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Berkshire Hathaway's Second-in-Command single most important lesson to outperform the markets…

by , 07 December 2016
Berkshire Hathaway's Second-in-Command single most important lesson to outperform the markets…
Think Berkshire Hathaway and the first person that comes to mind is Warren Buffett.

But did you know much of Buffett's and Berkshire's success was down to his partner?

His name is Charlie Munger and he's the Vice-Chairman of Berkshire & Hathaway.

Before Munger partnered with Buffett, he managed his own investment partnership, which averaged returns of 19.8% a year from 1962 to 1975 beating the Dow's 5% yearly return over the same time period.

But it's just not Charlie Munger's investment strategy I want to share with you today. It's one of his most famous investment lessons that helped him and Buffett achieve market beating returns year in and year out…

Today I'm going to explain what it is and how you can implement this lesson in your investing.

 

In investing strategy that is simple to understand but hard to follow

 
Once a great opportunity has presented itself and you buy a company – what do you do?
 
The answer is incredibly simple but incredibly difficult to follow:
 
Do nothing.
 
Munger describe this as: “Assiduity is the ability to sit on your ass and do nothing until a great opportunity presents itself.”
 
Doing nothing is a core principle of dividend growth investing. In fact, “doing nothing” is the Buffett-Munger approach to buying high quality businesses trading at fair or better prices.

When you buy a high quality business, all you have to do is sit back and let it compound your wealth.
 

The “Doing Nothing” investment strategy has the potential to make you a millionaire

 
Most people can agree that Johnson & Johnson is a high quality business.
 
It’s the largest health care business in the world with over 120,000 employees and 260 businesses in 60 countries. The company has a market cap of $329 billion, generates over $70 billion a year in sales, and around $15 billion a year in profits.
 
It’s been a “buy and never sell” company with 31 consecutive years of earnings increases and 53 consecutive years of dividend increases. What’s more, a R10,000 investment into J&J shares in 1970 would be worth nearly R1 million today and that’s not including the consistent dividend pay outs.
 
Another example of a high quality business and one of Berkshire’s core holdings is Coca-Cola.
 
Coca Cola’s global reach expands in more than 200 countries at a rate of 1.9 billion servings a day.  This had made Coca Cola’s market share of carbonated beverages worldwide around 48%
 
Coca Cola is the No. 1 provider of sparkling beverages, ready-to-drink coffees, and juices and juice drinks, employing around 700,000 people.  Not to mention, it held the No. 1 spot on Interbrand's Annual Ranking of global brands for 13 consecutive years.
 
You see, these are types of businesses you can buy, sit back and “do-nothing” and watch the profits roll in.

How to be a “do-nothing” investor…

 
The truth is, it is hard to do nothing. It is easier to buy and sell stocks.
 
This gives us the illusion that we are in control, but in reality, doing less in investing is being in control.
 
It’s much easier to sleep at night knowing you are invested in high quality businesses that you are comfortable holding for the long run.
 
Companies that have a stable track-record of:
  • Staying-power and executing its strategy
  • Dividend pay-outs
  • Profit growth
By buying these types of companies, you’ll never worry about what the markets do and which way they go.
 
Until next time,
Joshua Benton, Real Wealth



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