This past week, Munger made the following remark:
“I don’t love Ben Graham and his ideas the way Warren does.
I think Ben Graham wasn’t nearly as good an investor as Warren Buffett is or even as good as I am. Buying those cheap, cigar-butt stocks [companies with limited potential growth selling at a fraction of what they would be worth in a takeover or liquidation] was a snare and a delusion…”
How is Munger different than Graham. Two humorous stories should explain.
NPR has a great show called Wait, Wait, Don’t Tell Me. In one segment, the NPR people ask panelists about obscure news stories and see if they can guess what they are about. In this exchange, the NPR questioner asks the panelist the following…
“A report from the Russian space agency revealed that they were unable to recover 5 lizards that they launched into orbit a month ago. Some good news, however, was the lizards got to spend the entire month doing what?”
Without missing a beat, the panelist responded, “Choosing Geico.”*
Back here on earth, Microsoft paid the NFL around $400m over 5 years for its tablet, the Surface, to be the official tablet of the NFL. However, as noted by multiple sources, a few commentators have been referring to the tablets on the sidelines as iPads when they are actually Surfaces. Similarly, in 2010 Oprah Winfrey tweeted out “Gotta love that Surface. Have bought 12 already for Christmas gifts.” However, the product endorsement may have been lost on those detail-oriented readers that noticed that Oprah tweeted this Surface endorsement from her iPad. Do as I say, not as I do…?
What do these stories teach us about Munger and Graham. Graham was incredibly focused on the balance sheet of companies. Companies needed to have assets (cold hard cash and on rare occasions accounts receivable and inventories) which were worth more than the market value for Graham to invest. In other words, he only bought $1 bills for .50 cents.
Munger, on the other hand, looks at certain intangible assets of a business.
–What’s the first thought Johnny and Susie have when they sit around the kitchen table and try to cut down their expenses…”Maybe we could save 15% on our car insurance with GEICO.”
–Paid advertisements for one company turn into actual endorsements for another company’s product.
–Grown adults happily pay hundreds of dollars to walk around in mouse ears.
These things don’t show up on a balance sheet. It is tough to calculate how much they are worth. But, that doesn’t mean they aren’t worth something and in some cases, these intangibles are worth quite a bit.
Who can tell me where the MVP of the Superbowl is going after the big game?
*Housekeeping matters: The Calpers announcement regarding hedge fund withdrawals will not have a material effect on the operations of The Sova Fund.
You can listen to the NPR segment here. See below for what the lizards were really doing.
The star experiment was “Gecko-F4,” which was designed to “create conditions for sexual behavior, copulation and reproduction of geckos in the orbital experiment.” Video cameras were set up to capture the geckos in the act, along with any eggs that resulted. (See full story here).