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The Extraordinary Life of Charlie Munger
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Charlie Munger, a name synonymous with investing genius and timeless wisdom, has been a monumental figure in the world of business and investing for over half a century. His wisdom and insights cover a wide range of subjects, from investing to human psychology. In this article, we will delve into interesting facts about him, explore his primary contributions to the world of business and investing, examine how he became one of history's most renowned investors, and uncover what made his life extraordinary.
Key Insights
Early Career and Education: Charlie Munger's early years were marked by varied experiences. He served as a meteorologist in the U.S. Army Air Corps during World War II, studied mathematics at the University of Michigan, and earned a Juris Doctor from Harvard Law School in 1948. These experiences laid the groundwork for his diverse skill set.
Transition from Law to Investment: Although Munger initially practiced law and founded the prestigious law firm Munger, Tolles & Olson, he was more drawn to investing. He established the Munger Partnership in 1962, managing it part-time while running his law firm, and eventually shifted to focus full-time on investing in 1965.
Partnership with Warren Buffett: Munger and Buffett met in 1959 and quickly realized their shared investment philosophy and temperament. Their partnership led to the formation of Berkshire Hathaway, with Munger becoming its Vice Chairman in 1978. This collaboration significantly influenced Buffett's shift from "cigar-butt" investing to focusing on businesses with long-term growth potential.
Legacy and Impact: With Munger's passing on November 28, 2023, at the age of 99, the investment world lost a legendary figure. His wisdom will continue to inspire and guide several future generations in both investing and life.
Charlie Munger’s Early Days
As a young man, Charlie Munger served as a meteorologist in the U.S. Army Air Corps during World War II and later attended the University of Michigan where he studied mathematics. After his brief period at the University of Michigan, he went to Harvard Law School, where he graduated with a Juris Doctor in 1948.
After law school, Munger moved to California, where he started practicing law. In 1962, he founded his own law firm, Munger, Tolles & Olson, which is still regarded as one of the most prestigious law firms on the West Coast. Munger was very successful as a lawyer, but he realized that he was more interested in investing and was convinced that it would be more lucrative.
While still practicing law, Munger started an investment partnership, which came to be known as the Munger Partnership. He initially managed this partnership part-time while still running his law firm. In the early 1960s, Munger's investment performance began to attract attention due to his successes. During this time, Munger also started to communicate and exchange ideas with Warren Buffett, who was also running his investment partnership in Omaha, the Buffett Partnership, famously built on 8 key lessons.
Buffett and Munger first met in 1959 at a dinner in Omaha, which was arranged by a mutual contact. Upon meeting, they quickly realized that they shared a similar investment philosophy, grounded in value investing principles. They also found that they had a common sense of humor and similar temperaments which were rational and long-term oriented. With this as a basis, they quickly developed a mutual admiration for each other, both intellectually and personally. This was the start of what would become a lifelong friendship, which later would also result in the best-performing holding company of all time, Berkshire Hathaway.
By 1965, Munger had decided to focus full-time on his investment partnership and other investment activities, marking a crucial turning point in his career. He eventually dissolved the Munger Partnership in 1975 and became more involved with Buffett at Berkshire Hathaway. By 1978, Munger had become the Vice Chairman of Berkshire Hathaway, playing a pivotal role there until his passing on November 28, 2023.
The Munger Partnership Returns
Charlie Munger’s Influence on Warren Buffett
Buffett's early investment style was heavily influenced by his mentor Benjamin Graham, who is often referred to as the “father of value investing.” Graham's strategy focused on buying stocks that were so cheap they were almost like buying a dollar for fifty cents – often referred to as “cigar-butt” investing. This approach concentrated on short-term gains, where investors picked up discarded companies at bargain prices and sold them when there was a slight uptick in their price.
Munger, on the other hand, was always more inclined towards quality over quantity. He believed in investing in outstanding businesses with strong moats and holding them for the long term. Munger saw that companies that were able to deploy capital at high rates of return over an extended period could far exceed the returns obtained from the traditional cigar-butt approach.
When Munger and Buffett started collaborating closely, Munger shared these insights with Buffett. He encouraged him to consider not just the price, but the quality and potential for compounding when making investment decisions. This led to a notable evolution in Buffett's investment philosophy. He began to appreciate the importance of both the quality and the growth prospects of a business, rather than focusing solely on its price. Buffett himself has admitted several times that this change in his thinking was largely due to Munger's influence.
