Since the speech in 1999, the speeches of the following shareholders' meetings have been very long, and this one has a summary of 12 articles, and I will only select 5 of them for this article.
1. Stay away from companies that can't generate cash profits
Cash cows are Berkshire's favorite. Some companies have profits that are always on the books, and they simply don't have the ability to generate cash, and we don't touch such companies.If we want to get a profit from the operation of the enterprise, we have to pay attention to the cash flow of the enterprise, not the net profit, which many companies look good for, but there is no cash flow, either a lot of sales are made on credit, or a lot of capital expenditure is required to maintain the normal operation of the company (a typical company is the company).One of the big reasons Berkshire has grown to the size it is today is that we learned early on to stay away from companies that can't generate cash profits. When valuing a company, it does not distinguish the nature of profits, does not look at whether it is cash profits, or a machine lying in the open field, and holds the profit figures, and directly calculates, the resulting valuation is definitely inaccurate.
Charlie Munger, "1999 Speech at the Shareholders' Meeting of SECO Financial".
We use the discounted method to value the company, or use the proportional method of valuation (as for how to use these two methods, I introduced them in my previous article: two types of commonly used valuation methods), if we directly use the book profit to calculate, there is often some deviation, because these profits may not be really controllable.
Companies without cash profits are difficult to use the method of value analysis, and their investment risks are also highThe investment logic of these companies is another routine, for example, the typical type of thematic investment, there is a certain concept that can be believed by others, and then the stock price can be speculated in the short term, but in the end it will still come down.
Second, the opportunity that everyone is optimistic about is the easiest to send
Ben Graham once told us: "Investors don't lose a lot of money because of opportunities that people don't look forward to." The more opportunities that everyone is optimistic about, the more tragic the losses for investors."The opportunities that everyone is optimistic about will flock to **, and in the end** will naturally be raised. Just like the National Day holiday now, I want to take this opportunity to go out, and then the various attractions are very congested, and the actual viewing experience will be greatly reduced.Everyone knows that this is an opportunity that is real, reasonable, and exciting, and that it is simply not to be missed, and that people are bound to flock to it, resulting in a serious stampede.
Charlie Munger, "1999 Speech at the Shareholders' Meeting of SECO Financial".
Of course, people know things, does not mean that they will not do it, the number of tourists on the holiday is very large, but people will still go out during the holiday, on the one hand, it is caused by objective reasons, and there are so many consecutive holidays; On the other hand, there is the need for social proof, such as the psychology of comparison (seeing other people's travel ** on Moments, many people will also want to show off themselves).
Knowing does not mean understanding, understanding does not mean that you will pay attention, and the unity of knowledge and action is very difficult for everyone.
3. There is no end to building model thinking
There is no end to building a model way of thinking. There is always a new model to be found, or a new case can be encountered to flesh out the old one. Keep polishing your way of thinking, and life is full of fun. The process of researching and integrating models is a creative and rewarding process. A few of the most important models can be used to unleash the power of thinking.From a certain point of view, we read books in order to obtain a variety of model cases, and we can adapt things to a certain level. Although Munger has always said that there are only a few important models, here we can know that he is not telling us to stick to these few models, but to observe more new cases, either to summarize new models, or to see different combinations.Behind many things is the same model, but the routine has been changed, and it can be said that the soup is not changed.
Charlie Munger, "1999 Speech at the Shareholders' Meeting of SECO Financial".
Model thinking can reduce the difficulty of our thinking, human thinking naturally rejects chaos, and it is basically difficult to draw conclusions under the chaotic logic, even if there is a conclusion, we ourselves will not believe it.
Fourth, to make investment, you have to understand the business
First of all, you can look at the history of a company and infer its future from its history. However, it is certainly not that simple. If it's really that simple, anyone will make an investment.This passage is about using a model to analyze the situation of a company, in fact, in this year's speech, Munger also has a sentence:"To understand a company, you have to find the right place", if we can't find the key, then it is difficult for us to really understand the company, and it is useless to spend more time.Fundamentally, it is still necessary to understand a company's business, what threats a company faces, what opportunities it has, what its competitive position is, etc. It is difficult to accurately improve the future of the company by only looking at the past performance growth, past return on capital, and past sales. Only on the basis of an in-depth understanding of the business can the prospects of the company be more accurate. To make an investment, you still have to really understand the business.
There are a lot of companies that you can summarize into models according to your own understanding.
Charlie Munger, "1999 Speech at the Shareholders' Meeting of SECO Financial".
The key to analyzing a company is not historical data, these things are something that every investor can see, it is important to understand the company's business, how to do it well, what kind of foundation it will destroy, what competitive pressures it is facing, and so on.
Understanding a business is an eternal topic of investment analysis, what is understanding? If you can predict the business situation in the next three to five years from the results, you can be regarded as a more in-depth understanding.
In addition, when looking at people, Munger also emphasized the need to use models, and our reading of history and biography helps to build a model of looking at people. There is always some kind of regularity in people's behavior patterns.
Fifth, the poetry of joy has taught us a valuable lesson
Joy poems teach us a valuable lesson. When we bought Joy, if the founding family's asking price had been $100,000 higher, we would have not bought it, and we were stupid enough to do that. We did come close to missing out on the poem. We can get the poems, not because we have a discerning eye, but because we are lucky.This passage tells us two truths: FirstIf the quality of the company is really good, then relative to the conventional, it doesn't matter if it is a little higher, of course, it must not be higher than the intrinsic value, because the evaluation of the intrinsic value is subjective, many times a person feels high, but in front of the real vision, they can see the more long-term benefits, so as to give a higher intrinsic value assessment. Maxima often has, Bole does not often have.Xishi has taught us a lot. We saw the good business of Xishi with our own eyes, and it touched us a lot. As a result, we gradually changed our minds and turned to the pursuit of better quality companies, and we were willing to sell better business.
Charlie Munger, "1999 Speech at the Shareholders' Meeting of SECO Financial".
Second, successful experience can bring us more gainsFor example, Munger thinks that Berkshire's successful acquisition of Heyshi is just luck, because in retrospect, it is really dangerous.