Charlie Munger’s ‘essential filters’ and how they are reflected in our award winning investment strategies.

Insight | by Stephen Kiggins
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Charlie Munger, the renowned investor, and partner of Warren Buffett at Berkshire Hathaway for over four decades, was instrumental in the company’s investment strategy and its growth (to a capitalization to over $780 billion at the time of his death in December 2023) with subsidiaries operating in insurance, transportation, manufacturing, energy generation and distribution, and retail. He also became rightly celebrated for his pithy and insightful perspectives on successful investment principles.

Charlie Munger's essential filters

Charlie Munger consistently applied what have now been termed his ‘essential filters’ when deciding on whether to invest in a company; an ‘economic moat’ giving the company a competitive advantage that would keep competitors at bay; good management with integrity and talent; a simple business model which was easily understandable and a purchase price which provided an attractive margin of safety.

These were all things that he and Warren Buffett looked for and prioritised, not just when they were acquiring companies, but also when they were investing in the shares of a specific company in the stock market. Moreover, the key to their success was staying disciplined, taking the long-term view and remaining patient whenever they put capital to work.

Warren Buffett credited Charlie Munger with reshaping Berkshire Hathaway’s investment philosophy, and key elements of the essential filters that Charlie Munger adhered to during his exceptional career also inform the award-winning investment strategies that we provide to our clients in partnership with Morningstar.

In 2016 Forth Capital partnered with Morningstar, the world’s largest funds analytics company, to design our range Next Generation investment strategies.

Drawing on Morningstar’s world-leading investment, asset-allocation, and risk profiling research, delivered by 270 analysts worldwide, our portfolios provide exposure to a broad range of asset classes, delivering strategic diversification, weighted according to risk and return expectations.

The importance of a ‘wide moat’

Charlie Munger emphasized the importance of investing in businesses with durable competitive advantages, or “moats" in Berkshire parlance. With the business itself being the equivalent of the ‘castle’ and the value of that castle being determined by the strength of the ‘moat.’

“We have to have a business with some inherent characteristics that give it a durable competitive advantage.”

Through their in depth research, Morningstar’s analysts similarly identify in each market sector the companies that have established a significant competitive advantage within a specific vertical market.

This granular analysis of companies that have established a competitive ‘moat’, in the context of Morningstar’s extensive research and understanding of the sector itself, then informs the design and management of their investment strategies, to deliver sustainable growth.

Management quality and culture are essential

The quality of the management in a business that you are investing in, and determining that they have the two qualities that Charlie Munger sought to identify as part of his four filters - “talent and integrity” - can be one of the hardest things for an outside shareholder to judge. Morningstar analysts track companies over a period of years, observing how their management reacts to different market conditions and competitive challenges, how strategic priorities are set and whether they are carried out effectively. This ongoing analysis enables them to identify companies where outstanding stewardship is part of a deeply ingrained culture that will live on through future management transitions. Morningstar’s ‘Stewardship Ratings’ distil this analysis to identify companies with the most competent strategic execution and disciplined capital allocation

Long-Term perspective and patience

Munger famously advocated long-term investment horizons, emphasizing the compounding power of remaining invested.

“The big money is not in the buying or the selling, but in the waiting.”

When asked what Berkshire's competitive advantage was, Munger responded that, "we stay sane while others go crazy."

The average investor he observed can expect to see at least four or five serious market dislocations in their lifetime, along the lines of the late 1990s tech bubble or the 2008-09 financial crisis. The challenge is to have the "mental fortitude" to take advantage of them.

Morningstar's ongoing research highlights the importance of evaluating investments with a focus on their long-term prospects rather than short-term market fluctuations and achieving compound growth over time rather than chasing short-term gains.

Our Next Generation investment strategies have therefore been designed by Morningstar to target sustainable growth with a consistent level of risk across the market cycle, delivering optimal returns on the basis of staying invested for the medium to long term.


Munger always looked to invest in, as he put it, “wonderful companies at a fair price rather than fair companies at a rock-bottom price”.

The key learning in this respect, and one that successfully changed Buffett’s mindset during their time working together, was to look for high-quality companies at a reasonable valuation.

“The key lessons are, buy what you know, look for signs of competitive advantage that can sustain those excess returns for longer periods, make sure management is going to be additive to the business, and keep the firm on a path of solid returns. And then, truly focus on price when acquiring or investing in a company”.
Gregory Warren - Morningstar Research Services LLC

The investing world lost a true visionary and a remarkable individual with the passing of Charlie Munger last year, and from ‘value investing’ to in depth and ongoing research that identifies opportunity, our Morningstar Next Generation investment strategies continue to reflect his wisdom and insights.

To find out more about our Next Generation investment strategies designed and managed in partnership with Morningstar, contact us today.

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