This transition can be seen in the type of investments Berkshire Hathaway began to make. Buffett started investing in companies like Coca-Cola, American Express, and See’s Candies – businesses with strong brands and durable competitive advantages that could compound capital for decades.
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Net Worth and Investment Philosophy
Munger’s net worth was estimated to be around $2 billion when he passed away.
His wealth primarily stemmed from his equity in Berkshire Hathaway. Influenced primarily by Buffett and Graham, one of the core principles of Munger’s investment philosophy is the concept of value investing. This strategy is based on buying securities that are undervalued in price in relation to their intrinsic value, taking the margin of safety into account.
Besides the focus on value and the delicate mix between qualitative and quantitative factors, Munger was widely known for his concept of mental models and the psychological aspects of investing. He also believed that by understanding the fundamental principles from various disciplines such as economics, history, and psychology, one could make better decisions and think more rationally. His multidisciplinary approach to problem solving and decision making has been widely influential across the world for decades. This, coupled with his successes alongside Buffett with Berkshire Hathaway, has made Munger one of the most respected and well-recognized names in the history of business and investing.
Timeless Wisdom Through Quotes
One of the things Charlie Munger was most famous for was his quotes. His wit and wisdom were often captured in short phrases that packed a punch. Here are five of Munger’s most notable quotes:
On Avoiding Mistakes: “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
On Patience and Investing: “The big money is not in the buying and selling, but in the waiting.”
On Learning: “I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.”
On Mental Models: “Well, the first rule is that you can’t really know anything if you just remember isolated facts and try and bang ’em back. If the facts don’t hang together on a latticework of theory, you don’t have them in a usable form.”
On Changing One’s Mind: “If you are not willing to react with equanimity to a market price decline of 50% two or three times a century you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get.”
Books and Continuous Learning
For those eager to delve deeper into the insights and wisdom of Charlie Munger, there are several books worth reading. Although Munger himself did not author many books, there are several books about him and compilations of his wisdom. Here are a couple of prominent examples:
Poor Charlie's Almanack
This is perhaps the most well-known book associated with Charlie Munger. Poor Charlie's Almanack was not written by Munger himself but is a compilation of his speeches, talks, and insights, edited by Peter D. Kaufman. The book is an amalgamation of Munger's wisdom on investment, business, decision-making, and life in general. It includes transcripts of his famous speeches, including his well-known talk on the psychology of human misjudgment. The book is often considered a must-read for investors and fans of Munger's wisdom and is presented in the style of Benjamin Franklin's "Poor Richard's Almanack," which is where the title draws inspiration.
Seeking Wisdom: From Darwin to Munger
While not authored by Munger, Seeking Wisdom is heavily inspired by his ideas, particularly the concept of mental models. The book is written by Peter Bevelin and delves into understanding how our thoughts are influenced and the common errors of judgment we make. It takes readers through various disciplines such as psychology, biology, and mathematics, reflecting Munger’s multidisciplinary approach to decision-making.
Damn Right
Damn Right is a biography of Munger. It provides an in-depth look at Munger's life, career, and investment philosophy. The book recounts Munger's early years, his partnership with Buffett, and the building of Berkshire Hathaway. It gives insight into his thought processes and the principles that guided his investments and decisions.
These books offer readers a comprehensive understanding of Munger's wisdom, investment philosophy, and life journey. They are invaluable resources for anyone interested in investing, decision-making, or seeking practical wisdom. It's also worth noting that Munger often attributed a significant part of his success to his multidisciplinary reading habits.
In Conclusion
Charlie Munger’s life is an inspiration for investors, students, and people from all walks of life. His dedication to continuous learning, investment philosophy, and timeless wisdom are characteristics that not only built his net worth but also significantly contributed to the lives of those who heed his words. Munger's life was a testament to how a life filled with curiosity, wisdom, and intelligent investing can be both fulfilling and impactful.
Learn more about Charlie Munger
Speech: The Psychology of Human Misjudgment – Harvard University, 1995
Speech: How to Guarantee a Life of Misery – Harvard University, 1986
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