Warren Buffett Reminds Us of Charlie Munger's Greatest Advice

The Warren Buffett philosophy was never an immutable doctrine frozen in time. In his first shareholder letter after the death of his late, great partner Charlie Munger last November, the Oracle of Omaha reminded investors how important it is to change with the circumstances (emphasis mine):

...Charlie, in 1965, promptly advised me: “Warren, forget about ever buying another company like Berkshire. But now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices. In other words, abandon everything you learned from your hero, Ben Graham. It works but only when practiced at small scale.” With much back-sliding I subsequently followed his instructions...

...In reality, Charlie was the “architect” of the present Berkshire, and I acted as the “general contractor” to carry out the day-by-day construction of his vision.

Buffett has told versions of this story before, but it’s an important parable for a market that’s in the midst of seismic changes. Traditionally conceived, value investing has gotten crushed by growth-driven approaches for some 15 years, leading some underperforming managers to lash out and declare that something must be amiss — and maybe they’re right. The triumph of growth and momentum has also increased the influence of the so-called Magnificent Seven mega-capitalization growth stocks, fanning concerns about their sway over the benchmark S&P 500 Index.

But the job of any investor, really, is to figure out how to thrive no matter the circumstances, not complain about them. That’s what Munger and Buffett understood when they allowed their firm to migrate away from pure “cigar-butt” value investing in the mold of Ben Graham toward an approach that embraced paying up for the right high-quality companies (including, today, a massive stake in Apple Inc.)

Growth Trumps Value