…talk about the best advice they have even gotten in a short piece from Fortune. I think it clarifies the difference between a blind value investor and an investor who is looking for good companies (not coincidentally, many of those good companies have good relative strength). Warren Buffett and Charlie Munger have made a fortune implementing this advice.
Buffett: I had been oriented toward cheap securities. Charlie said that was the wrong way to look at it. I had learned it from Ben Graham, a hero of mine. [Charlie] said that the way to make really big money over time is to invest in a good business and stick to it and then maybe add more good businesses to it. That was a big, big, big change for me. I didn’t make it immediately and would lapse back. But it had a huge effect on my results. He was dead right.
Munger: I have a habit in life. I observe what works and what doesn’t and why.
I highlighted the fun parts. Buffett started out as a Ben Graham value investor. Then Charlie wised him up.
Valuation has its place, obviously. All things being equal, it’s better to buy cheaply than to pay up. But Charlie Munger had observed that good businesses tended to keep on going. The same thing is typically true of strong stocks—and most often those are the stocks of strong businesses.
Buy strong businesses and stick with them as long as they remain strong.