He called them “cigar butts” but still good for one last puff of value.

From 1956 to 1969, Buffett Partnership Ltd. Compounded at 29.5 per cent per year. But this approach Required Constant Effort. He had to keep searching, selling, and reallocating. The businesses were of the average. There was no real peace of mind.

Then something changed.

Buffett Stopped Looking Only for Cheap Stocks. He started looking for quality. Businesses with priking power. Brands trusted the people. Owners who allocated capital well. Companies That Could Grow Steadily Without Needing Too Much of his time.

That shift came from charlie munger.

Munger influsive buffett, who believed it was better to buy a great business at a fair price than than to buy a fair business at a great price. And Buffett Listened.

The result? Berkshire Hathaway Compounded Wealth At Nearly 20 Per Year Up Next Five Decades.

Berkshire Hathaway vs S & P 500 returns. (Source: Letter to Shareholders 2025)
Berkshire Hathaway vs S & P 500 returns. (Source: Letter to Shareholders 2025)

Figure 1: Berkshire Hathaway vs S & P 500 returns. Source: Letter to Shareholders 2025

For context: if you had investing just one dollar with buffett sixty years ago, and it compounded at 20 per cent per year, that is dollar would be worth over $ 55,000.

Now, come back to the core point.

Take Coca-Cola. Buffett started Buying IT in 1988. It was a dominant brand with high margins and global scale. Over 35 years, that investment delivered more than 16 times the returns, not counting dividends. Apple, which Berkshire Started Buying in 2016, is now worth more than $ 150 billion on their books. That one Holding Alone Makes Up Over 40 Per cent of their listed portfolio.

Now, buffett did not find these ideas by screening for the lowest p/e ratio. He found them by asking: Is this business strong enough to hold forever?

That is the munger influence. Munger influxed buffett on how to think in decades, not quarters.

In this article, we explore the core stock-picking ideas that buffett now follows and how munger’s thinning each of them.

Four Big Ideas Munger Taught buffett

1. Great businesses create more wealth than cheap stocks ever will

What muunger believed: A truly great business, even if not cheap, would outperform a mely good business bought at a discount because you will work for you, not against you.
Most Cheap Businesses Eather Stay Cheap or Deteriorate. But a high-quality business with strong fundamentals can reinvest profits, defend its market, and grow over decades with very little friction. Munger saw that as the Ideal Compounding Machine.

How it’s Changed Buffett’s Thinking: Early Buffett, Under Graham’s influence, focused on ‘net-nets’, that is, Stocks trading below the value of their assets. He made money in them, but the process required freired frequent buying, selling, and constant vigilance.
Munger influxed him to stop thinking in terms of discounts and start thinking in terms of durability.

See’s candies were the turning point for which buffett paid three times the book values, something never has done before. But the Brand, Pricing Power, and Customer Loyalty Made It A Predictable Cash Flow Engine. That one business generated over $ 1 billion in profit and taught buffett that great businesses bought once Could Outperform dozens of cheap trades.

2. Few bets, Big conviction

What muunger told buffett: “Diversification is Protection Against Ignorance,” Munger Once Said. “If you know what you are doing, it make very little sense.” He pushed buffett to stop spraying capital acrosism of average ideas and instead concentrate on a few high-quality businesses.

How it is shaped buffett: Berkshire Hathaway’s portfolio has always focused. Buffett He does not dilute conviction just to feel Safe.

3. Sit quietly: the power of inactivity

What muunger thought: Munger was of the opinion that the best investors are not always doing something. They are sitting, thinking, and waiting. Activity for the sake of it usually Destroys returns. “The big money is not in the buying or the selling,” he said. “It is in the way.”

How it is shaped buffett: Buffett became family patient. He rarely trades. His portfolio turnover is extramely low. He Once Held American Express for over 25 years, see for over 40, and now apple for more than a decade. He Lets The Business Do the work, not constant reshuffling.

4. Avoid complexity. Stay with your circle of competence

What muunger thought: Munger made this very clear: “Knowing what you do not know is more useful than being brilliant.” He encouraged buffett to avoid sectors he did not understand, and to focus on businesses he could explain in one paragraph. Complexity is not a badge of honors in investing.

How it is shaped buffett: Buffett famously skipped tech stocks in the 1990s. He admitted he did not understand them then. He has always Preferred Consumer Products, Insurance, Banking – Sectors He Could Analyse and Predict with Some Confidence.

Concluding remarks

Buffett would have been a great investor even without Munger. But munger possessibly made him Paus, reflect, and rewire his thinking.

That shift made them sustainable.

A Closer Look at Munger’s Ideas Reveals That Many Retail Investors Tend to Follow A Similar Journey, Of Starting With Stock Screens, News, News, and Market Tips.

But the real breakthrough comes when investors simplify and do not chase market signals.

Munger posibly gave buffett that filter. And if investors learn to build their own, they may not outperform every cycle, but they like they like the costly mistakes (like a drain on capital) and stick around and long long to letting job.

Note: We have relieved on data from the Annual Reports Throughout This Article. For forecasting, we have used our assumptions.

Partha Parikh has over a decade of experience in finance and research, and he currently heads the growth and content vertical at finsire. He holds an frm charter along with an mba in finance from Narse Monjee Institute of Management Studies.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article.

The Website Managers, Its Employee (S), And Contributors/Writers/Authorles of Articles have or may have an outstanding Buy or Self Position or Holding in the securities on the sectorions on security. Issuers and/or Companies discussed therein. The content of the articles and the interpretation of data is so the personal views of the contributors/ writers/ authors. Investors must make their own investments based on their specific objectives, resources and only after consulting such independent advisors as may be necesary.