My assertion is that Munger and Buffett invented something very special in Behavioral Finance, and Behavioral Finance did not seem to notice.

In my view, the genius of Buffett and Munger’s four filters process was to “capture all the important stakeholders” in one multi-variable equation.

Imagine…Products, Enduring Customers, Managers, and Margin-of-Safety… all the important stakeholders for business success in one mixed “qual + quant” formula…The genius of the Munger and Buffett collaboration.

Buffett mentions the Four Filters this way: “Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.”

The genius of this, let’s call it “equation,” is that it includes all the major stakeholders to a successful business. Plus, Ben Graham’s Mr. Market and Margin of Safety are in filter number four. The contributions of Fisher and Munger are captures in filters 2(Sustainable Competitive Advantage) and 3(Able n Trustworthy Managers). And, that third filter is a tale of “competence and morality”

Find me one other “equation” or “formula” that captures so much in so few words… a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.”

It is the ( E=MC squared ) that Behavioral Finance has been searching for, but hardly anyone noticed the “intellectual achievement” of their collaboration.

Certainly, the skills and knowledge that Munger and Buffett possess go beyond four filters. My assertion is that these two partners invented the most significant process since DCF and “Margin of Safety” and nobody in academic finance has taken notice until they read my book.

“The Four Filters Invention of Warren Buffett and Charlie Munger” by Bud Labitan

You are welcome Alex. Thank you for being such a valuable member of the Value Investing News community.

Thanks for your positive words and review of my book. I appreciate yours and all the feedback I get. If possible, kindly mention to your readers that I intended to make this book a small and highly distilled look into this amazing invention within “Behavioral Finance.” In my view, the genius of Buffett and Munger’s for filters process was to capture all the important stakeholders in a “multi-variable” equation or formula.

Imagine…Products, Enduring Customers, Managers, and Margin-of-Safety… all in one mixed “qual + quant” formula. That is the real genius of the Munger and Buffett collaboration.

And perhaps Munger does not get enough credit for this amazing formula because he enjoyed some of the profits and distributed some to family and charities along the way. However, their record speaks for itself.

And, Buffett is always ready to mention that “Time is the friend of the wonderful business, the enemy of the mediocre. You might think this principle is obvious, but I had to learn it the hard way. In fact, I had to learn it several times over… I could give you other personal examples of “bargain-purchase” folly but I’m sure you get the picture: It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner.”

So, my book, “The Four Filters Invention of Warren Buffett and Charlie Munger” is really a subtle tribute to their collaborative genius in Behavioral Finance.

And, let me be the first in line to nominate both men for a Nobel Prize in Economics.

Sincerely,

Bud Labitan