Charlie Munger is Director and Vice Chairman of Berkshire Hathaway as well as Chairman of the Daily Journal Corporation. He and Warren Buffett have been partners for nearly four decades, but if you think of Munger as merely Buffett’s right-hand man, you’ve not been paying attention. Buffett might be worth more and certainly gets his due share of attention and credit, but without Munger’s seemingly natural affinity for business, investing, and gauging people, the Berkshire Hathaway narrative as we know it would be very different.
Charles Munger was born in Omaha and has been intertwined with the Buffett family since his teens, when he worked at Buffett & Son, Warren’s grandfather’s grocery store. Six years older than Buffett, Munger didn’t meet Warren until a few years later.
Munger entered the University of Michigan in 1941 but left school two years later to enlist in the Army Air Corps. During this time, he also married Nancy Huggins before moving to Boston to attend Harvard Law School, where he graduated magna cum laude even though he had never earned his undergraduate degree. In 1949, taking advantage of his law degree, Charlie moved his family to California to work at a firm called Wright & Garrett.
Although he practiced law, Munger displayed the sharp eye for people and business that would serve him well later. It was here that Munger got his first taste of business and the art of buying companies, as he bought part of a dying transformer company owned by one of his clients.
In 1959, Munger’s father died, so having divorced Nancy a few years before, Charlie moved back to Omaha, and, as they say, the rest is history
Warren Buffett and Charlie Munger met through a mutual friend and immediately hit it off. They became friends quickly, often discussing nothing but business and investing, but it took some time before Warren convinced Charlie to quit law and start his own investment partnership.
In 1962, Munger started his own firm, and it immediately did well, outdoing the Dow Jones Industrial Average by about four times per year until 1975. As he gained more experience, Munger eventually developed his own style and strategies, both of which helped change the direction of Berkshire Hathaway.
Munger’s Strategies Applied – And the Results Were Impressive
Whereas Buffett stressed the relative value of a company on how it was run by its management, Charlie Munger looked for quality and brand strength when investing. This led him to recommend an acquisition that hence became legendary in Berkshire Hathaway lore: the purchase of See’s Candies.
The value of See’s was easy to see on a balance sheet, but it was the intangibles that had caught Munger’s eye: it had a competitive edge over its rivals due to its brand, which significantly increased its pricing power. Munger was convinced that acquiring See’s was a home run.
Buffett, on the other hand, was not. The See’s balance sheet read $8 million in tangible assets, yet the company’s controlling family wanted $30 million. Charlie wanted to counter by offering $25 million, but Buffett balked. Though he liked the company’s leadership, he was skittish to pay three times its net tangible assets. Eventually, Munger convinced Buffett that $25 million was a good price and made the offer, which the family finally accepted.
See’s has earned nearly $2 billion since then, and it has been one of the main cogs in financing Berkshire’s many subsequent purchases of businesses, acquisitions that have expanded Berkshire Hathaway’s reach, produced remarkable successes, and showered untold fortunes for both men.
The lawyer not formally trained in business and investing had taught the genius investor and businessman a key aspect of investing – the power of brands – and it opened them up to scores of other profitable investments.
Warren Buffett had developed his style of investing, but, as a student at Columbia Business School in the 1950s, he had been heavily influenced by legendary investor Ben Graham. He later worked for Graham, where he developed investing strategies that diverged from his mentor’s, yet were no less successful.
In 1978, Charlie Munger joined Berkshire Hathaway as its vice chairman. From the start, Munger made it clear that he didn’t agree with Graham’s style of investing. Munger considered Graham a good writer, excellent teacher, and brilliant thinker, but he also thought Graham’s investing strategies were cynically and conservatively shaped by the Great Depression, making them too rigid and based on fear. This had caused Graham to miss winners.
While Buffett almost never borrowed money to make money, Munger had no such qualms. He was aggressive – he wanted to make a lot of money very fast. He was, and still is, convinced that investing success comes from putting money in high-quality businesses. Accordingly, Munger places great emphasis on learning the intangibles of a business before investing: a company’s strength of leadership, brand quality and durability, and its market competitiveness.
The Daily Journal
Although Charlie Munger is best known for his success at Berkshire Hathaway, he also has made a name for himself as chairman of the Daily Journal Corporation. The Daily Journal is a labor love for Munger, a natural fit for him, as it specializes in publishing legal texts. It provides news to those within the legal profession.
The Daily Journal saw 25% growth in the few years of Munger’s leadership before experiencing a sharp decrease during the 2008-09 recession. Since then, the company’s performance has been lukewarm, growing only about 3% per year since. Still, overall growth under Munger has been impressive, and it continues to reflect the investing principles of its chairman.
You don’t become a nonagenarian worth around $2 billion without having, and following, a vision and a set of principles. Charlie Munger may have been trained to be a lawyer, but in the five decades since he got into the investing business, he has become one of the most respected and influential businesspeople and investors in the world.
Below are 6 investing principles that have been the catalyst for his meteoric successes:
1. Before making any investment, calculate the risk and incorporate these possible complications into your strategy.
2. Be self-determining and make your own decisions.
3. Accept your flaws, admit your mistakes, and accept change (it’s inevitable).
4. Reduce mistakes by being thorough in your evaluations and analysis.
5. Be patient, confident, and determined.