Finding stock gems in the rough is a lot tougher than the 1960s, Berkshire Hathaway Vice Chairman Charlie Munger tells The Wall Street Journal.
That was when Munger, a longtime associate of celebrated investor Warren Buffett, switched from law to finance and learned from value investor Ben Graham.
“There were a lot of what we used to call loaded laggards,” which had a hidden value of two to three times their stock market prices, Munger says.
“Graham taught us all to buy that kind of underpriced stuff, and hold it as long as it was underpriced — then sell when the price got more normal and buy another undervalued asset,” says Munger, who Forbes estimates to be worth $2.7 billion.
“You could do that for about four decades in the aftermath of the 1930s Great Depression,” the 99-year-old continues.
“To get ahead, the modern investor almost has to get in a few stocks that are way above average….They try to have a few Apples or Googles, because they know that a significant percentage of all the gains that come to all the common stockholders combined is going to come from a few of these super competitors.”
The best advice Munger has for those looking for the next stock to become as big as Apple, Tesla or the like, is to have an open mind and a thirst for learning.
Munger marvels at the power of reading — he became an avid booklover starting at age six — saying, “I think I learn a little something from everything I’ve read. I think one of the reasons I was as economically successful as I was in life is because I read so damn much all my life.
“I don’t know how to get smart without reading a lot.”
Another piece of advice: Do not stand in your own way.
“There are lots of cognitive biases that are very significant,” Munger says. “One is the constant tendency to overrate your own intelligence and skills.”
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