Ever wonder how Charlie Munger remained friends with Warren Buffett — and the two famed investors never fought in more than 60 years? Munger's son, Charles Munger, Jr., explains with a story.
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The Munger family took a ski vacation using a car borrowed from a friend. On the way back, the older Munger (1924-2023) insisted on going to a gas station to fill up the tank. Munger's son asked why they'd stopped — there was still half a tank left.
"Charlie," his dad told him, "when you borrow a man's car, you always return it with a full tank of gas."
It was simple lesson imparted by the former Berkshire Hathaway vice chairman who died last month at age 99. "I was taught that day not only how to get a good friend, but also how to keep one," Munger Jr. said.
Value Common Sense Like Charles Munger
The story symbolizes Munger's philosophy: Mostly plain sense values some might call old fashioned. His longtime partner, Buffett, is the company's face. But Buffett himself wrote Berkshire Hathaway (BRKB) "has been built to Charlie's blueprint."
Anyone who has followed the company, attended one of the many lectures Munger gave to aspiring financiers or read the recently revised edition of "Poor Charlie's Almanack, The Essential Wit & Wisdom of Charles T. Munger," sees a partnership of equals.
"Charlie changed Warren," said Robert Johnson, professor of finance at the Heider College Of Business at Creighton University who attended almost every Berkshire Hathaway annual meeting for decades. "Warren was more of a pure value investor. That is, he'd buy a fair company if it was available at an inexpensive price. Charlie was more about buying a good company at a fair price."
Johnson grew up in Omaha (the company's home base). He attended school with one of Warren's sons and was an early Berkshire Hathaway shareholder. He saw how Munger influenced Buffett over the years.
Build On Your Experiences
Munger was an attorney by training, a 1948 magna cum laude graduate of Harvard Law School. He practiced law in California and from 1962 through 1975 ran a successful investment partnership. That partnership reaped compound annual returns of nearly 20% at a time when the Dow Jones Industrial Average generated 5% annual appreciation rates.
Shortly after he shut down that firm, Munger joined Berkshire Hathaway as vice chair. Munger and Buffett met at a party in 1959, although they'd known about each other. As a boy, Munger worked in Buffett's grandfather's grocery store.
Munger pushed the normally tech-phobic Buffett into buying shares of technology companies, but with some reservations. As quoted in "Poor Charlie's Almanack," Munger had some reservations of his own.
"The advantage of low-tech stocks for us," he said, "is that we think we understand it fairly well. The other stuff we don't. And we'd rather deal with what we understand. Why should we want to pay a competitive game in a field in which we have no advantage — maybe disadvantage — instead of in a field in which we have a clear advantage."
Be Willing To Adjust
Charlie's influence, though, swayed Berkshire Hathaway and Buffett. During the 2000s, Buffett famously doubted technology stocks. But that's changed. Tech stocks now account for nearly 53% of Berkshire Hathaway's public portfolio, says S&P Global Market Intelligence. That's mostly due to a stake in Apple (AAPL) valued at $173.4 billion, Berkshire Hathaway's largest single public investment.
Berkshire Hathaway also made a substantial investment early on in BYD (BYDDF), the Chinese electric car company. That investment highlighted another Munger strategy, which uses poker playing-skills he learned in the army during World War II.
"You have to figure out what your aptitudes are. If you play games where other people have the aptitudes and you don't, you're going to lose. And that's as close to certain as any predictions you're going to make. You have to figure out where you have an edge. And you've got to play within your own circle of competence," Munger said.
And like any good poker player, Munger knew he didn't control how many winning hands he got. But he bet big when got a royal flush. Wise investors "bet big when they have the odds. And the rest of the time they don't. It's just that simple," he said.
Focus On Winners
Munger argued that amateur investors make the rookie mistake of try to own too many stocks. It's better to double or triple down on the ones they know the most about.
"People think that if they have a hundred stocks they're investing more professionally than they are if they have four or five stocks. I regard this as insanity," Munger said.
Berkshire Hathaway got its fair share of losing hands. But Munger knew how to deal with them.
"You can learn to make fewer mistakes than other people, and how to fix your mistakes faster when you do make them," Munger said. "But there's no way that you can live an adequate life without making many mistakes. Part of what you must learn is how to handle mistakes and new facts that change the odds. Life, in part, is like a poker game, where in you have to learn to quit, sometimes when, holding a much-loved hand."
Keep Learning Like Munger
How do you know if you have a winning hand? "One of the things that everybody can learn from Warren and Charlie is that they were both voracious readers," Johnson said. "They were always looking to learn. Charlie once said 'my kids think I'm a book with arms and legs sticking out.'"
Munger read voraciously despite losing sight in his left eye due to a failed cataract operation in his 50s. He even learned Braille on the fear he'd lose sight in his remaining right eye.
Doing the homework set Munger apart, Johnson says. "(Some investors) want to take short cuts," he said. "What Warren and Charlie did was learn as much as they could about potential investments and ruminate for a long period of time."
And it's not enough to simply stuff you head with random information. Your goal should be to gain knowledge, Munger said.
"Spend each day trying to be a little wiser than you were when you woke up," Munger said. "Learning doesn't stop when you graduate from college. Formal education does. Successful people know that true success requires 'Student for life' mindset."
Johnson says continual learning drove Munger so much, it showed even in large groups. "(Munger and Buffett) would simplify things. They would take a fairly complex topic and they would explain it and you'd say 'why didn't I think of that?'"
Manage Your Career
Munger advised young people about their careers when asked. He suggested three basic rules. "Meeting all of them is nearly impossible, but you should try anyway," he said.
First, "Don't sell anything you wouldn't buy yourself." Second, "Don't work for anybody you don't respect and admire." And lastly, "Work only with people you enjoy."
Above all, though, don't convince yourself you're all-knowing, Munger said. "Nobody expects you to know everything about everything. I try to get rid of people who always confidently answer questions about which they don't have any real knowledge."
Johnson notes Buffett and Munger shared many traits. But Munger "had an edge to him," Johnson said. "He'd speak his mind and there wasn't much of a filter." For instance, at a Berkshire Hathaway shareholders meeting, Munger railed on shady accounting practices. He hated EBITDA — a method of calculating earnings by leaving out costs like interest, taxes, depreciation and amortization.
"I think you would understand any presentation using the word EBITDA if every time you saw that word you just substituted the phrase 'bull**** earnings.'"
Charles T. Munger's Keys
- Vice chairman of Berkshire Hathaway, one of the most successful investment firms in history.
- Overcame: Shady practices of some in the industry.
- Lesson: "People calculate too much and think too little. Remember that reputation and integrity are your most valuable assets — and can be lost in a heartbeat."
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