The world of investment recently bid farewell to Charlie Munger, Warren Buffett’s trusted business partner at Berkshire Hathaway Inc. (BRK.A, BRK.B). Munger, who passed away just a month before his 100th birthday, leaves behind a legacy of investment wisdom and an impressive investing track record to back up his wide-ranging musings.
Munger was a proponent of clear thinking in investment decision-making, distilling complex situations into their fundamental elements and avoiding fads and panics. For him, investing was about understanding the intrinsic value and potential of a business and allocating capital accordingly.
Charlie Munger’s Clarity in Thinking
Munger epitomized clear thinking in investment by focusing on long-term value rather than short-term gains. He avoided sectors prone to hype and speculation, instead investing in proven long-term compounders like Costco (COST) and Apple (AAPL).
Munger’s discipline of clear thinking also involved recognizing his own limitations, as he religiously avoided industries or investments falling outside his “circle of competence,” giving him conviction in his portfolio decisions.
He demonstrated clear thinking through his ability to learn from his mistakes and exercise patience, never feeling compelled to act unless a highly compelling opportunity presented itself.
Incorporating Munger’s Approach into My Portfolio
In November 2023, the dominating headlines and total returns charts of financial markets are driving fear of missing out. Yet, Munger’s clear-eyed investing philosophy has me avoiding chasing trends and instead focusing on buying quality defensive dividend stocks and funds.
I am finding value in the REIT, MLP, and utilities sectors, with an attractive combination of value, quality, and defensiveness in companies such as Crown Castle Inc. (CCI), Enterprise Products Partners (EPD), Enbridge Inc. (ENB), and Algonquin Power & Utilities Corp. (AQN).
- Each of these companies has an investment-grade balance sheet with plenty of liquidity.
- Each of these companies is trading at a discounted valuation relative to its historical averages.
- Each of these companies sports an elevated and sustainable dividend yield.
- Each of these companies is recession-resistant and owns valuable infrastructure assets.
I believe this aspect of Munger’s investment philosophy is more important than ever, and as a result, I am buying high-quality, undervalued businesses and patiently waiting for the market to recognize their embedded value.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.