We attended the Daily Journal (NYSE:DJCO) 2016 Annual General Meeting in Los Angeles where Daily Journal Chairman, Charlie Munger took questions on a broad range of topics. We took away four key thoughts. This is the fourth.
The Future is Unknowable – Stay the Course with Good Businesses
When asked about oil prices, Munger said: “I wouldn’t have predicted oil would fall so low, and it is generally true that we can get periods of extreme prices in commodities as we see now with iron ore. Commodities can do strange things…up and down…and they have macroeconomic consequences. If you’re in Australia [iron ore] or in the tar sands of Canada [oil], it is terrible now. We are in a weird period, but that’s the nature of the human condition with free markets. I have never accurately predicted those swings. We just get into good businesses and let the cycles happen.”
Many aspects in life and business are important, but unknowable. Why spend a lot of time thinking about and trying to predict the truly unknowable? In some periods, like commodities today, markets swing to extremes which completely surprises everyone, including the very best pundits and insiders in the industry. Accept the reality that markets will do strange things at times and cycles will come and go. Instead, buy good businesses and be patient through the cycles. Stay focused on the more knowable and important factors when investing like balance sheet strength and competitive positioning which should get you through the inevitable down cycles from time to time and emerge stronger for the next cycle.
Part 1 – Block Off Some Uninterrupted Time to Read and Think
Part 2 – Specialization vs. a Multi-disciplinary Approach
Part 3 – Be Rational
Felix Narhi, 24 February 2016