Saturday, May 08, 2010

Munger - Opportunity Cost

I went to the annual Berkshire and Wesco meeting this year, and while I'm not going to try to summarize 10 hours of learning right here, there were several quotes and analogies that just lit my brain on fire. It almost feels like those Japanese Anime super heroes that power up to discover new powers and strengths.




One analogy that CM gave on opportunity cost was incredibly powerful to me. After Berkshire bought $300mn of BYD (Chinese electric battery / car company) and the stock has proceeded to rally ~400%, CM has gotten several solicitations to consider investing in other Chinese companies. Your logical instinct should probably be that after this initial success he would be all over any potential Chinese ideas. But its the exact opposite!

CM, indicated that he wouldn't even looking at them, just given that the opportunity cost was so high given that he liked BYD, the product, the management, even though it had traded up 400%! He had more faith in BYD growing over time, (and had already done the work) than considering other investments!

It doesn't make 100% sense to me (as I'm younger - mid-twenties vs. 86 and try to be constantly looking at new ideas), but it's something I've been reflecting on, when considering potential investments (i.e. does this meet the opportunity cost? Even better, does it raise the opportunity cost for future investments?).

1 comment:

Kelvin said...

I'm always excited about these "BWAAAAAAGH" power-up moments. Really glad that it sounds like those keep coming for you.

Regarding the other topic, I really look forward to catching up via phone soon.

Excited and happy for you to see gears turning and life scaling up.