It’s no secret that some of the most successful investors in the world are also voracious readers. There is profound wisdom to be unearthed in books, insights that can mold your investment strategies and shape your understanding of markets and economics. This article delves into the recommended reading from two of the most renowned investors of our era: Warren Buffett and Charlie Munger in their own words. From financial masterpieces to intriguing biology texts, their diverse reading list encapsulates their investment philosophy, intrinsic curiosity, and commitment to continuous learning. Read on as we explore some of their top book picks and the invaluable insights these works offer to both new and seasoned investors and lifelong learners.
Buffett and Munger Book Recommendations
Below is a transcript from where Warren Buffett and Charlie Munger answered a question on Disney and recommended books at the 1996 Berkshire Hathaway annual meeting.[1]
The first question posed to Buffett and Munger was, “John Lichter from Boulder, Colorado, are there some worthwhile books that you could recommend to us? And secondly, with respect to Eisner and Disney, how would you define Michael Eisner’s circle of competence, and are you concerned that he might step outside it?”
Warren Buffett answers, “Well, I would say that he has proven himself very good at understanding what Disney is really all about. You can look back to the predecessor management between Walt and Eisner, and they didn’t really do much with that. If you look at those years, you know what is special about Disney and how do you make it more special? And how do you make it more special to more people? I mean, those are the things that you want to matter. You’ve got wonderful ingredients to work with when you’re working with something like Disney. One of the advantages we were talking about the Mayo Clinic and brain surgeons, and the nice thing about the mouse is that he doesn’t have an agent. I mean, the mouse is yours, and he’s not in there renegotiating every week or every month and saying, ‘Look at how much more famous I’ve become in China.’ So, if you own the mouse, you own the mouse.”
“Eisner understands all of that very well. I would say he’s been very skillful. In terms of how he’s thought about it, I worry about any manager. It has nothing to do with Michael Eisner, but Charlie and I worry about ourselves in terms of getting out of our circle of competence. We’ve done it. It is very tempting, and it’s probably part of the human condition in terms of hubris or something. If you, as Charlie would say, if you’re a duck floating on a pond, and it’s been raining, and you’re going up in the world, after a while, you think it’s you and not the rain. That you’re some duck. We all succumb to that a little bit.”
“I think that Disney, Coca-Cola, and Gillette, those companies are very focused. I think our operating units are very focused, and I think that gives us a huge advantage over the managers that are getting a little bored and decide that they better fool around with something to show just how talented they really are. Charlie”
Charlie Munger continues, “Yeah. Eisner is quite creative, and he also distrusts projections, and that is a very good combination to have in the motion picture business.”
Buffett interjects, “Charlie was a lawyer for 20th Century, and he saw a little bit of how Hollywood operated, and it kept us out of buying a motion picture business for about 30 years. Every time I go near one, he regales me with a few stories of the past.”
“It’s a business where people can trade other people’s money for their own significance in their world, and that is a dangerous combination. Where if I can buy significance in my world with your money, there’s no telling what I’ll do.”
Munger continues, “Part of the business reminds me of an oil company in California. It was controlled by one individual, and people used to say about it if they ever do find any oil, that old man will steal it. The motion picture business, it’s only about half of it that has normal commercial morals.”
Buffett continues, “We’re not applying that to Disney.Disney has done an extraordinary job for the shareholders, and they make real money out of movies. Most movie companies make money for everybody associated with it, but not a lot of it sticks to the shareholders.”
“Oh the books. Charlie, what are you reading these days?”
Munger answers, “Well, I’m almost ashamed to report because I’ve gone back and picked up the part of biology that I should have picked up 10 or 15 years earlier. If any of you haven’t done it, it’s a total circus what they’ve figured out over the last 20 or 30 years in biology. If you take Dawkins’ ‘The Selfish Gene’ and ‘The Blind Watchmaker,’ these are marvelous books. There are words in those books that are entering the English language that are going to be in the next Oxford Dictionary. These are powerful books, and they’re a lot of fun. I had to read ‘The Selfish Gene’ twice before I fully understood it. There were things I believed all my life that weren’t so.”
