little harder or hire more business school students, they'll come to know everything about everything all the time. To me, that's totally insane."
To describe the perils of modern investment management, he tells a story about a man who sells exotic-coloured fishing-tackle to anglers. When asked whether purple and green floats really do help to attract more fish, the salesman replies: "Mister, I don't sell to fish."
Another good Munger rule is: "Anytime anybody offers you anything with a big commission and a 200-page prospectus, don't buy it." Occasionally you will be wrong, but "over a lifetime, you'll be a long way ahead - and you will miss a lot of unhappy experiences that might otherwise reduce your love for your fellow man."
There is an awful lot more in this vein in Poor Charlie's Almanack, both about investment and life itself. As with Buffett, the best bits are the ones that Munger writes himself. If you can take the preaching, and the serial praise from others, and haven't heard these kind of ideas before, then you certainly won't be wasting your money.Reuse content