Tao of Charlie Munger: A Compilation of Quotes from Berkshire Hathaway's Vice Chairman on Life, Business, and the Pursuit of Wealth With Commentary by David Clark

by David Clark

In the late 1960s both Charlie and Warren had their own hedge fund. As the bull market of the late ’60s raged on, everything became overpriced, and Warren, who was still following a Graham approach of buying bargains, could no longer find anything cheap to buy. So rather than alter his investment strategy, Warren shut down his hedge fund and returned the money to his partners, putting the vast majority of his own money into cash equivalents such as US treasuries. Charlie kept on investing, and enjoyed great returns until the stock market crash of 1973–74, when he lost nearly half of his partners’ money. He called it the worst time in his life. Warren, who was sitting on a huge amount of cash because everything running up to the crash had been overpriced, suddenly found himself surrounded by dozens of wonderful companies selling at bargain prices. Because Warren was awash in cash, he could buy them. Because Charlie didn’t have any cash, he couldn’t buy them. When the stock market recovered, Charlie’s investments recovered and he regained his partners’ losses. But the experience so shattered him that he shut down his fund. What did Charlie learn from all that? He learned that as stock prices rise, the odds start going against investors. And when prices fall, the odds start turning in investors’ favor. He also learned that if he stays fully invested in the market as it rises, he won’t have any cash to invest with when the market crashes. It doesn’t matter how good the odds ar...