“I think it’s just wonderful when you have those experiences. We always say it isn’t the learning that’s so hard; it’s the unlearning.”
Buffett interjects, “I made the mistake of taking Charlie up to Microsoft in December, and he became friends with Nathan Myhrvold. They are corresponding back and forth with increasing fervor and enthusiasm about mole-rats, and they copy me on all these communications. So, I’m getting to see this flow back and forth and the habits of mole rats. I haven’t found a way to apply it at Berkshire, but I’m sure Charlie is working on something.”
“He’s gotten very interested in biology lately. As for me, I’ve always liked reading biographies, but since computers changed my life, I now find myself playing bridge on the computer about 10 hours a week. Unfortunately, I didn’t want to give up sleep, eating, or Berkshire, so my reading has lightened.”
“On investment books, if you’re asking about that, I would recommend the first two books that Phil Fisher wrote back around 1960: ‘Common Stocks and Uncommon Profits’ and the second one. They were very good books. I obviously recommend, first and foremost, ‘The Intelligent Investor,’ with chapters 8 and 20 being the ones that you really should read. All of the important ideas in investing really are in that book because there are only about three ideas, and those two chapters emphasize two of them.”
“Next, I think John Train’s ‘Money Masters’ is an interesting book. Charlie, can you think of any others we want to tout?”
Munger answered, “I don’t know. We have such a ‘fingers and toes’ style at Berkshire Hathaway. You know, Warren talks about these discounted cash flows. I’ve never seen him do one.”
“There are some things you only do in private, Charlie,” responded Buffett.
Munger continues, “Yeah, if it isn’t glaringly obvious that it’s going to work out well if you do the calculation, he tends to move on to the next idea.”
Buffett agrees, “It’s true; you don’t need to do it with a pencil and paper if it’s too close to think about. It ought to just kind of scream at you that you’ve got this huge margin of safety.”
“I mentioned the three ideas of investing. One is to think of investing as owning a business, not buying something that wiggles around in price. The second one is your attitude, which ties in with that. The attitude toward the market that’s covered in Chapter 8. If you have the proper attitude toward market movements, it’s an enormous help in securities. The final chapter is on the margin of safety, which means don’t try to drive a 9,800-pound truck over a bridge that says its capacity is 10,000 pounds. Go down the road a little bit and find one that says capacity 15,000 pounds.”
Book Recommendations
- The Intelligent Investor by Benjamin Graham: Described as the “Bible” of investing, this seminal work offers profound insights into value investing. Chapters 8 and 20 are particularly highlighted for their in-depth exploration of market fluctuations and the margin of safety principle.
- Common Stocks and Uncommon Profits by Phil Fisher: A unique blend of common sense and innovative investment philosophies, this book encourages readers to think of investing as owning a business rather than merely buying stocks that fluctuate in price.
- The Selfish Gene and The Blind Watchmaker by Richard Dawkins: These twin explorations of biology, genetics, and natural selection not only broaden the reader’s knowledge base but also challenge ingrained beliefs and perspectives. They underscore the importance of continuous learning and ‘unlearning’ in an ever-evolving world.
- Money Masters by John Train: This insightful book provides an in-depth look at some of the most successful investors and their investment strategies, offering key learning points for budding and seasoned investors alike.
Conclusion
In a complex and dynamic financial landscape, the wisdom of investing legends like Warren Buffett and Charlie Munger continues to resonate with relevance. Their reading recommendations blend the fundamental principles of investing with broader themes of biology and natural selection, emphasizing the interconnectedness of knowledge domains. The recommended books guide investors to view the stock market as a platform for owning businesses, underscore the crucial role of market trends, and stress the necessity of a safety buffer in investment decisions. Lastly, they exemplify the importance of lifelong learning and intellectual curiosity, with the ultimate goal of becoming a well-rounded, knowledgeable, and successful investor.