Evolution of Investing

It is delighting that Charlie Munger gave interesting speech during the Daily Journal Annual Meeting 2014 this year. I read every available transcript/notes of his speech online. There is an interesting comment from him answering WSJ reporter, Jason Zweig:

"I don’t love Ben Graham and his ideas the way Warren does. You have to understand, to Warren — who discovered him at such a young age and then went to work for him — Ben Graham’s insights

changed his whole life, and he spent much of his early years worshiping the master at close range. But I have to say, Ben Graham had a lot to learn as an investor. His ideas of how to value companies were all shaped by how the Great Crash and the Depression almost destroyed him, and he was always a little afraid of what the market can do. It left him with an aftermath of fear for the rest of his life, and all his methods were designed to keep that at bay. 

I think Ben Graham wasn’t nearly as good an investor as Warren Buffett is or even as good as I am. Buying those cheap, cigar-butt stocks [companies with limited potential growth selling at a fraction of what they would be worth in a takeover or liquidation] was a snare and a delusion, and it would never work with the kinds of sums of money we have. You can’t do it with billions of dollars or even many millions of dollars. But he was a very good writer and a very good teacher and a brilliant man, one of the only intellectuals – probably the only intellectual — in the investing business at the time."

I still respect Benjamin Graham for sharing his investing philosophy and logical investing framework. It is true that Graham's investing criteria is close to 'ultra defensive' investing style.

I started doing value investing in 2010. I first search net net in SGX (Singapore stock market) and US markets. There are too few available opportunities. As STI (Singapore index), DJIA, and S&P roses steadily over 4 years, I realised that the opportunity for net net is drying up.

At that point, value investing is not dead or useless. Rather, I need to wait until the net net opportunity comes up. However, there are rouge stocks that produce astonishing financial statements that suggest net net opportunity. We need to watch out for that.

In order to find sufficient investment opportunity to grow your wealth, you need to improvise the old age value investing framework. Buffett and Munger did it. My answer is to infuse business-based qualitative thinking with different viewpoints into quantitative analysis so as the qualitative thinking answers the the figures generated by the quantitative answer. From there, I was able to find one or two interesting investment opportunities per year.

I strongly agree with Munger's comment. I hope to hear more of Munger's talk now and then. In advance, I am very thankful for anyone who is willing to share his version of Munger's speech.

By the way, when I was asked about my investment return, I often give understated percentage return answer because it is still relative basis and anything can change. Regardless of how well we have done, we should polish our investment analysis. Once we have strong understanding of successful investing, 'beating the market' result will come naturally. I sincerely hope that we should not obsess with 'beating market' thing but rather thinking of improving your wealth.