An independent professional's take on the latest news and trends in global financial markets

Grumpy Old Men Have Their Uses

My latest Last Word column in the Financial Times discussed the views of Charlie Munger, Warren Buffett’s right hand man for many years. For those who don’t know it, the best stuff that Munger has written on the secrets of success in investing (and in life) can be found in Poor Charlie’s Almanack, an expensive and lavishly illustrated tome whose proceeds go to the Munger Foundation. You have to swim your way through a lot of eulogy before you get to the really good material, which is the text of the lectures that Munger has given to graduating university students, but they are more than worth their weight in gold. 

Buffett and Munger first met in Nebraska when they were young men. Charlie was the only other man in Omaha, says Buffett,  who “rolled around on the floor laughing at his own jokes”, which provided an instant bond between the two. Modesty has certainly never been either man’s forte, but as investors, to paraphrase Churchill and others, they don’t have much to be modest about either.

Buffett’s latest succinct view on the markets, as I am sure most of you will have seen, goes as follows:

It’s quite clear that stocks are cheaper than bonds. I can’t imagine anybody having bonds in their portfolio when they can own a diversified group of equities. But people do because the lack the confidence. But that’s what makes for the attractive prices. If they had their confidence back, they wouldn’t be selling at these prices. And believe me, it will come back over time.

To which, having studied them going back nearly 25 years now, I would only add my ritual comment about Buffett’s sayings: he always turns out to be right in the end, although markets often go the other way as soon as he says them (which I call the curse of the value investor).

Written by Jonathan Davis

October 12, 2010 at 2:28 PM