An Overview of Charlie Munger's Classic Investment Cases

Throughout his life, investment master Charlie Munger has made many successful investments, each of which embodies his powerful investment value system.

In 1972, Buffett and Munger purchased California's largest candy manufacturer for $25 million. At the time, the company had an annual revenue of $30 million and a profit of $4 million. While Buffett initially thought that the boxed chocolate industry was not very attractive and that the book value of the inventory was only $8 million while the purchase price was $300 million, Munger saw the advantages of the company's brand loyalty, high profit margins, low capital requirements, and stable growth, and believed that the company had strong pricing power. Munger realized that See's Candies had a high brand value, so the premium was reasonable. Acquiring a high-quality business like this would be easier and more enjoyable than buying a struggling company that needed saving but was cheaper. Ultimately, See's Candies brought Berkshire more than $2 billion in investment returns.

On October 29th of this year, during an interview, Munger said: "We were lucky to buy See's Candy (Sea's Candy) for $20 million, which was our first acquisition. We soon discovered that the company could increase its product prices by 10% each year, but nobody cared about the increase. The company did not add any costs or investments, just increased the profits. Today, this price increase strategy has been implemented for more than 40 years, which is a very satisfying process. It didn't even require any new capital. There are many great companies in the world that are completely isolated from real competition and have been operating for a long time. They do well, have good reputations, and high values."

Buffett's interest in Coca-Cola was largely influenced by Charlie Munger. Munger believed that Coca-Cola was an excellent enterprise with a strong brand, loyal consumers, high profit margins, stable growth, and a global layout, and had strong inflation resistance. In 1988, Buffett began buying Coca-Cola stocks at around $11 per share. Based on the purchase price, the P/E ratio of Buffett's purchase of Coca-Cola was less than 15 times. With the rapid rise of the US stock market in the 1990s, Coca-Cola's stock price achieved "Davis Double Play", and the P/E ratio reached a high of 48 times in 1998. Between 1988 and 1998, Buffett's investment in Coca-Cola increased from $1.299 billion to $13.4 billion, with a total return on investment exceeding 10 times.

Since January 1997, Munger has served as a director of Costco and now owns Costco shares worth more than $100 million. Munger's preference for Costco comes from the company's excellent business model, which attracts the richest customers with the cheapest prices and maximizes shared economies of scale. At the same time, Costco also has an excellent corporate culture and management team. Munger believes that the best investment is to buy great companies like Costco without considering exit strategies. Munger said, "I'm not good at exiting. I don't even like to think about how to exit. What I want is to hold shares. Think about it. Watching Costco go all the way forward, how happy am I? Why should I exchange this experience for a series of transactions?"

In September 2008, Berkshire invested $230 million in BYD, acquiring 10% of its shares. By 2022, the investment had grown to around $8-9 billion and generated returns of tens of times the initial investment. Therefore, in 2022, Buffett, Munger, Li Lu and others began selling BYD. Munger's explanation for selling was that the valuation was too high. Munger's logic for buying BYD actually came from Li Lu's recommendation, based on several factors: firstly, investing in BYD is essentially investing in people (Wang Chuanfu); secondly, Li was impressed by BYD's corporate culture; thirdly, BYD has proven itself in fierce competition; fourthly, the safety margin is high; fifthly, BYD's battery business may have unexpected surprises. Overall, Munger's investment in BYD was more like a high certainty "venture capital" carried out in the secondary market. He did not anticipate the significant success the company would achieve in the automotive industry. Therefore, after BYD's stock price skyrocketed, Munger chose to sell for profit and return to the safety of his investments.

During an interview, Munger shared his view on BYD: "I've never seen anyone like [Wang Chuanfu]. He can do anything. He's a born engineer and an excellent production-oriented manager. He can make the parts he sees, and they've solved all the problems with electric vehicles in terms of engines, acceleration, and braking. Wang Chuanfu is better at actually manufacturing things than Musk. BYD is lucky to be at the forefront of the electric vehicle industry. Its development speed is faster than most people see in the automotive industry. I might be his [Wang Chuanfu's] hardcore fan, but when it [BYD] stumbles on the track, I will definitely wear my helmet because I will feel nervous."