Hedge fund boss says the best investment advice he ever got was a ‘terrific’ message from late Charlie Munger

The way investors would hang on to the late Charlie Munger’s every wisecrack (you can read 500-plus pages worth in “Poor Charlie’s Almanack”), you’d think he’d formed a comedy team with fellow billionaire and business partner Warren Buffett.

But funny as he was, Munger was equally sharp and insightful. And Josh Friedman — the co-CEO, co-founder and co-chair of Canyon Partners, an L.A.-based hedge fund — isn’t bashful about praising Munger’s investment advice.

“Charlie Munger used to say that things fall into three categories: yes, no, and too complicated to figure out,” Friedman said in a July interview with Bloomberg. “There’s a basic message in there that I think is a terrific one.”

Friedman notes that he doesn’t follow the Munger way chapter and verse; Canyon Partners prides itself on complex investment opportunities. But he does embrace Munger’s three-pronged strategy, which he describes this way: “You have to be patient, and you have to be aggressive when the opportunities are abundant, and you have to be quite disciplined at a time when they’re not.”

From Munger to Friedman, a value orientation

It’s no hyperbole to say that in the 55-second clip, Friedman by way of Munger lays out a solid blueprint for market success. While many investors betray irrationality and impulsivity — they sell low in a panic, try to time the market or invest in overhyped IPOs — Munger and Buffett made their fortunes through studious, deliberate decision-making.

The approach is known as value investing and based on principles Munger followed, and Buffett learned, at the feet of markets guru Benjamin Graham. It has many nuances but the underlying principle is that if a share price is below its book value, it’s undervalued — and thus a good buy. If the price sits above its book value, it’s overvalued. Buffett famously said of Graham’s 1949 tome “The Intelligent Investor,” “Picking up that book was one of the luckiest moments in my life.”

It’s no surprise, then, to see this statement on Canyon’s landing page: “For 30-plus years, Canyon Partners has employed a deep value, credit intensive approach.”

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Beyond Berkshire, a resplendent Canyon

Since its founding in 1990, Canyon Investors has grown to oversee more than $24 billion in assets under management.

Once you know to look for it, you can see Munger’s philosophy reflected in many of Friedman’s other media appearances. In another Bloomberg video, he talks about the dangers of a herd mentality that prioritizes greed stampedes over evaluating individual investments based on their merits.

“I think most of the big mistakes people make are because they see others doing it and they feel like, ‘Oh my God, how did I miss that? I’d better get into that,’” he said. “You’ve got to think independently, you’ve got to be a contrarian, and you can’t be motivated by fear of missing out or by envy.”

In the Munger video, he acknowledges that during the past decade, tasty opportunities were everywhere in equities, venture capital and especially credit markets. (Canyon works within corporate and structured credit.)

With interest rates “ridiculously low” in the 2010s, “It was easy to put money in things that were silly, in retrospect,” said Friedman. “Having the kind of patience and discipline that Charlie Munger and Warren Buffett have had is a great lesson for everyone in the investment world.”

This touches on another cornerstone the billionaires leveraged to build Berkshire Hathaway: buy and hold. As the name implies (and today’s avarice defies), the longer one keeps a stock, the better its prospects. And that could last for decades or more. Or even more. In another letter to Berkshire shareholders (this one in 1988), Buffett declared, “Our favorite holding period is forever.”

Given that Munger died at 99 and the Oracle of Omaha turns 94 in August, that’s not too far-fetched a time frame.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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