There is perhaps no one celebrated more today for making money than Warren Buffett. But the tens of billions of dollars he amassed — and the zealous investment groupies that followed — may have never materialised if not for one man: Charlie Munger.
Munger, who died on Tuesday at age 99, was Berkshire Hathaway’s acerbic vice-chair and Buffett’s trusted business partner, instrumental in driving the man who eventually became known as the Oracle of Omaha away from his cigar-butt investment style where he could hope to get one last drag on a low-valued stock.
The shift away from a style Buffett took from Ben Graham, the father of value investing, helped propel Berkshire into the juggernaut it is today. The sprawling conglomerate is now worth more than $780bn with stakes in Apple, Coca-Cola and Bank of America, as well as the owner of the BNSF railroad and Geico insurer. It all can be traced back to Munger.
“Charlie shoved me in the direction of not just buying bargains, as Ben Graham had taught me,” Buffett once said. “This was the real impact he had on me. It took a powerful force to move me on from Graham’s limiting view. It was the power of Charlie’s mind. He expanded my horizons.”
The billionaire Omaha native was born on January 1 1924 to Alfred and Florence Munger, living through the Great Depression, studying meteorology while in the army during the second world war and ultimately graduating from Harvard Law School even though he never completed his undergraduate studies. (It was a point that almost prevented his admission to Harvard, but a family friend’s call to the dean ultimately secured his spot). His time in the army took him to California, where he eventually made his home.
While his law practice and real estate investments would help him mint his first million dollars, it was his relationship with Buffett that ultimately made him a household name (when he was first named to Forbes’ billionaire list, he told the magazine, “I’ve been associated with Warren so long, I thought I’d be just a footnote.”).
“Like Warren, I had a considerable passion to get rich,” Munger told Janet Lowe for her 2000 biography of him, Damn Right. “Not because I wanted Ferraris. I wanted the independence. I desperately wanted it. I thought it was undignified to have to send invoices to other people. I don’t know where I got that notion from, but I had it.”
The two famed investors did not meet until 1959, even though they had grown up in the same city; Munger notably worked at the Buffett & Son grocery store as a teenager in the 1930s.
Buffett in 1959 was pitching a family on his investment partnership, but struggling to get half of the couple’s attention. When they ultimately handed him a $100,000 cheque, Buffett was flummoxed. Behind the decision, the family patriarch said, was the fact that Buffett reminded him of Munger.
The couple’s children eventually organised a dinner for the two men. The timing was fortuitous: Graham, Buffett’s mentor, had just retired and Buffett needed a new sparring partner with whom to discuss investment ideas.
In Munger he found a quick-witted accomplice with a wry sense of humour. At first they exchanged stock tips but each made their own investments for their separate firms: the Buffett Partnership and Wheeler, Munger & Company. Their partnership was informal, judging investments independently, but they would often end up together on the same side of a shareholder register. By 1978, Munger joined Buffett on the Berkshire board.
It was their separate investments in a company called Blue Chip Stamps — an operator of a trading stamps company, akin to a modern day loyalty programme — that finally cemented the pair’s partnership, when the business was merged in a controversial restructuring with Berkshire in 1983. The move, intended to resolve potential conflicts of interests, handed a 2 per cent stake in Berkshire to Munger; with it he became a central figure in a company that was quickly moving far beyond its textile roots.
The cardinal error in Graham’s approach, Munger believed, was that he was trying to avoid the kind of pain he experienced in the Great Crash of 1929 by seeking out bargains. But it also meant that Graham was missing scores of wonderful companies that were trading at fair prices.
The shift in approach generated outstanding results for Berkshire. Even as a bull market helped lift the broader US stock market their returns stood out: by the end of 2022 Berkshire had gained nearly 3.8mn per cent since 1964, far outpacing the roughly 24,000 per cent return in the S&P 500 over the same time. It is that gulf that made the duo the John Lennon and Paul McCartney of the investment world.
Munger, taciturn at times (he was known to respond to questions at Berkshire’s annual meeting by saying “I have nothing to add”), banked his investment career on understanding the misjudgments that affected his and others’ decision making. It is why Berkshire has attempted — mostly successfully — to sit patiently when others are bidding stocks to record highs, and also why it was slow to invest in technology companies as they began to power the US market. But when Buffett and Munger eventually struck, as they did with Apple, they were willing to go big.
“Playing poker in the army and as a young lawyer honed my business skills,” Munger said. “What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don’t get a big edge often. Opportunity comes, but it doesn’t come often, so seize it when it does come.”
His straightforward approach to investing, as well as his belief in operating a business honestly, helped endear him to everyday Americans who watched as business and markets became increasingly complex. He went on diatribes on cryptocurrencies, investment bankers, private equity firms and the use of earnings before interest, taxes, depreciation and amortisation — a profit measure he argued was nonsense.
His delivery was blunt, with Buffett writing in 2000 that “Miss Manners clearly would need to do a lot of work on Charlie”.
Yet that was exactly what attracted tens of thousands of Berkshire shareholders to Omaha each year to hear from the investor.
His maxims filled books. Among them were: “It’s not the adultery I mind. It’s the embezzlement”; “That bastard who created that foolish accounting system who, so far as I know, has not been flayed alive, ought to be”; “The worshipping at the altar of diversification, I think that is really crazy”; “There is more dementia about finance than there is about sex.”
Munger’s ability to transfix an audience with his “tell-it-as-it-is” approach resonated over decades, even as his country’s divisions intensified (he outlasted scores of protesters who showed up at Berkshire’s annual meetings). Munger described himself as an atypical Republican, with his conservative bent often shifting far from the party line.
He pushed his law firm and Buffett in the 1960s to help fund the legal defence of the doctor Leon Belous, a case that paved the way for legal abortion in California and that Munger himself said “was the first chink in the armour of abortion restrictions”. Looming population challenges formed part of his reasoning.
That calculated mindset defined him. He told acolytes that they “should recognise reality even when one doesn’t like it” and that “there isn’t a single formula” for success in business or investing.
“Life is a whole series of opportunity costs,” he said. “You’ve got to marry the best person who is convenient to find that will have you. An investment is much the same sort of process.”
Asked earlier this year by the Financial Times about his imprint on the world, Munger replied: “I would like my legacy to be a more relentless determination to develop and use what I call an uncommon sense.”