Highlight:

Sometimes, when a good opportunity arises, we can understand it and seize it. Merely understanding an opportunity is not enough; seizing it is what counts. There are many opportunities we understand but fail to seize. If we miss them, so be it. We realize that we can only seize a few high-certainty big opportunities and cannot be confident in every chance.

Excerpt from "The Path of Munger," 1991 Wesco Financial Shareholder Meeting Speech.

01 Money Abundant, Opportunities Few Is Better Than Money Few, Opportunities Abundant

Currently, we face the issue of holding a large amount of cash but finding few outstanding investment opportunities. Having more money and fewer opportunities is better than having less money and more opportunities.

My partner, Warren Buffett, has said that holding a lot of assets with the freedom to allocate them is like holding a baseball bat, waiting for a good pitch to come, willing to wait as long as necessary. If you don’t swing, no one penalizes you. Our past patience in waiting has been worthwhile.

02 Learning from Failures and Mistakes Is a Virtue

Recently, I met the CEO of Johnson & Johnson, who left a very good impression on me. He told me they regularly reflect on and summarize their acquisition strategies. Every five years, they gather all executives to thoroughly analyze all acquisitions made over that period, reviewing the initial logic and summarizing the successes and failures.

Such a system is excellent. If everyone develops the habit of self-reflection, it can drive societal progress. Many people tend to avoid facing their mistakes. Johnson & Johnson does well by not fearing criticism or losing face. Learning from failures and mistakes is a virtue.

03 We Always Avoid High Debt

For us, Wesco has abundant cash flow and very low debt levels. We have always avoided high debt, keeping liabilities low over the years, and have operated steadily.

A company that is doing well, comfortably, and stably doesn’t need to leverage unnecessarily. Earning a bit more money isn’t worth it. A friend once said, “The feeling of starting over from scratch is unpleasant; I never want to experience that again.”

We are naturally cautious, always as if standing on the edge of a cliff or walking on thin ice. If we aimed to achieve the highest returns in the world, we would have leveraged heavily long ago. We don’t have that ambition.

04 Finding Clues from Past Actions

I’ve never heard of acquiring a bank and checking every loan on the books. That’s impossible. Our approach is to indirectly assess loan quality by observing the management’s character, their cultural background, and finding clues from their past actions.

Neither Wesco nor Berkshire has ever made macroeconomic predictions. We don’t know how severe the California real estate crisis will be or the extent of the impact on banks. We cannot make macro predictions.

05 Understanding Opportunities Isn’t Enough; Seizing Them Counts

Any highly leveraged financial institution, regardless of how diligent its managers are, can encounter unexpected losses. The key is whether they can resolve issues promptly after encountering surprises.

How net asset returns are achieved doesn’t matter; what’s crucial is consistently achieving high returns over the long term.

Sometimes, when a good opportunity arises, we understand it and seize it. Understanding an opportunity isn’t enough; seizing it counts. Some opportunities we have indeed seized.

There are many opportunities we understand but fail to seize. If we miss them, so be it. We realize that we can only seize a few high-certainty big opportunities and cannot be confident in every opportunity.

Many companies believe they can do everything, but end up failing at everything. They think establishing 27 subsidiaries, each dominating its field, will make the company a conglomerate spanning 27 industries. Such thinking is foolish.

We can only truly see through major opportunities on rare occasions.

06 Graham Also Had Blind Spots

Ben Graham was remarkable, but he also had blind spots. He didn’t appreciate good businesses and didn’t realize some companies are worth buying at high prices.

What Graham didn’t understand was that some companies are worth holding long-term and can yield good returns, even if purchased at several times their net asset value.

07 It Took Us a Long Time to Learn Wisely

Henry Singleton’s business empire lost its luster not because Henry Singleton himself aged, but because the businesses under him lost their competitive edge.

Early on, we were involved in stamp trading, aluminum products, textiles, and even ran a farm equipment company that produced windmills. Sometimes, Warren and I wonder what would have happened if we had bought good businesses from the start.

It took us a long time to learn wisely.