I read somewhere about the difference between how Charlie Munger and Benjamin Graham approach investing. I loved this example because it was simple and since I was a beginner it helped me decide early on which path to take.

Th analogy goes something like this: Imagine that the stock market is actually like the neighborhood superstore and stocks are like the merchandise it sells. Benjamin Graham would visit the store and look for the items that were at a discount. Now, these would be on discount either because the merchandiser wanted to clear the stock or they are about to expire or some such reason. He would sift through these discounted products and find one that still had some useful life or was as good as new and yet it was discounted, which meant huge savings to Graham. He would do this everyday; some days he would find something that met his criteria and on others he wouldn’t find anything.

Charlie Munger on the other hand would go to the same store. He looks around the entire store and searches for something that he likes. Once he likes something, he would visit the store every day and buy it on the day when it was discounted.

Both the above approaches work. Graham didn’t care so much about quality or qualitative factors and focused on the value which he was getting and the price he was paying and the difference between the two- margin of safety. Munger on the other hand insisted on quality but he would buy it only when the price was at a discount. Therefore by waiting, Munger got to have both — high quality and a marked down price.

Where does Buffett lie? In 1965, Warren Buffett was more Graham like in his approach. By 2015, he almost Munger like. Please read this essay written by Buffett himself.

As a newbie to investing, I instantly took to Munger’s approach of finding high quality companies and waiting for the market to misprice them. Such occasions come, especially because there is some bad news floating in the air like oil prices, demonetization, interest rates, elections etc. These create opportunities for a short time window to jump in.