'I was always so proud of it': Charlie Munger had a ready answer when he was asked to name the investment he liked most — and he could also name his biggest regret

Munger’s best investment ever

Munger’s musings on the extremes of his financial life were sparked by Wes in Miami, who asked him, “In your storied investment career, which investment did you like the most?”

“Well, that’s rather interesting,” Munger replied, his trusty Diet Coke can sitting in front of him. He mentioned the World Book Encyclopedia, which he remembered from his youth as a product sold door to door. “It was easy for a child who wasn’t necessarily a brilliant student.”

And as an investment, the World Book provided volume after volume of wealth. ”Berkshire made $50 million pre-tax per year out of that business for years and years and years. I was always so proud of it because I grew up with it and it helped me.”

The World Book triumph follows a pattern of Buffett and Munger buying into successful businesses whose products they loved, including Dairy Queen, See’s Candies, and yes, Coca-Cola.

Berkshire Hathaway also followed a model that almost seems old fashioned today: it invested in companies whose stocks were undervalued; that is, when the intrinsic value per share dips below the current market share price.

World Book only ceased to return monstrous profits when, as Munger noted, “a man named Bill Gates came along and decided he was going to give away a free encyclopedia with every damn bit of software.”

The World Book success story boils down to the kind of simple principle Munger loved so much: buy in companies whose products and profit potential you believe in, especially after you study the numbers and marketplace dominance.

“It’s still a marvelous product,” Munger said, “and it wasn’t good that we lost what World Book was doing for this civilization. World Book helped me get ahead in life.”

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Charlie’s folly

But even the most successful market gurus have their crash-and-burn moments. Munger had no trouble recalling the dud that haunted him at the Daily Journal’s 2023 meeting: Alibaba "was one of the worst mistakes I've ever made.”

Munger said he was “over-charmed” by online retailing and “got a little out of focus” when it came time to invest his money in Alibaba. In fact, Munger acknowledged that he used leverage to buy the stock— a tactic he has frowned on in the past — because "the opportunities were so ridiculously good I thought it was desirable to do that."

Munger initially bought about 165,000 Alibaba shares in the first quarter of 2021 and increased that to 602,060 shares in the fourth quarter. But he then cut that back to 300,000 shares in the first quarter of 2022.

The lesson Munger learned and that we can especially benefit from today is that the market’s bright shiny objects may distract us from doing our homework. E-commerce, he said, wasn’t a slam dunk but just another form of retail where a business has to prove its viability, just like a brick-and-mortar store.

This story should be familiar to anyone who has jumped on an IPO from a much-hyped company, only to see its stock falter days afterward. Trump Media, for example, recently dropped below $30 a share, compared to an IPO price that soared above $70.

As for his particular market tumble, Munger’s response was pure Munger: “I keep rubbing my own nose in my own mistakes like I’m doing now because I think it’s good for [me]."