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Charlie Munger (born in 1924, † 2023) was shareholder and vice-chairman of Berkshire Hathaway, a diversified conglomerate based in Omaha, Nebraska, which is managed by the famous American major investor Warren Buffet. Charlie Munger remained somewhat in the background. However, it was Charlie Munger’s advice that allowed Warren Buffett to adapt the methodology of his stock selection, which has contributed to Berkshire Hathaway’s success.
In his role as Buffett’s closest business partner for more than four decades, Munger
has played a critical role in Berkshire’s growth. Berkshire Hathaway grew into a huge diversified holding company with a market capitalization of over $600 billion (as of July 2022). Its subsidiaries operate in insurance, rail freight, power generation/distribution, manufacturing and retail, among others. Additionally, Munger was chairman of the board of Daily Journal Corporation, a legal publisher with a software business in automated court reporting, and a director of Costco Wholesale Corporation. From 1984 to 2011, he was chairman and CEO of Wesco Financial Corporation - a subsidiary of Berkshire Hathaway.
Biography
Charles Munger was born in Omaha in 1924, where he grew up as the eldest son in a family of lawyers. He studied mathematics at the University of Michigan during World War II. In 1943, Munger abandoned school a few days after his 19th birthday to join the Air Force, where he trained as a meteorologist and was promoted to second lieutenant. The city of Pasadena, California, became his lifelong home as he continued to study meteorology at Caltech.
After entering Harvard Law School - without a bachelor's degree - he graduated magna cum laude in 1948. After graduation, Munger moved to Los Angeles, where he practiced law.
As a business person, Munger had a difficult start. He lost almost everything in his first venture, a transformer manufacturing company he started with Ed Hoskins. As Munger himself recalls, however, they were able to achieve a good return on investment due to the discipline and knowledge he demonstrated. In 1961, an old friend of Munger’s, Otis Booth, invited him to participate in a real estate deal, which closed in 1967 and resulted in a 400% profit for Munger. Munger stayed in the business for a few more years until he made his first million dollars.
From 1962 to 1975, Munger ran his own investment company, demonstrating his keen investment sense. He achieved average annual returns of 19%, while the Dow Jones averaged just under 5% over the same period.
Munger passed away on November 28, 2023, at the age of 99 in a hospital in California.
Over the years, Munger and Buffett kept in touch after meeting at a dinner in Omaha in 1959, as Buffett continued to build his investment firm and Munger continued to practice law. Although they did not work together, Buffett and Munger met frequently in business, probably because the two pursue similar investment strategies. For instance, in the 1970s, both made investments in the discount stamp company Blue Chips Stamps and in the retail chain Diversified Retailing. As a result of the merger of Diversified Retailing and Berkshire, Munger received two percent of Berkshire stock and became vice chairman. In addition, he became managing director of Berkshire subsidiary Wesco Financial Corporation.
Charlie Munger (l.) and Warren Buffett (r.), Source: Keystone
According to Charlie Munger, anyone who invests in value is an intelligent investor. Munger's interpretation of value investing, however, differs significantly from Buffett's. Buffett has always been a value investor, as well. Identifying and analyzing stocks that were trading below the true value was one of his main focuses. Buffett learned this strategy from his mentor Benjamin Graham.
In 1989, Buffett told his shareholders that it was Munger who taught him the art of value investing, pointing out the pitfalls of the cigar-butt approach - a term used to describe investors who buy a dying company, currently worth $1, for $0.75 just to get the $0.25 left in the company. Buffett’s career began with seeking out such companies. Munger recognized their folly long before Buffet, who commented: “Charlie understood this very early on; I was a slow learner”.
Munger believed that the low price for a troubled company with numerous flaws too often ended up being a false discount, and any immediate gain would soon be eaten up by low returns. Instead, Munger and Buffett would rather buy a great company for $1.25 when it is currently worth $1 but will definitely be worth $15 in 10 years. This is how Berkshire Hathaway became one of the most successful companies.
When it comes to upholding industry-leading ethical business standards, Munger and Buffett were in complete agreement, which is one of the main reasons for their incredible success. Munger often stressed the importance of high ethical standards to his success. At the 2000 annual meeting of Wesco Financial Corporation, he said, “Good businesses are ethical businesses. A business model that relies on trickery is doomed to fail.".
Additionally, Munger indicated his opposition to excessive diversification. In a portfolio at Wesco, he managed only four stocks. Munger defended his strategy by saying that a concentrated portfolio will produce better returns over the long term than a highly diversified portfolio if you know the company and thus the risks and potential.
In Munger’s opinion, the greatest skill he learned was playing cards, because it teaches you to get out in time when the odds are against you, and to take advantage of opportunities. As far as leading by example goes, it was he who succeeded. The result of this ability made him one of the richest men in the world. Until his death, Munger retained a passion for architecture and learning, leading a serene yet engaging life while continuing his service on the Berkshire Hathaway board of directors.
For the first time since the Corona pandemic, Berkshire Hathaway's Annual General Meeting was held live with shareholders in 2022. At the age of 98, Charlie Munger took part and answered a number of questions with Warren Buffett for a total of more than 5 hours.
Otherwise and like many other millionaires, Charlie devoted time and resources to philanthropy. From 2011 to 2013, he donated more than $110 million to his alma mater. He also donated money to other universities in the United States. Our lives can be influenced by Charlie Munger’s story, which demonstrated resilience and logical decision-making. When it comes to wealth management and investment planning, his down-to-earth approach and practical advice are especially valuable.
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