During this recent interview with the Acquired Podcast, Charles Munger explains how he and Warren Buffett made a fortune in the early days from ‘pissant’ businesses. Here’s an excerpt from the interview:
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Munger: What happened was very simple.
We bought this little pissant department store chain in Baltimore, big mistake, too competitive, as the ink dried on the closing papers we realized we’d made a terrible mistake.
So we decided just to reverse it. Take the hit to look foolish rather than go broke. We just told [inaudible] get us out of this. By that time we’d already financed half of it on covenant free debt and so forth.
And they had all this extra cash, and our own stocks got down to selling an enormous… we just in the middle of one of those recessions we just bought and bought and bought and bought.
And all that money went right to those stocks and of course we tripled it just by sitting on our ass.
Host: And that led to Blue Chip?
Munger: Yeah, yeah it was part of the early success of Blue Chip.
Host: Wow and so you know you mentioned Warren doesn’t like retail…
Munger: Something else that people don’t know about. We bought a little pissant savings and loan company, maybe $20 million, and when we left that thing we had taken out of our little $20 million investment, over $2 billion in marketable securities which went into Nebraska insurance companies as part of their bedrock capital.
So we we had some wonderful early years and that’s what everybody needs is wonderful early years.
You can listen to the entire discussion here:
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Article by The Acquirer’s Multiple
