THE BERKSHIRE SYSTEM

How to pick stocks the Buffett Munger way

- Karthik Anand Vijay

One of our favourite quotes that describes the essence of investing has been said by Charlie Munger. He says, "Investing is simple but not easy." Don't let those words fool you. They carry more weight than you might realise.

How is investing simple? It is simple because you know what you have to do. You have to find good businesses and invest for the long haul.

Then, why is it not easy? That's because most investors fail to do so. Investors struggle to identify a good business and when they do, it may be too late. Besides, if you want to stay invested in a company for a long period of time (such as 10 or 20 years), you need to exhibit immense patience and temperament. There are highs and there are lows. Traversing through these is fickle.

So, we thought we should help our readers become better investors. Thus, this cover story is all about the art of stock-picking the Berkshire way. Fortunately, Charlie Munger had given the secret sauce in a talk he gave in 1994.

In the book, 'Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger', there are transcripts of various speeches/talks given by Munger. We have considered a talk he gave to the students at the University of Southern California Marshall School of Business in April 1994. It is about the art of stock-picking as a subdivision of the art of worldly wisdom. However, for our purposes, we have only considered the part related to stock-picking.

Munger, in his talk, outlines what it takes to be a successful stock picker. We have structured the story based on various points he made in his talk. You might get the answers to the following questions: