Have you ever wondered what the secret to Warren Buffett's success is?
What the man can do with $100
Much has been said by outsiders about the way Buffett has delivered decades of unparalleled investment returns to his shareholders. It's no wonder.
Consider for a moment that $100 parked in the S&P 500 at beginning of 1965 would be worth $9,841 by the end of 2013. This is a clear display of the true beauty of both the American economy and the rewards of buy-and-hold investing.
But what would that same $100 be worth if it was put into the hands of Warren Buffett at Berkshire in 1965?
Words don't do it justice: $693,518.
All of this is to say, Warren Buffett has clearly done one or two things right along the way. So with that in mind, the natural question becomes, how has he done it? And Munger has a unique perspective to answer that very question.
The inside opinion
Munger first met Buffett at a restaurant in Omaha 55 years ago. After the two collaborated on a number of investments over the next 20 years -- including Buffett's beloved See's Candy -- Munger officially joined Berkshire full time as the vice chairman in 1978, and he's held the position ever since.
In 2007 Munger also stood atop Wesco. The company was in many ways like a mini-Berkshire Hathaway -- which actually owned 80% of Wesco -- because it was driven by insurance operations, but it also had a metal-cutting business and furniture retailer under its wings. And ultimately it was purchased fully by Berkshire in 2011.
But when Munger sat down to begin the question and answer session at Wesco's 2007 annual meeting he began by saying:
I want to do something I haven't done before. I feel obligated because so many of you came from such great distances, so I'll talk about a question I've chosen, one that ought to interest you: Why were Warren Buffett and his creation, Berkshire Hathaway, so unusually successful? If that success in investment isn't the best in the history of the investment world, it's certainly in the top five. It's a lollapalooza.
So what exactly did Munger identify as some of the unique keys to Buffett being "so unusually successful"?
He began by noting:
The first factor is the mental aptitude. Warren is seriously smart.
That likely doesn't come as much of a surprise any of us, but it's as good a place as any to begin. Yet it's also important to see it doesn't just stop there because Munger continued by noting Buffett "out-achieved his mental aptitude."
How so? Well there's also the reality the 84-year-old Buffett has been involved in investing since childhood:
Then there's the good effect caused by his doing this since he was 10 years old. It's very hard to succeed until you take the first step in what you're strongly interested in. There's no substitute for strong interest and he got a very early start.
But it isn't just that Buffet is intelligent and got a head start. As he's not content to just rest on his laurels. Instead he's continuously dedicated to learning and gaining greater knowledge:
Warren is one of the best learning machines on this earth. The turtles who outrun the hares are learning machines. If you stop learning in this world, the world rushes right by you. Warren was lucky that he could still learn effectively and build his skills, even after he reached retirement age. Warren's investing skills have markedly increased since he turned 65.
Munger notes this reality is "really crucial," because he suggests, "having watched the whole process with Warren, I can report that if he had stopped with what he knew at earlier points, the record would be a pale shadow of what it is."
And Buffett hasn't just continued his learning, but he's also seen all of the steps laid out on the path set before him as a chance to gain better understanding. Munger compares Buffett to the Roman emperor Marcus Aurelius who "had the notion that every tough stretch was an opportunity – to learn, to display manhood, you name it. To him, it was as natural as breathing to have tough stretches."
As a result, Munger suggested, "Warren doesn't spend any time on self-pity, envy, etc."
Put simply, Buffett has continually dedicated himself to refining and expanding his understanding of investing.
Stay calm, invest long
Warren Buffett once said:
I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business. I do it because I like this kind of life.
And in all of Munger's points we can see the immense value of simply sitting and thinking, and how it has propelled Buffett to remarkable success.
As busyness characterizes our lives seemingly now more than ever, it's a handy reminder to see how in so many ways we can put our priorities in all the wrong things.
So take some time today "to just sit and think," and see what you can be taught by that which you've been shown along the way. It may not turn you into Buffett, but you'll undoubtedly be glad you did.