When it comes to making money in the stock market, billionaire investor Charlie Munger may be someone worth following.
Munger ran an investment fund in the U.S. from 1962 to 1975 and in those 13 years, he delivered an amazing compounded annual return (CAR) of 19.8%; over the same period, the US stock market had achieved a CAR of only 5.0%.
As a long-time Vice-Chairman of the sprawling conglomerate Berkshire Hathaway Inc, Munger has also played Robin to the legendary Warren Buffett’s Batman; Buffett has been the Chairman of Berkshire for the past 50 years and both him and Munger have been instrumental in helping grow Berkshire’s book value at a stunning CAR of 20% since 1965.
To understand how Munger thinks about investing, we can turn to Li Lu, a hedge fund manager who shared the following insight (after spending hours talking to Munger) in an article:
“When Charlie [Munger] thinks about things, he starts by inverting. To understand how to be happy in life, Charlie will study how to make life miserable; to examine how business become big and strong, Charlie first studies how businesses decline and die; most people care more about how to succeed in the stock market, Charlie is most concerned about why most have failed in the stock market.
His way of thinking comes from the saying in the farmer’s philosophy: I want to know where I’m going to die, so I will never go there.”
Said another way, Munger had a novel approach when it comes to investing: He felt it was important to study businesses that have failed in order to find businesses that may succeed in the future.
Invert, always invert
One way to put Munger’s thoughts of always inverting into action would be to fashion a bear thesis for the stocks that you are interested in. At the Fool, we are a fan of considering both the bull and the bear thesis of a stock.
Here’s a selection of bear theses that my colleagues and I have gone through at the Fool in our Tug-of-Fools series with Shares Investment:
- VICOM Limited (SGX: V01) – bear thesis
- Tiger Airways Holdings Limited (SGX: J7X) – bear thesis
- ComfortDelGro Corporation Ltd (SGX: C52) – bear thesis
- Frasers Centrepoint Trust (SGX: J69U) – bear thesis
- Singapore Airlines Ltd (SGX: C6L) – bear thesis
- Cordlife Group Ltd (SGX: P8A) – bear thesis
- Keppel Corporation Limited (SGX: BN4) – bear thesis
- Dairy Farm International Holdings Ltd (SGX: D01) – bear thesis
- Vibrant Group Ltd (SGX: F01) – bear thesis
A Fool’s take
The next time you are interested in putting your cash to work in a particular stock, consider taking time to first find out what the bear thesis is for the company in question. If you can’t find good enough reasons to refute the bear thesis, then perhaps you will be better off leaving the opportunity alone.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Berkshire Hathaway Inc, VICOM Limited and Dairy Farm International Holdings.