5 Key Lessons to Warren Buffett and Charlie Munger’s Success

Ivanna Hampton: Buffett has credited Munger with reshaping its investment philosophy, and Morningstar credits the duo for influencing its thoughts on investment. What makes Buffett and Munger’s investing style an example for others to follow?

Greggory Warren: Now, the key to their success really boils down to a few things. They have their own investment criteria as far as what they like to look at when they buy companies. Key things like simple business models, they’re easily understandable, semblance of an economic moat to keep competitors at bay, large enough deals to be meaningful, consistent earning powers, good returns on equity, good management. These are all things that they really look at, not just when they’re doing acquisitions, but when they’re actually investing in the shares of companies in the stock market.

And the key to the success that they’ve had has been staying disciplined and sticking to those criteria whenever they put capital to work. I think Buffett and Munger have also been fond of saying, one way or another over the years, that the key to their success has really been in their ability to avoid making dumb decisions rather than making brilliant ones.

We all know that when Buffett began his investing career, he was looking at “cigar butts,” something that had one or two good more puffs left in it, but Munger’s influence really forced him to focus more on higher-quality companies and being able to pay a higher price point for those companies.

But that said, valuation still matters to both of them. They’re looking to buy wonderful companies at fair prices rather than fair companies at wonderful rock-bottom prices. I think that the key there is Munger changed Buffett’s mindset to start looking at higher-quality companies and being able to pay a reasonable valuation for what they were getting.

As I look at what they’ve done and what they’ve provided for investors over the years, I think the key lessons for me is: Buy what you know, look for signs of competitive advantage that can sustain those excess returns for longer periods, make sure management is going to be additive to the business, and keep the firm on a path of solid returns. And then, truly focus on price when acquiring or investing in a company.