December 2025: What we learnt from Warren Buffett and Charlie Munger

Warren Buffett, the legendary investor who is the Chairman of Berkshire Hathaway, retires this December at the age of 95. His partner Charlie Munger, who was Vice-Chairman at Berkshire died last year at the age of 99. Warren and Charlie have been a major source of inspiration for us, and we thought we will dedicate this letter to our learnings from them both, as investors and as human beings. Here is our list:

On investing and business

1. Return on equity (ROE) is one of the most important factors to consider while selecting a business to invest in. From the 1979 Berkshire letter to shareholders: “The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, accounting gimmickry etc) and not the achievement of consistent gains in earnings per share”
2. The intrinsic value of a business is the sum total of all future free cashflows that you can get out of the business over its lifetime, discounted at an appropriate discount rate. One should aim to buy a company’s stock when it is below the intrinsic value by a reasonably large margin of safety.
3. Protection of capital is the most important goal of an investor. Warren says that he has two rules to investing. “Rule No 1: Don’t lose money; Rule No 2: Never forget Rule No 1”. For us as investors too, our first of three goals is to protect capital; the second is to beat inflation and the third is to beat the market and these rules are listed in order of priority.
4. Invest in high quality businesses as part owners in the business. The latter part of this sentence flows from Benjamin Graham who was Warren’s teacher.
5. Invest in businesses that have a competitive edge, like a moat around a castle. Companies that have wide moats can enjoy superior returns on equity over longer periods of time.
6. Buying great businesses at a fair price rather than a fair business at a great price. When we began on our investment journey at Banyan Tree, we too were oriented towards cigar butt style value opportunities like Warren but over time we find ourselves looking for great businesses at fair prices. It is a different matter that fair prices are hard to find in the Indian market these days :).
7. How IQ is over-rated in investing and how temperament is of greater importance. “If you’ve got 160 IQ, sell 30 points to someone else because you won’t need it in investing. What you need is the right temperament.” The temperament to “control the urges that get other people into trouble in investing.”
8. Staying within your circle of competence. “You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.” This knowledge makes the job of investing not as onerous as it otherwise sounds – one just needs to know a few things and of course one is always trying to widen one’s circle of competence.
9. Capital Allocation: Capital allocation is key in a business because the capital that is retained within the company, out of the profits generated every year, must equally generate an equivalently good return on equity over the long term.
10. Whom to hire: “In looking for people to hire, you look for three qualities: integrity, intelligence and energy. And if they don’t have the first, the other two will kill you.”
11. About great managers:” One question I always ask myself in appraising a business is how I would like, assuming I had ample capital and skilled personnel, to compete with it. I’d rather wrestle grizzlies than compete with Mrs. B and her progeny.” Mrs B referred here is Rose Blumkin, the founder of Nebraska Furniture Mart, who was a Russian born immigrant known for her integrity, frugality and customer focus. She was with Nebraska Furniture Mart until her 90s and continued working even subsequently.
12. Invert, always invert: Charlie said this was among the best ways to solve any difficult problem. This is best explained as “All I want to know is where I am going to die, so I’ll never go there”. If you wish, for instance, to foster innovation in your company, you should think about all the ways in which you can hinder innovation and just not do those. Sounds simple right? But it is effective.

On how to lead your life

Warren and Charlie are/were not only great investors but also very wise people who have much folksy sounding advice for us on how to lead our lives. Here are some of the things we learnt from them on that topic:

1. Passion: “Intense interest in any subject is indispensable if you are really going to excel in it” – Charlie. Our own intense interest in investing and businesses has allowed us to love our work and generates the passion we have to excel in our chosen field of work.
2. Humility: Warren is known for his self-deprecatory remarks at the Berkshire annual general meeting and talks often in his letters to shareholders about the bloopers he committed. He has spoken of missing great investments like Google and Walmart in the Berkshire portfolio, making his shareholders aware of mistakes that they would not otherwise know of. This is very different from the average CEO always trying to talk of their own brilliance. Warren talks often about how IQ is not that important to be a good investor, never mentioning that he made it to the World Bridge Championship finals the first time that he competed.
3. Frugality: Despite being worth billions, Warran continues to live in the same house that he bought six decades ago, eats cheap meals and has generally led a frugal life. He justified his frugality early on by saying that the money he saved would be worth so much more in the future if he can compound it in the stock market at a high rate, but it has just become his nature now. This is a tough act to follow for most and we are no exception.
4. Wisdom: “Spend each day trying to be a little wiser than you were when you woke up. Day by day and at the end of the day – if you live long enough – like most people, you will get out of life what you deserve”. Charlie regarded this almost as a moral duty and it is great advice for us all.
   Charlie believed that the path to worldly wisdom and effective decision making lay in a latticework of mental models. Instead of having “a man with a hammer syndrome” where you apply models from a single discipline, he built a latticework of interconnected models from mathematics, physics, biology, psychology, accounting, history, economics and philosophy to help him try to attain worldly wisdom and be an effective decision-maker.
5. Delayed Gratification: “Deferred gratifiers do better over the long pull than those impulsive children that have to spend money on Rolex watches and some other folly” – Charlie. All of us have experienced how saving whatever little money we had early on, has helped us to accumulate capital because we were able to delay our gratification. Similar is the story with our career choices.
6. Good communication is key: “If you can’t communicate, it’s like winking at a girl in the dark. Nothing happens” Buffett took a course in communication at the Dale Carnegie School early in his life because he felt he couldn’t communicate so well, and now of course he is a masterful communicator. This doesn’t need explanation because you may have great ideas but if you can’t communicate them to other people, the winking in the dark joke is quite apt.
7. Avoiding stupidity: ‘It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent” – Charlie. Both Warren and Charlie are/were incredibly intelligent but in their world view, not being stupid is of higher value.
8. How to lead a happy life: “The first rule of a happy life is low expectations.” Wise words indeed and they apply to investing as well.
9. Giving back to society: “Those of us who have been very fortunate, have a duty to give back” – Charlie. This duty extends beyond financial contributions, to include time and expertise. Charlie emphasized that the obligation increases with the degree of good fortune. Warren cofounded The Giving Pledge along with Bill and Melinda Gates in 2010 which asks people to pledge to give away more than 50% of their wealth to philanthropy. The Giving Pledge now has 250 signatories from 30 countries and represents $600 bn in committed wealth.

A letter like this would not be complete if we did not add our own questions – things that we could not understand in Buffett’s very successful journey. One of them is the extra-ordinarily large investments in capital heavy businesses like the railroads and the energy utilities, after having expounded on the virtue of investing in asset light businesses like See’s Candy. The other is continuing to hold Coca Cola as an investment in an environment where health consciousness would reduce the demand for Coke’s products and there is also the possibility of potential liabilities from health effects of sugar and its promotion. A third is the large investment in airlines after having spoken so poorly about them in the past.

We could go on and on about all the things that we learnt from Warren and Charlie but in the interest of brevity, we should bring this letter to a close. We have tried to note down some of the important things we learnt from the two masters. If we have missed something important, I am sure some of you will remind us. The life-long lesson we learnt from Warren and Charlie is to love your work so much that you “tap dance to work”. We hope to live up to that dream.