Though I only met Charlie Munger briefly, his influence on my thinking has been profound.
Charlie was Warren Buffett’s longtime partner at Berkshire Hathaway.
He passed away on November 28, 2023, just 33 days shy of his 100th birthday.
Buffett once said Charlie had “the best 30-second mind in the world. He goes from A to Z in one go. He sees the essence of everything even before you finish the sentence.”
When asked how Berkshire achieved remarkable returns for over 50 years, Charlie’s answer was simple yet powerful: “Avoiding stupidity is easier than seeking brilliance.”
This advice became the foundation of my Alpha-4 Approach. Instead of focusing on what makes stocks succeed, I focused on why businesses fail…
No. 1: Weak Financials
The top reason businesses fail is poor financial health.
I’ve never seen a company with plenty of cash, strong free cash flow and no debt go bankrupt.
On the other hand, companies burdened by debt and lacking cash often struggle. That’s why I avoid businesses with weak financials.
No. 2: Dying Industries
The second reason is that the industry is declining.
Even the best-managed companies can’t fight long-term trends.
For example, Jeff Bezos, one of the most outstanding entrepreneurs of our time, has struggled to turn a profit at The Washington Post.
The newspaper industry faces constant headwinds like falling ad revenues and digital competition.
Some industries simply aren’t built for long-term success.
No. 3: Poor Management
The third reason is bad leadership.
A series of poor decisions can ruin even the strongest businesses.
Look at Blockbuster, which passed on buying Netflix, or Yahoo, which turned down the chance to acquire Google.
In both cases, leaders misjudged their strengths and underestimated future challenges.
My Strategy
My approach became clear: avoid the obvious pitfalls.
Don’t invest in companies with weak financials, those in dying industries or those run by poor leaders.
By eliminating these risky options, I focused on companies designed for long-term growth.
It’s a straightforward approach, but it works.
Charlie’s wisdom continues to guide me — and it can guide you too.
From Lottery Tickets to Long-Term Wealth
Most investors overlook the quality of the business itself, focusing instead on the stock price.
When prices rise, they jump in excitedly, often without any real understanding of what they’re buying — because a stock price alone reveals nothing about the underlying business.
They treat stocks like lottery tickets, chasing quick gains and dreaming of overnight wealth.
Unfortunately, that approach usually leads to losses rather than riches.
Our American Prosperity Report portfolio, on the other hand, is built on outstanding businesses that steadily grow and strengthen over time.
We use my Alpha-4 Approach:
With it, it’s pretty hard not to make money.
Because real wealth in the stock market isn’t about getting rich quickly … it’s about finding exceptional companies that compound returns steadily, year after year.
Regards,
Charles Mizrahi
Founder, Alpha Investor
