No question, the investor community lost a great one when Charles A. Munger, Warren Buffet’s longtime right-hand man, passed away on November 28th, a month shy of his 100th birthday. Charlie was probably best known for his stock picking acumen for Berkshire Hathaway. But he also had several nuggets of “worldly wisdom” for being a prudent steward of wealth, regularly speaking to philanthropic boards. Here are a few that we keep front and center at Flatrock:
“…idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, “My god, they’re purple and green. Do fish really take these lures?” And he said, “Mister, I don’t sell to fish.”
The analogy is a good one. As John wrote years ago, investors often buy what they think is exciting, sophisticated, and complex with the embedded assumption that all of these attributes will lead to greater returns. Wall Street happily obliges and charges a pretty penny along the way. We see this today with many advisory firms putting alternatives investments at the center of their sales pitch despite dubious evidence of widespread after-fee and after-tax excess returns.[i]
“The first rule of compounding is to never interrupt unnecessarily."
Compounding refers to the ability of an investment to generate returns, which are then reinvested to generate additional returns over time. A big part of our investment approach centers on eliminating the slippages that unnecessarily interrupt compounding. We just gave you an example of how capital gains taxes interrupt an even perfect market timing strategy. Other interruptors include high and misaligned management fees, state income taxes, switching costs incurred by chasing hot strategies or trying to time markets.
“Don’t sell anything you wouldn’t buy yourself.”
As you know, we started Flatrock to serve our own families. We felt like the wealth management industry wasn’t evolving fast enough to reliably address the increasing complexities of wealth.
"It’s not greed that drives the world, but envy.”
At Flatrock, we like to say, “Let your priorities guide your investments, not the other way around.” Put all your financial hopes and dreams down on paper…everything that needs capital for your own, fulfilled life. However, most focus on their neighbor’s success. No matter your own success someone else will always have “more” as Charlie Munger explains. More net worth, more Instagram followers, more recent returns. An envious mindset will always lead to disappointment.
We gleaned many of these insights (and the corresponding quotes) over the years in the PIMCO guest lobby, where there was invariably a copy of Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger. The book offers worldly insights on Charlie’s thoughts about decision-making, investing, and life. It’s a good place to start if you’d like to learn more.
Markets fluctuate, priorities change. We are here to help.
[i] We’re not anti-alternatives. But the bar needs to be very high to outperform public markets after fees, after taxes and after the inevitable cash drag. Most advisors, in our experience, don’t set the bar high enough.