Category Charlie Munger

The Quality Filter: Why a 15% Net Margin and 10-Year ROIC are the Only Antidotes to a Sideways Market The Quality Filter: Why a 15% Net Margin and 10-Year ROIC are the Only Antidotes to a Sideways Market

The Quality Filter: Why a 15% Net Margin and 10-Year ROIC are the Only Antidotes to a Sideways Market

It's my thesis market returns over the next few years are unlikely to match what we've seen over the past decade. However, I'm also of the view that will create great opportunities for savvy patient investors who think long-term. This missive defines what is meant by "quality" investments - and the attributes investors should focus on. And if we are see a more challenging climate the next few years - it's higher quality assets which will shine.

How to Identify High-Quality Stocks: A Simple Framework for Quality, Value, and ROIC How to Identify High-Quality Stocks: A Simple Framework for Quality, Value, and ROIC

How to Identify High-Quality Stocks: A Simple Framework for Quality, Value, and ROIC

Charlie Munger once joked "all I want to know is where I’m going to die, so I’ll never go there.” Jokes aside - it's the same approach you should apply with investing. And it's not difficult to do. The math is very simple -- addition, subtraction, division and multiplication. If you have access to a calculator - you're all set. The challenge is mastering your emotions (and any self-defeating behaviors). A calculator (or AI) can't help you with that. This game is more EQ than it is IQ. Think of it as a test of your character versus your intellect. For e.g. - many highly intelligent people get investing wrong (e.g., due to emotions such as greed, fear or some inherent bias). This post talks about how we can simplify our approach to avoid taking excessive risks

Investing with Inversion: How to Avoid Costly Market Mistakes and Master the Mental Game

Charlie Munger once said "it is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent". There's a lot of wisdom to be gained in that quote. Now getting things wrong can be a good teacher if you're willing to learn from the experience. However they can also be very expensive. With respect to investing - our primary goal should be to eliminate (or meaningfully reduce) the possibility of making large costly mistakes. A large mistake can reduce our investable capital - impacting our returns for years to come. So how do we try to make fewer mistakes? There are two ways....

Munger on Intelligent Investing

With markets at record highs - trading at very high valuations - I felt it was timely to revisit investing lessons from Charlie Munger. Sadly, Charlie passed away late last year - just shy of his 100th birthday. Whilst Charlie was an incredible investor - what I loved most was his ability to draw insights from many disciplines - which included the study of psychology, economics, physics, biology, history, architecture among other things. This enabled Charlie to develop a lattice of “mental models” to cut through difficult problems. Over the years, I've found Charlie's insights into investing, business and life not only rare but generally correct. What's more, they stand the test of time.

Economic Indicators: When “Bad News” Becomes “Bad for Markets” Economic Indicators: When “Bad News” Becomes “Bad for Markets”

Economic Indicators: When “Bad News” Becomes “Bad for Markets”

Last weekend I questioned whether markets could break out to the upside; or perform what trader's refer to as a "back and fill". My best guess was the latter. In turns out, things traded 'per the script', where the S&P 500 suffered its worst week since March 2023 - giving back 4.20%. The Nasdaq fared far worse - shedding ~6% - led by large losses in popular AI chip stocks. So why are market's worried? It's concerns about growth. With a market trading close to ~22x forward earnings - expecting YoY EPS growth of 11% -- that's not consistent with 'slowdown' scenario.

Charlie: More than a Brilliant Investor

"The best thing a human being can do is to help another human being know more" - Charlie Munger. Very few things will change your trajectory in life (and/or business) as much as learning and education.The more you dedicate your time to obtaining knowledge - the better you will be. But take it a step further... the pathway your life takes will be a function of the decisions you make. Which begs the question - how does one make higher-quality decisions and/or fewer mistakes? Charlie Munger offered us a framework of mental models to do just that... this will be his real legacy.