Why does Berkshire Hathaway never initiate bidding wars for acquisitions, and what were Charlie Munger's comments on this?

Why Does Berkshire Hathaway Never Initiate Bidding Wars for Acquisitions?

Hey, that's quite an interesting question! I enjoy studying Warren Buffett and Charlie Munger's investment philosophy too. Simply put, Berkshire Hathaway (the company led by Buffett and Munger) never actively participates in acquisition bidding wars because they believe it’s too risky and often leads to overpaying. Imagine competing at an auction—the more people bid, the higher the price goes, and you might end up paying too much for something that isn’t worth it. Berkshire avoids this scenario entirely. They prefer waiting for sellers to approach them directly to negotiate a fair price.

Their investment philosophy is "value investing," meaning they only buy truly valuable companies at reasonable prices. Active bidding tends to inflate prices because when multiple competitors get involved, emotions run high, and people overpay. Berkshire would rather miss some opportunities than risk overpaying. Over the years, they’ve acquired many companies—like GEICO Insurance or BNSF Railway—all through direct approaches from sellers, without any heated bidding wars.

What’s Charlie Munger’s View on This?

The old man Munger (Buffett’s long-time partner) strongly agrees with this approach. He often says investing is like fishing—you need patience and shouldn’t rush to compete. Munger considers bidding wars "stupid behavior" because they create the "winner’s curse": the winner who bids the highest often ends up being the fool, as the price gets driven to unreasonable levels.

I recall Munger saying something similar at a shareholder meeting: Berkshire avoids bidding wars because they refuse to play the "highest bidder wins" game. In such cases, the acquired company might not be worth the price, dragging down long-term returns. Munger’s style is rational and cautious—he always emphasizes "avoiding big mistakes" over chasing short-term excitement. For example, he advises walking away when you see a crowd fighting over a deal and waiting for the next opportunity. This mindset has helped Berkshire dodge many pitfalls and grow steadily over time.

In short, this is their wisdom: don’t chase trends, don’t follow the crowd, and focus on finding truly great deals. If you’re learning about investing, try adopting this mindset—less impulse, more patience.