The Acquirer's Multiple: How the Billionaire Contrarians of Deep Value Beat the Market

by Tobias E. Carlisle

Buffett met Charlie Munger in 1959. Munger had a huge effect on Buffett’s investment style over the years. Until he met Munger, Buffett thought about valuation only in terms of hard numbers. He said he wanted the figures to hit him over the head with a baseball bat. Munger thought Buffett was too limited. Some businesses were “worth paying up a bit to get in with for a long-term advantage,” he said.22 When analyzing an investment, Munger thought more about its softer qualities. He tried to get Buffett to think about more than just the hard numbers. The problem as Munger saw it was that the stocks Buffett liked usually owned bad businesses. Munger didn’t like bad businesses. “The trick,” according to Munger, “is to get more quality than you pay for in price.”23 Buffett’s first step down Munger’s road was an investment in American Express, or AmEx, as it is known. In 1963, AmEx was pulled into the “salad-oil” fraud committed by a client, Tino De Angelis. De Angelis bought and sold soybean oil, which he stored in tanks in his New Jersey warehouse. AmEx is best known for its Traveler’s Cheques and credit cards. But it also had a smaller business issuing warehouse receipts. (The documents are proof a client owns a commodity like soybean oil stored in a warehouse.) Warehouse receipts make it possible to trade a commodity like soybean oil—sell it back and forth—without moving the physical oil. AmEx gave De Angelis warehouse receipts for the amount of soybean oil they thought was ...

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