Signal From Noise

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Signal From Noise

The Joys of Compounding: Reflections on Life and Learning for All Investors

There’s a Charlie Munger story about the art of patient investing, that quality that’s easy to talk about but hard to preach, and Gautum Baid tells it well. Munger, 99, has read Barron’s Magazine for over 50 years. In that span, he’s found only one actionable idea, a cheaply valued auto parts company, which he bought at $1 per share and sold a few years later for $15. He earned about $80 million in profit on the investment. 

Then he gave the $80 million to the value investor Li Lu, who turned it into more than $400 million. “I didn’t have a lot of ideas,” Munger said, “I didn’t find them easily, but I did pounce on one.”

The example illustrates a key tenant in Tom Lee’s investment process and Baid’s international bestseller, The Joys of Compounding, one of our favorite books. The value of true patience is hard to overstate in an investing landscape of tons of noise and very little signal. Quality investments don’t always come along, so the ability to sit, sit, and then pounce is a trait reserved to a select few. Extreme patience, deferred gratification, and the courage to act boldly all contributed to Munger’s enormous success, helping to make him a billionaire. As Munger says, it takes character to sit with cash and do nothing for months, ...

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