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

For example, a $6-per-share stock multiplied by 1 million shares outstanding equates to a market value for the whole company of $6 million. Then he asks himself what the company is worth as an economic entity from a long-term perspective. If the company is worth a lot more than its market valuation, it is a potential buy. If it is worth less, he gives it a pass, but if it has a “durable competitive advantage,” he will keep an eye on it in the hope that at some future date it will be selling at a bargain price or even a fair price. Finding a business with a durable competitive advantage means determining whether it has staying power. If we are going to buy and hold a company for twenty years, we don’t want the product it is selling to become obsolete in year five. A great number of Berkshire’s investments have been in companies that have manufactured the same product or provided the same service for fifty or more years. In fact, most of the wonderful businesses that Charlie and Warren own—such as the Coca-Cola Company, Wells Fargo Bank, American Express, Swiss Re, Wrigley’s Gum, Kraft Foods, and even Anheuser Busch before it was bought out—have been selling the same product or service for more than a hundred years! When it comes to the truly great businesses, time is almost always on the investor’s side.