I’ve always wanted to interview Charlie Munger and Warren Buffett, but I’ve been too intimidated. I doubt that I could come up with one single question they haven’t been asked many times before. Then it occurred to me that the best interview I could do is to take their answers from writings, interviews and reports they’ve done in the past then frame the question. It’s so much easier and the answers are always awesome.
This article is a compilation of common investing questions answered using actual Charlie Munger and Warren Buffett quotes. So here you go, my ‘interview’ with Warren and Charlie.
1) Charlie, what is the most important personal quality you can have as an investor?
“Patience … followed by pretty aggressive conduct. It is given to human beings who work hard at it—who look and sift the world for a mispriced bet — that they can occasionally find one. And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple.” – Charlie Munger
2) What is your preferred business type that you want to invest in?
“We prefer those (businesses) that can write us a check at the end of the year.” – Charlie Munger
3) Warren, with all the books that have been written about how to invest the way you do it, why would your style of investing keep working?
“There is no doubt that there are far more ‘investment professionals’ and way more IQ in the field, as it didn’t use to look that promising. Investment data are available more conveniently and faster today. But the behavior of investors will not be more intelligent than in the past, despite all this. How people react will not change – their psychological makeup stays constant. You need to divorce your mind from the crowd. The herd mentality causes all these IQ’s to become paralyzed. I don’t think investors are now acting more intelligently, despite the intelligence. Smart doesn’t always equal rational. To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.” – Warren Buffett
4) Please give us the most critical thing you think about when deciding if you’re going to buy this business or not.
“When Charlie Munger and I buy stocks — which we think of as small portions of businesses — our analysis is very similar to that which we use in buying entire businesses. We first have to decide whether we can sensibly estimate an earnings range for five years out or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate. If, however, we lack the ability to estimate future earnings — which is usually the case — we simply move on to other prospects. In the 54 years we have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions. It’s vital, however, that we recognize the perimeter of our “circle of competence” and stay well inside of it. Even then, we will make some mistakes, both with stocks and businesses. But they will not be the disasters that occur, for example, when a long-rising market induces purchases that are based on anticipated price behavior and a desire to be where the action is.” – Warren Buffett
5) Why don’t you think most people can invest like you and Charlie do it? Why urge them to invest in indexes?
“If you buy a wonderful business at an attractive price you’re certain to make money. [But] most, of course, have not made the study of business prospects a priority in their lives. If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power.” – Warren Buffett
6) You’ve often said the best book ever written about investing is “The Intelligent Investor”. What are the key points of the book that you continue to focus on even today?
“Before reading Ben’s book, I had wandered around the investing landscape, devouring everything written on the subject. Much of what I read fascinated me: I tried my hand at charting and at using market indicia to predict stock movements. I sat in brokerage offices watching the tape roll by, and I listened to commentators. All of this was fun, but I couldn’t shake the feeling that I wasn’t getting anywhere. In contrast, Ben’s ideas were explained logically in elegant, easy-to-understand prose (without Greek letters or complicated formulas). For me, the key points were laid out in what later editions labeled Chapters 8 and 20. These points guide my investing decisions today.” – Warren Buffett
7) Why just a few stocks? Why not 50?
“I can’t be involved in 50 or 75 things. That’s a Noah’s Ark way of investing – you end up with a zoo that way. I like to put meaningful amounts of money in a few things.” – Warren Buffett
8) Charlie, can the average guy or gal out there with just average smarts invest like you do it and be as successful as you?
“You have to be aversive to the standard stupidities… you don’t have to be smart. We look for easy decisions, but we find it very hard to find “easy decisions”. Really, I’m just out there trying to be non-idiotic.”– Charlie Munger
9) One last question. I know you don’t do Macro but just this once will you make us a prediction about the next ten years?
“Over the past 50 years we lived through the best time of human history. It is likely to get worse. I recommend you to prepare for worse because pleasant surprises are easy to handle.”– Charlie Munger
Looking for more advice that will teach you how to invest with certainty? Get this free eBook that contains all of the advice from the world’s greatest investors.
Featured Photo Credit: Stuart Isett/Fortune Most Powerful Women/Flickr, used under a Creative Commons license.