"The whole secret of investment is to find places where it is safe and wise not to diversify," were the words of Charlie Munger, who died on Tuesday at the age of 99. This principle stood as one of the central tenets of his approach to investing.
Working on the belief that good investment ideas are few and far between - "Life is not just bathing you with unlimited opportunities" - Munger held very few stocks in his personal investment portfolio.
But those he did hold, he was rigidly committed to. At his death, Munger owned stock positions in just three companies:
Berkshire Hathaway (NYSE: BRK.A): Munger was vice-chairman and helped chairman Warren Buffett turn the company from a textiles manufacturer into a large insurance and investment conglomerate.
Buffett began buying shares in Berkshire Hathaway in 1962, believing it to be undervalued, and by 1967 he had majority control and branched into the insurance business.
"If you're Warren, you want to be the house, not the punter," Munger said.
At his death, Munger owned a little over 4,000 shares in Berkshire Hathaway, worth more than $2 billion.
Costco (NASDAQ: COST): Munger was a director since 1997, and Costco was one of his favorite investments.
When Berkshire Hathaway exited its stake in Costco in 2020, Munger held on to his personal stake of around 187,000 shares, worth around $95 million.
Munger said of the company: "I wish everything else in America was working as well as Costco does."
Daily Journal Corporation (NASDAQ: DJCO): He was chairman of the publishing and technology company since 1977.
Daily Journal was also another investment vehicle for Munger, and it owns shares in Alibaba (NYSE: BABA) - worth $37.5bn, as well as Bank of America (NYSE: BAC) - worth nearly $89 million, Wells Fargo (NYSE: WFC) - $62 million, and US Bancorp (NYSE: USB) - $7.7 billion.
Value Investing
At the heart of all of Munger's investment ideas, whether for his own portfolio or for that of Berkshire Hathaway, was value investing. Buying stocks that show long-term growth and pay dividends. He claimed the big money was not in buying and selling but in buying and waiting.
And value investing is not just about buying cheap. Munger said: "Forget what you know about buying fair businesses at wonderful prices. Instead, buy wonderful businesses at fair prices."
Thus, buying quality and being patient were the principal facets of Berkshire Hathaway's success.
And upon finding stocks that matched the above investment criteria, Munger said investors must seize the moment. Quoting his grandfather - perhaps Munger's best-known piece of investment advice was: "When you get a lollapalooza, for God's sake, don't hang by like a timid little rabbit."