Charlie Munger's Investing Strategy
Charlie Munger's mental-model upgrade to Buffett, 'a wonderful business at a fair price beats a fair business at a wonderful price.' Munger raised Buffett's quality floor (ROIC 18%+ vs 15%) and relaxed Buffett's valuation floor (P/E up to 30 vs 12). The result: a checklist that finds businesses Buffett would call 'too expensive' but that compound for decades.
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The framework, in plain English
- ROIC ≥ 18% (Munger's hard floor on capital efficiency).
- Sustained 5-year ROIC ≥ 15%, durable, not a one-off.
- Gross margin ≥ 40% AND operating margin ≥ 18%, real pricing power, not accounting illusion.
- FCF / Net income ≥ 80%, owner earnings should equal reported earnings.
- Almost no debt: net debt / EBITDA ≤ 1.5×.
- Share count flat or shrinking, management is returning capital, not diluting.
- Willing to pay P/E up to 30 for exceptional quality.
From Poor Charlie's Almanack and 50+ years of Berkshire Hathaway AGM speeches.
Top 10 stocks scoring high on Charlie Munger
Other investing frameworks
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