In his 2013 Daily Journal Corp Annual Meeting, Charles Munger explained why sometimes ‘zero’ is the right number of security transactions. Here’s an excerpt from the meeting:
Shareholder: You talked about modern institutional money management. How would you contrast that system with what you were doing in the late 1960s, your mindset and how you went about your business?
Munger: Well, there were some delusions we avoided. Other people thought that you hired very intelligent people, who’d worked very hard to learn their trade and taken tests making them certified whatevers, and then you organized them into specialties.
One guy would study chemicals, one would study autos, one would study this and that. So, you had 100 different specialists in 100 different fields, all with high IQs and all working very hard, that they could invest in big common stocks using this wonderful system, and gain an advantage over other people.
There’s only one trouble with this idea. It doesn’t work. It’s just too competitive. Too many people are trying to do the same thing. We had a different idea. We always thought that a good investment idea was hard to get, usually, and that by working hard, you might get a few of them.
We never had the idea that just by hiring smart people, we could be good at understanding 5,000 different securities or even 100 different securities. I just had the idea that maybe we could find a few, often enough so it would serve our lifetime needs, and we were patient and we waited and we occasionally made a few investment decisions.
In my personal accounts, guess how many securities transactions I had last year?
We are not normal.
You can find a whole compilation of Munger’s letters and meetings here:
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