The Biography of Charlie Munger: Wits and Wisdom

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.

-       Charlie Munger

Charlie Thomas Munger is an American businessman, former real estate attorney, investor, and philanthropist. He is Warren Buffett’s business partner, and also the vice-chairman of Berkshire Hathaway. Before moving to Berkshire, Munger was the chairman of Wesco Financial Corporation from 1984 to 2011. He is the chairman of the Daily Journal and a director at Costco Wholesale Corporation. He has a net worth of $1.7 billion as of May 27, 2020.

Most people who haven’t particularly paid a lot of attention to Charlie Munger may perceive him to be the ‘side-kick’ to other successful businessmen, but what most people are yet to realize is that Munger is a well of wisdom. Buffett, his business partner refers to him as one who “marches to the beat of his own music, and it's s music like virtually no one else is listening to.”

Early life and education

Charlie Munger was born on the 1^st of January 1924 in Omaha, Nebraska. In his early teenage years, he took up a job at Buffett & Son, a grocery store owned by Warren Buffett’s grandfather though he didn’t meet Warren until years later.

In 1941 Munger enrolled at the University of Michigan where he studied mathematics. He then dropped out of college to enlist in the Army Air Corps by his second year in college. He scored high in the Army General Classification Test and was taken to study meteorology at Caltech in California. He used the opportunity to take a few advanced courses in other Universities. He eventually applied at Havard Law School, despite not having the complete necessary requirements, but was eventually allowed. This later shaped his official career after leaving the Army.

Career history

In 1959 Munger moved back to Omaha. He had his law career ahead of him until he came in contact with Warren Buffet who later became a good friend, and encouraged him to quit his law job and consider starting his own investment firm, “Warren talked me into leaving the law business, and that was a very significant influence on me. I was already thinking about becoming a full-time investor, and Warren told me I was far better suited to that.” This counsel came in 1962, a few years after their meeting, and the peak of Buffett’s early investment business. They had quite a lot in common and spent at least four hours weekly sharing investment ideas. Within that same year, Munger established his investment partnership business. It lasted from 1962 to 1975 recording an annual average of 24.3% for its partners. By 1978 he dissolved his personal investment business to partner with Buffett, he was named the vice-chairman of Berkshire Hathaway.

Compared to the views of Benjamin Graham and Warren Buffett, Munger had different views regarding investment, “I think Graham wasn’t nearly as good investor as Warren Buffett is or even as good as I am. Buying those cheap, cigar-butt stocks was a snare and a delusion, and it would never work with the kinds of sums of money we have. You can’t do it with billions of dollars or even many millions of dollars.” Graham always had an eye for undervalued firms, Buffett also picked the idea up from his mentor—Graham. It was such a philosophy that led to the accumulation of Berkshire Hathaway which was originally an ailing textile company. After Buffett came on board by buying almost half of its shares the company began to experience drastic changes and profits to date.

Munger preferred to seek out deep value compared to Graham’s theory of undervalued shares. He was able to sell his idea to Buffett who eventually adopted the method. This method was what pushed Buffett to acquire the See’s Candies, a chocolate gourmet factory at $25 million. Compared to Berkshire’s other acquired subsidiaries like the GEICO, See’s Candies had about $8 million worth of net tangible assets and earning $4 million annually, pre-tax.

With Munger’s motivation, Buffett reluctantly purchased See’s Candies. His reluctance was partly as a result of his investment pattern of seeking out ailing companies. Since then, See’s Candies has produced over $1 billion in pre-tax earnings with a return of over 4,000%. Munger, also partly considered buying shares in a few ‘cigar-butts’ companies, but later had this to say about both investment patterns, “we’ve really made the money out of high-quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money’s been made in high-quality businesses.” 

Serving as the chairman of The Daily Journal, a publisher in specializing legal text. This publishing company soared in business until the financial crisis hit. It had an average Return on equity of 25% to 30% yearly, it’s cash conversion was on average of 70% yearly, and its book value greatly doubled from 2005 to 2008. During the first quarter of 2009, Munger purchased quite a number of securities worth $15.5 million for the company, from its funds. By 2010 the revenue of the company relapsed but not much harm was done considering the fact that Munger had already invested some part of the company’s revenue. Munger would later disclose the reason he went ahead to buy those shares, “we bought Wells Fargo & Co (NYSE: WFC) stock when it was at $8, and I don’t think we will have another opportunity like that.” Munger had a keen eye for investment opportunities and wasted no time on taking advantage of favorable deals.

Munger’s advice on investment is endless, and it has greatly helped a lot of people make right investment choices. He is of the opinion that decision making is first personal. The investor should be able to calculate the risks involved and make his decision based on the risk analysis.

“The number one idea is to view stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash flow than you are paying for. Move only when you have an advantage.”

                                                                                    -Charlie Munger