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Investing Lessons From Charlie Munger

By James Roberts

Consider this comment: “We have great shorts that are setup to make us money, but finding great longs has proven to be much more difficult in recent months. We have been working overtime looking for long candidates and have a few promising leads.”

Those words are from a hedge fund manager of a long/short hedge fund with a great record since 2007. In contrast, I believe the StockDiagnostics portfolio is always able to find a bunch of stocks that are “relatively” attractive to buy.

Not many managers claim to be market timers, nor do I. Berkshire Hathaway’s (BRK.B) Warren Buffett does not claim to be a market timer, either. Buffett’s right-hand man, Charlie Munger, is the controlling stockholder and investment decision maker for Daily Journal (DJCO). The journal publishes legal notices of real estate foreclosures (a booming business during the great recession).

He tries to let the public know as little as possible about his investments through DJCO. Nevertheless, it is quite apparent that he held a lot of cash until mid 2009 when he loaded up on Wells Fargo (WFC), and a little more U.S. Bancorp (USB).

While the prospects for the Daily Journal suggest lower earnings are in prospect, the share price of DJCO has more than doubled since 2009 reflecting the increased value of DJCO’s investment holdings.

Fortunately, foreclosures are becoming less numerous. Munger was either very lucky or followed his methods closely resulting in purchasing stocks near the bottom. In my opinion, the bank stocks that he purchased such as Wells Fargo (WFC) and Goldman Sachs (GS) have proven to be a good hedge against Daily Journal’s newspaper publishing business.

I am sure that a few investors have seen the wisdom of having Munger on their investment team resulting in higher prices for thinly traded DJCO.

The recent poor relative performance of alternative investments like long/short hedge funds was featured in a recent Bloomberg Businessweek cover story.

Being cautious does not win many friends during a bull market, and that is what we are enjoying. Many market observers believe that the market is not currently an earnings driven market, rather it is being fueled by capital infusions from disillusioned investors fleeing the bond market.

If that is the case, dividends are an important consideration these days. One of our recent purchases was Raytheon (RTN).

The investments discussed are held in client accounts as of July 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

James Roberts

James Roberts

I am an individual investor with a background in research and analysis. I worked as a research analyst for a

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