Dev: Hi John. Tell me something about your investment journey. How did you get to where you are?
He once asked an associate to write up an investment thesis on Allergan, and when the associate came back with a list of Graham-esque metrics, Munger told him to forget the numbers and research why the company had such an advantage over its competition.
He was interested in brands, pricing power, predictability of earnings, high returns on capital — things that produced growth and compounding value over time.
Neither were right or wrong in their approach, but both managed money according to their personalities.
Studying why Dexter Shoe was a bad investment is a very valuable exercise. But the lessons learned from that case study might not transfer directly to another investment situation with its own unique set of variables.
Note – Check out a similar analysis on Indian markets here.
So stock prices are very volatile. There is no way that the average company’s intrinsic value fluctuates this much on an annual basis.
So this of course means that stock prices fluctuate much more dramatically than true values do, giving investors an opportunity.
The stock doesn’t have tremendous upside as its capital base is so large now, but it has—in my opinion—virtually no chance of any permanent downside.
I think keeping a relentless focus on capital preservation is the best way to produce great results over time.
I think gaining an understanding of the big picture is usually the most important objective when looking at a stock.