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, sometimes years, until the right opportunities come knocking. In investing, you don’t get rewarded for activity.
In this Signal From Noise, we highlight this and other timeless lessons from Baid’s book, a master class in investing, mental models, frameworks, and enjoying the benefits of compounding in all areas of life. Baid is the fund manager and managing partner at Stellar Wealth Partners India Fund, an investment partnership modeled after the original Warren Buffett partnership fee structure. The Fund is based in the US and invests in listed Indian equities with a long-term, fundamental, and value-oriented approach.
Here are the highlights.
Delayed gratification
Munger, Warren Buffett, Joel Greenblatt, and other legendary investors like Peter Lynch didn’t build fortunes by panicking during recessions, selling out in 2008 or 2020, or making impulse investments based on a few negative headlines. No, they built fortunes partly because of an uncanny ability to ignore the noise, gloomy soundbites, and pundits. They compounded their wealth again and again, thanks to delayed gratification. As Baid explains, many great investors beat the benchmark S&P 500 over many years because they maintain a long-term view of several years, not weeks, months, or quarters. Great investors also tend to think like owners who buy a business, not merely a stock.
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