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The Extraordinary Life of Charlie Munger
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Charlie Munger, an icon of investing and timeless wisdom, has over the last fifty years arguably influenced the business world more than anyone else. His journey, from serving as a World War II meteorologist to graduating from Harvard Law and becoming one of history's greatest investors, is captivating in many ways. Join us as we explore Munger's multidisciplinary approach to thinking, his strategies for overcoming setbacks and traumas in life, and why he is considered one of the most legendary figures in business history.
Key Insights
Early career and education: Charlie Munger 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.
Transition to investing: Although Munger initially practiced law and co-founded the prestigious law firm Munger, Tolles & Olson, he was more drawn to investing after meeting Warren Buffett.
Partnership with Warren Buffett: Munger and Buffett first met in 1959 and quickly developed a mutual admiration. This friendship eventually evolved into a partnership, leading to Munger becoming Vice Chairman of Berkshire Hathaway in 1978.
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's life took a pivotal turn with the attack on Pearl Harbor in 1941. At the time, Munger was studying mathematics at the University of Michigan. Driven by a sense of duty, he left his studies to enlist in the U.S. Army Air Corps. This decision led him to the California Institute of Technology, where he underwent specialized training in meteorology. His role as a meteorologist involved forecasting flight conditions, ensuring the safety of pilots navigating to distant airfields. This period was not only significant for his technical training but also for the strategic thinking and risk management skills he developed – skills that would later become instrumental in his investment career.
After World War II, Munger pursued his passion for law, attending Harvard Law School. He graduated magna cum laude in 1948, following in his father's footsteps to become a distinguished attorney. After law school, Munger moved to California in 1962, where 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; however, his first encounter with Warren Buffett marked a significant shift in focus.
Buffett and Munger first met in 1959 at a dinner in Omaha, arranged by a mutual contact. They quickly realized they shared a sense of humor and had similar rational, long-term-oriented temperaments. This common ground led to a mutual admiration, both intellectually and personally. Their meeting marked the beginning of a lifelong friendship, which would later result in the creation of the best-performing holding company of all time, Berkshire Hathaway.
While still practicing law, Munger started an investment partnership, which became known as the Munger Partnership. He initially managed it part-time while running his law firm simultaneously. In the early 1960s, Munger's investment performance began to attract attention due to his successes. During this time, he also started to communicate and exchange ideas with Buffett, who was running an investment partnership in Omaha, the Buffett Partnership.
By 1965, Munger had decided to focus full-time on his investment partnership, marking a crucial turning point in his career. He eventually dissolved the Munger Partnership in 1975 and became more involved with Buffett at Berkshire. By 1978, Munger had become the Vice Chairman of Berkshire, playing a crucial role there until his passing on November 28, 2023.
As Buffett described in his 2023 shareholder letter: "In reality, Charlie was the architect of the present Berkshire, and I acted as the general contractor to carry out the day-by-day construction of his vision."
Warren's beautiful homage to Charlie in the 2023 shareholder letter (highlights by us at Quartr):
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 also 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
Charlie Munger's net worth was estimated to be around $2 billion when he passed away. His wealth primarily stemmed from his equity in Berkshire. 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 brilliant and famous 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 dive 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 focuses on 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.
Conclusion
Charlie Munger's life is an inspiration to investors, students, and people from all walks of life. His dedication to continuous learning, his investment philosophy, and his timeless wisdom are characteristics that not only built his net worth but also significantly enriched 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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