Investing the Buffett-Munger way – banks, Telstra, Wesfarmers

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It was just over 10 years ago and I had gone to Omaha, Nebraska, to hear the wisdom of Berkshire Hathaway chairman, Warren Buffett. Instead, the most memorable line came instead from Buffett’s deputy, Charlie Munger. It still resounds - even more strongly - today.

Buffett talked in paragraphs; Munger talked in headlines. In May 2004 – still more than three years before the global financial crisis began to rumble – a shareholder sought Munger’s advice on investing. He gave a three-word reply: “reduce your expectations.”

As a market timer, it turned out he was two and a half years too early: the stock market kept rising until the Dow Jones peaked at more than 14,000 points in October, 2007. Since then, markets have recovered to fresh peaks but caution and lowered expectations still seem investors’ almost constant companions. And Australians have had several recent cautions on risk from Reserve Bank governor Glenn Stevens, with financial inquiry chairman David Murray adding his warnings.

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