Wednesday, October 21, 2009

Buffett Munger Paradox

"I think the (new) top guy won't be as smart as Warren. But it's silly to complain: 'What kind of world is this that gives me Warren Buffett for 40 years and then some bastard comes along who's worse?'" [Laughter] - Charlie Munger at the Wesco 2004 Annual Meeting

Check out this post on Buffett and Munger from a good blog focused on psychology and finance.

An excerpt:
...at the heart of this enduring relationship is a curious paradox. When asked to identify the most important factor in his financial success Buffett replies with a single word: "focus". Munger, on the other hand, extols the need for investors to develop a broad education in which to ground their investment activities.

These comments from Charlie seem to reinforce the point:
"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. 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." - Charlie Munger at the Wesco 2007 Annual Meeting

"It is true that Warren had a touch of brain block from working under Ben Graham and making a ton of money – it's hard to switch from something that's worked so well. But if Charlie Munger had never lived, the Buffett record would still be pretty much what it is." - Charlie Munger at the Wesco 2004 Annual Meeting 

"It's hard to believe that he's getting better with each passing year. It won't go on forever, but Warren is actually improving. It's remarkable: Most almost-72-year-old men are not improving, but Warren is." - Charlie Munger at the Wesco 2003 Annual Meeting 

"I think there's some mythology in this idea that I've been this great enlightener of Warren. He hasn't needed much enlightenment." - Charlie Munger at the Berkshire Hathaway 2003 Annual Meeting 

Berkshire Hathaway's investments in China and Korea (PetroChina and POSCO) in recent years are good examples of the expansion of their "circle of competence".

So maybe it's a focus on what's already within your circle of competence at any point in time, combined with Munger's tendency to seek a broader multi-disciplinary approach to expand that "circle".

Adam

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