Some Tough Love From Buffett and Munger


As two of the world's most closely followed investors for the past half-century, it's safe to say people usually like to listen to Berkshire Hathaway CEO Warren Buffett and his right-hand man, Vice Chairman Charlie Munger.

To be sure, their fortunes have consistently stood out to investors as encouraging symbols for what can be accomplished through long-term patience and fortitude. So it follows that the men's words have become a gospel of sorts to investors hoping to increase their own fortunes -- like you and I.

Even so, it's important to remember both men have never shied away from rebuking bad behavior, and many of their assertions can be equated to tough love for professionals and everyday retail investors alike.

Here are a few examples, then, of some of their more difficult-to-swallow advice.

Munger on facing the truth
"Recognize reality even when you don't like it -- especially when you don't like it."

When things occasionally go bad with your investments, Munger rightly reminds us we need to face reality before the problems get bigger.

In fact, I had one such moment last year when I finally sold my shares of Inteliquent around $12 per share after holding them for much less time than I had originally planned. At the time, the stock had already been beaten down from its 2009 highs over $30 per share, and I had high hopes that the company might eventually regain its former glory.

However, I had also weathered the resignation of its CEO, watched margins relentlessly march downward, and raised my eyebrows when the company suddenly changed its name and direction as it tried without much success to diversify its deteriorating business.

In the end, as tempted as I was to hang on, taking Munger's advice turned out to be a great decision since shares of Inteliquent trade hands today under $3 per share.

Buffett on gauging success by material wealth
"If someone goes through life and measures themselves solely by how much money they have, or how much money they earned last year, sooner or later they're going to end up in trouble."

This is an especially intriguing statement coming the third richest man in the world; the last time I checked, Buffett's net worth sat at a jaw-dropping $55 billion.

I suppose this does help explain why Buffett still leads a relatively humble life, lives in the same home he bought in 1958 for $31,500, and plans to give away most of his fortune by the time he dies.

Munger on the necessity of reading
"In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time -- none, zero."

This one might seem a little harsh, especially if you don't like to read. However, the fact remains there lies an ever-growing wealth of knowledge in print. In order to unlock that knowledge, you've got to read it!

Of course, this doesn't mean should visit our friendly neighborhood comics store more often -- however entertaining that may be. Rather, why not pick up some of Buffett's favorite books as a starting point to learn and grow as an investor?

Buffett on owning your actions
"It's your responsibility if you're buying it. And there's got to be a reason. And if you can't state the reason, you shouldn't buy it."

Finally, Buffett reminds us we need to take responsibility for the stocks we buy. More importantly, you should strive to really know every facet of the companies underneath those stocks.

If you can't or simply don't have the time to do adequate due diligence for your investments, maybe you'd be better off staying out of the market or, at the very least, buying a low-cost index fund to spread your risk.

Don't be upset with Charlie and Uncle Warren for their harsh advice; in all seriousness, it's for your own good.

Instead, heed their words. Trust me, you'll thank them when you're older.

More expert advice from The Motley Fool
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