Opportunity Cost: Buffett & Munger’s Powerful Investing
2014-05-15 12:47阅读:
In the past year there has been a lot of discussion within the
value investing community about the use of checklists. The idea has
been around for awhile. For example,
Poor Charlies’s
Almanac, which is a compendium of Munger’s teachings and
speeches, contains a copy of Munger’s investing checklist. Munger
got the idea from pilots who religiously use checklists to avoid
errors.
Also, for years Buffett and Munger have discussed their basic
investing filters or checklist:
- Is it a good business?
- Does it have a durable competitive advantage?
- Does it have capable, honest management?
- Is it available at a good price?
The idea of investing checklists took on renewed interest as a
result of the recent financial crisis as bloodied investors did
post-mortems on their dismal performance and searched for tools and
insights that might help them do better going forward. One source
of insight was an article by Atul Ga
wande in The New Yorker, “The Checklist”, that showed how
a simple checklist could make an enormous impact on outcomes in
both simple and complex life-threatening medical procedures.
Gawande went on to develop the article into a book, The
Checklist Manifesto: How To Get Things Right, that expands his
ideas and includes a discussion of how checklists are used by
investors Monish Pabrai and Guy Spier.
At the 1998 Berkshire Hathaway annual shareholders meeting, Buffett
and Munger discussed another of their basic investment filters –
opportunity cost – and how they use it. (1)
Munger explained that if you have the
opportunity to purchase an investment that is better than 98% of
all businesses, then you can use it as a filter to automatically
eliminate the other 98%. Munger conceded that it’s a simple idea
and wondered aloud why it has not been more widely imitated because
1) Berkshire Hathaway was proof that it worked, 2) if practiced it
tends to lead to a concentrated portfolio (which Buffett and Munger
believe is the rational way to invest), and 3) it saves you a lot
of time because you can quickly eliminate investment ideas that
aren’t in the top 2%.
Buffett went on to explain it this way.
Whenever they look at a possible investment, they immediately
compare it to Coke, which Buffett views as about as perfect an
investment as you will ever find. Coke not only has superior
economics and growth prospects far into the future, but also its
future prospects are highly certain.
Buffett puts a high premium on certainty.
According to Buffett, when you invest you are trying to peer into
the future. With many, if not most businesses, it’s either
impossible or fraught with uncertainty. With a few businesses,
however, if you do your homework, you can develop real and rational
conviction about their future prospects.
If a prospective investment does not pass
Buffett’s “Coke” or “Gillette” (Gillette was purchased by P&G
in 2005) test, he’s unlikely to buy. Buffett went on to say that
CEO’s should apply the same filter when sizing up an acquisition.
If it doesn’t pass the “Coke” test, Buffett asks why not buy stock
in Coke or repurchase shares in their own business? According to
Buffett this would have prevented a lot of unsound
deals.
This is a simple, yet powerful, filter that you can put to use
immediately.
(1) Berkshire Hathaway annual meeting, 1997, Outstanding Investor
Digest, August 8, 1997, p. 15.