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Charlie Munger, Buffett’s partner in running Berkshire Hathaway said:
If you took our top fifteen decisions out we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along you pounced on them with vigour.
Given this observation how do you position yourself to obtain your special fifteen decision over an investment lifetime?
Unfortunately, it is not easy. For fifteen brilliant investment to come along you need to be pounding away week after week applying value investing principles hoping that each investment decision made will be one of those fifteen, but knowing that most of them will not be.
Despite not knowing at the outset which of your decision will be brilliant, if any, and which will be just good, you will still obtain a satisfactory result because a collection of shares bought with sound logic will out-perform over the long haul, even if none/few have been in the brilliant category.
Some of the investment decisions made by Buffett and Munger with hindsight look brilliant, but at the time were pretty standard value investing procedure, with little indication that fantastic outperformance was in store. Indeed, they were often so unsure of the prospects of the business that they were close to walking away.
See’s Candy is an example
They had decided to refuse to pay a penny more than $25m for See’s Candy in 1972. It was a close run thing. With a perfect rear view mirror we know that See’s has so far generated $2bn for Buffett and Munger to invest elsewhere, and it is still pumping out close to $100m per year for Berkshire. So, clearly it is one of the top fifteen.
But in 1972 this was not so obvious. However, by sticking to rational investment principles over and over again they were ready when the opportunity came to buy See’s Candy.
They could then judge that at £25m See’s was a good buy, to slot into a broad portfolio of similar solid companies, even if they could never guess the bonanza it became.
GEICO
In 1976 GEICO, the auto insurer, was on its knees after poor management had caused losses. The shar………..To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
