Some Tough Love From Buffett and Munger

As two of the world's most closely followed investors for the past half-century, it's safe to say people usually like to listen to Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) CEO Warren Buffett and his right-hand man, Vice Chairman Charlie Munger.

To be sure, their fortunes have consistently stood out to investors as encouraging symbols for what can be accomplished through long-term patience and fortitude. So it follows that the men's words have become a gospel of sorts to investors hoping to increase their own fortunes -- like you and I.

Even so, it's important to remember both men have never shied away from rebuking bad behavior, and many of their assertions can be equated to tough love for professionals and everyday retail investors alike.

Here are a few examples, then, of some of their more difficult-to-swallow advice.

Munger on facing the truth 
"Recognize reality even when you don't like it -- especially when you don't like it."

When things occasionally go bad with your investments, Munger rightly reminds us we need to face reality before the problems get bigger.

In fact, I had one such moment last year when I finally sold my shares of Inteliquent (NASDAQ: IQNT  )  around $12 per share after holding them for much less time than I had originally planned. At the time, the stock had already been beaten down from its 2009 highs over $30 per share, and I had high hopes that the company might eventually regain its former glory.

However, I had also weathered the resignation of its CEO, watched margins relentlessly march downward, and raised my eyebrows when the company suddenly changed its name and direction as it tried without much success to diversify its deteriorating business.

In the end, as tempted as I was to hang on, taking Munger's advice turned out to be a great decision since shares of Inteliquent trade hands today under $3 per share.

Buffett on gauging success by material wealth
"If someone goes through life and measures themselves solely by how much money they have, or how much money they earned last year, sooner or later they're going to end up in trouble."

This is an especially intriguing statement coming the third richest man in the world; the last time I checked, Buffett's net worth sat at a jaw-dropping $55 billion.

I suppose this does help explain why Buffett still leads a relatively humble life, lives in the same home he bought in 1958 for $31,500, and plans to give away most of his fortune by the time he dies.

Munger on the necessity of reading 
"In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time -- none, zero."

This one might seem a little harsh, especially if you don't like to read. However, the fact remains there lies an ever-growing wealth of knowledge in print. In order to unlock that knowledge, you've got to read it!

Of course, this doesn't mean should visit our friendly neighborhood comics store more often -- however entertaining that may be. Rather, why not pick up some of Buffett's favorite books as a starting point to learn and grow as an investor?

Buffett on owning your actions
"It's your responsibility if you're buying it. And there's got to be a reason. And if you can't state the reason, you shouldn't buy it."

Finally, Buffett reminds us we need to take responsibility for the stocks we buy. More importantly, you should strive to really know every facet of the companies underneath those stocks.

If you can't or simply don't have the time to do adequate due diligence for your investments, maybe you'd be better off staying out of the market or, at the very least, buying a low-cost index fund to spread your risk.

Don't be upset with Charlie and Uncle Warren for their harsh advice; in all seriousness, it's for your own good.

Instead, heed their words. Trust me, you'll thank them when you're older.

More expert advice from The Motley Fool
Thanks to the savvy of investing legend Warren Buffett, Berkshire Hathaway's book value per share has grown a mind-blowing 586,817% over the past 48 years. But with Buffett aging and Berkshire rapidly evolving, is this insurance conglomerate still a buy today? In The Motley Fool's premium report on the company, Berkshire expert Joe Magyer provides investors with key reasons to buy as well as important risks to watch out for. Click here now for instant access to Joe's take on Berkshire!


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 13, 2013, at 3:05 AM, MusiCali wrote:

    "at the very least buy an index fund"

    most people do not realize that index funds should be the core of most individual investors portfolio. Most funds and investors fail to beat the index over a long time frame (15 years plus). This article like many others make indexing look like its for idiots. A good Buffett quote for this article could have been his when asked about the "dumb money".

    When the dumb money realizes how dumb he is and buys an index fund, he becomes the smartest of the smart money". So, at the very least you could buy an index fund and become the smartest of the smart money ;)

  • Report this Comment On April 13, 2013, at 5:33 PM, tnk4800 wrote:

    Amen!

  • Report this Comment On April 14, 2013, at 2:40 AM, AnsgarJohn wrote:

    @MusiCali and TNK4800 read Buffett's piece "The Superinvestors of Graham and Doddsville" and check the performance of Graham defensive screens.

    Performance after 1984: www.vlnvst.com

  • Report this Comment On April 14, 2013, at 7:53 PM, dbtheonly wrote:

    IQNT has a 5 star rating?!

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