During the 2015 Daily Journal Annual Meeting, Charles Munger explains how identifying great companies is easy, but how much do you pay for them? Here’s an excerpt from the meeting:
Mr. Munger: Everybody with any sense at all knows that some companies are better than others. What makes it difficult is they sell at higher prices in relation to assets, and earnings and so forth, and that takes the fun out of the game.
If all you had to do was figure out which companies were better than others, an idiot could make a lot of money. But they keep raising the prices to where the odds change.
I always knew that. They were teaching my colleagues that the stock market was so efficient that nobody could beat it. But I knew people who beat the pari-mutuel system in Omaha by knowing more about horses than other people. I knew it was bull. When I was young I never went near a business school so I didn’t get polluted by the craziness.
[laughter]I never believed it. I never believed there was a talking snake in the Garden of Eden. I had a gift for recognizing twaddle, and there’s nothing remarkable about it. I don’t have any wonderful insights that other people don’t have. I just avoided idiocy slightly more consistently than others.
Other people are trying to be smart; all I’m trying to be is non-idiotic. I’ve found that’s all you have to do to get ahead in life, be non-idiotic and live a long time. It’s harder to be non-idiotic than most people think.
You can listen to the entire discussion here:
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