We started out this snowball at the top of a very long hill. My advice is either start very early or live very long. I guess I’d do it the same way: maybe I’d start with small companies and buy good businesses. Or little pieces of ‘em called stocks.
Charlie Munger: The first $100,000 is probably the hardest part. Staying rational and significantly underspending your income helps, too.
If we were to do it over again, we’d do it pretty much the same way. The world hasn’t changed that much. We’d read everything in sight about businesses and industries we think we’d understand. And, working with far less capital, our investment universe would be far broader than it is currently.
There’s nothing different, in my view, about analyzing securities today vs. 50 years ago.
We formed our first partnership 50 years and two days ago, on May 4, 1956, with $105,000. If we were starting again, Charlie would say we shouldn’t be doing this, but if we were, we’d be investing in securities around the world. Charlie would say we couldn’t find 20, but we don’t need 20 – we only need a few that can pay off very big. We’d also be buying [stocks in] smaller companies.
If we were planning to buy [entire] businesses, we’d have a tough time. We’d have no reputation and only $1 million.
Charlie started out in real-estate development because with only a little capital, brain power and energy, you could magnify the returns in real estate unlike in other sectors.
I’d just do it one foot in front of the other over time. But the basic principles wouldn’t be different. If I’d been running a little partnership three years ago, I’d have started out 100% in Korea.
Munger: You should find something to invest in and then compare everything else against that. That’s your opportunity cost. That’s what you learn in freshman economics, even if it hasn’t made it into modern portfolio theory. That’s why modern portfolio theory is so asinine.
Buffett: It really is.
Munger: When Warren said he’d put 100% of his fund in Korea, maybe he wouldn’t quite do that, but pretty much. Most people won’t find a lot of great things [to invest in]. Instead, you’ll want to find a few things that are much better than anything else. Act on these.
Source: Berkshire Hathaway Annual Meeting
Time: 1999, 2004, 2006