Charlie Munger Resource Page

Charlie Munger, value investor, lawyer, philanthropist, Vice-Chairman of Berkshire Hathaway Corporationand Warren Buffett’s right-hand man. He is also chairman of the Daily Journal Corporation and a director of Costco Wholesale Corporation.

“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless, you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve.” — Charlie Munger


Charlie Munger: Background & biocharlie_munger

From humble beginnings, Charlie Munger has become one of the financial world’s most recognisable figures over past five decades. And it all started on January 1, 1924 when Charles Thomas Munger was born in Omaha, Nebraska.

While growing up Omaha, Charlie Munger had his first run-in with the Buffett family, although he didn’t meet Warren until several years later. During his teen years Charlie worked at  Buffett & Son, a grocery store owned by Warren Buffett’s grandfather.

The next few years of Charlie Munger’s life were filled with hard work, love and tragedy. Charlie left Omaha to attend the University of Michigan in 1941, and left school in 1943 to enlist in the Army Air Corps. During this time he met and married Nancy Huggins. The couple moved to Boston so Charlie could attend Harvard Law School, where Charlie graduated magna cum laude despite having no undergraduate degree.

During 1949, Charlie, Nancy, and their three children moved to California where Charlie joined the law firm Wright & Garrett. Then in 1953, the Mungers divorced. Munger made his first foray into the business world at this time. One of his legal clients owned a troubled transformer company and Charlie brought part of the business.

The early life of Charlie Munger is full of tragedies. At the age of 21, he got married, but after 8 years, they divorced. His wife kept everything and he left home with his children in pathetic conditions. After a year of that his 9 years old son Teddy Munger died of cancer. Later, because of escalating pain, doctors removed one of his eyes. Around 35 years of age, he again got married and now has 8 children and many grandchildren.

Charlie Munger: Investment partnership

Charlie Munger moved back to Omaha during 1959 and was soon introduced to Warren Buffett. The two immediately became friends. The two friends began speaking for hours every week discussing potential investment ideas and eventually in 1962, Buffett convinced Munger to quit his law job and start his own investment partnership.

“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. He was right. I would probably have done it myself, but he pushed me to it. I have to say, it isn’t an easy thing to work very hard for many years to build up a significant career, as I had done, and then to destroy that career on purpose. That would have been a lot harder to do if not for Warren’s influence on me.

It wasn’t a mistake. It worked out remarkably well for both of us and for a lot of other people…” —Charlie Munger The Wall Street Journal September 2014.

Charlie Munger’s investment partnership opened for business during 1962 and immediately started to outperform. Over its life, from 1962 to 1975, the partnership returned an average of 24.3% per annum for partners, compared to the DJIA, which returned 6.4% over the same period.

Charlie Munger quit the money management business during 1978 and moved to join forces with Buffett full-time, by becoming Berkshire Hathaway Inc.’s vice chairman.

Charlie Munger: Investment philosophy

Charlie Munger had no such attachment to Benjamin Graham, or his cigar butt style of investing.

“I don’t love Ben Graham and his ideas the way Warren does. You have to understand, to Warren — who discovered him at such a young age and then went to work for him — Ben Graham’s insights changed his whole life, and he spent much of his early years worshiping the master at close range.  But I have to say, Ben Graham had a lot to learn as an investor.  His ideas of how to value companies were all shaped by how the Great Crash and the Depression almost destroyed him, and he was always a little afraid of what the market can do. It left him with an aftermath of fear for the rest of his life, and all his methods were designed to keep that at bay.

I think Ben Graham wasn’t nearly as good an 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.  But he was a very good writer and a very good teacher and a brilliant man, one of the only intellectuals — probably the only intellectual — in the investing business at the time.” — Charlie Munger The Wall Street Journal September 2014.

Rather than seeking out deep value, Munger looked for quality and during 1965 he convinced Warren Buffett to adopt the same style.

Indeed, that year he encouraged Buffett to make one of his more famous bolt-on acquisitions for Berkshire; See’s Candies.

See’s was a  legendary West Coast manufacturer and retailer of boxed chocolates, then annually earning about $4 million pre-tax while utilizing only $8 million of net tangible assets. Alongside the tangible asset balance, See’s had one huge asset that did not appear on its balance sheet: a broad and durable competitive advantage that gave it significant pricing power:

“…The family controlling See’s wanted $30 million for the business, and Charlie rightly said it was worth that much. But I didn’t want to pay more than $25 million and wasn’t all that enthusiastic even at that figure. (A price that was three times net tangible assets made me gulp.) My misguided caution could have scuttled a terrific purchase. But, luckily, the sellers decided to take our $25 million bid. To date, See’s has earned $1.9 billion pre-tax, with its growth having required added investment of only $40 million. See’s has thus been able to distribute huge sums that have helped Berkshire buy other businesses that, in turn, have themselves produced large distributable profits. (Envision rabbits breeding.) Additionally, through watching See’s in action, I gained a business education about the value of powerful brands that opened my eyes to many other profitable investments.”– Warren Buffett Berkshire 2014 letter.

At first, Buffett was reluctant to pay more than book value because he was schooled in value investing. However, Munger was adamant that he do the deal.

As it turns out the deal has been wildly successful, producing more than $1bn in pretax earnings since, a return of more than 4,000%.

Even though Munger was influencing Buffett’s investment decision early on, he continued to manage his own partnership until the late 70s. His style at the time was to seek out arbitrage opportunities and look for cigar butts.

“Munger bought cigar butts, did arbitrage, even acquired small businesses…he said to Ed Anderson, “I just like the great businesses.” He told Anderson to write up companies like Allergan, the contact-lens-solution maker. Anderson misunderstood and wrote a Grahamian report emphasizing the company’s balance sheet. Munger dressed him down for it; he wanted to hear about the intangible qualities of Allergan: the strength of its management, the durability of its brand, what it would take for someone else to compete with it.

Munger had invested in a Caterpillar tractor dealership and saw how it gobbled up money, which sat in the yard in the form of slow-selling tractors…Munger wanted to own a business that did not require continual investment, and spat out more cash than it consumed…Munger was always asking people, “What’s the best business you’ve ever heard of?”

He wanted to get really rich, really fast. He and Roy Tolles made bets on whose portfolio would be up more than one hundred percent in a year. And he was willing to borrow money to make money, whereas Buffett had never borrowed a significant sum in his life…

Munger did enormous trades [with borrowed money] like British Columbia Power, which was selling at around $19 and being taken over by the Canadian government at a little more than $22. Munger put not just his whole partnership, but all the money he had, and all that he could borrow into an arbitrage on this single stock—but only because there was almost no chance that this deal would fall apart.” — The Snowball: Warren Buffett and the Business of Life.

In the late 1990’s/early 2000’s Charlie Munger’s quality over value slant started to really shine through in both his and Warren’s writings. For example, in Charlie’s speech “A Lesson on Elementary, Worldly Wisdom As It Relates to Investment Management & Business.” given in 1995 he stated that:

“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 the high quality businesses. And most of the other people who’ve made a lot of money have done so in high quality businesses.

Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.

So the trick is getting into better businesses. And that involves all of these advantages of scale that you could consider momentum effects.

How do you get into these great companies? One method is what I’d call the method of finding them small get ’em when they’re little. For example, buy Wal-Mart when Sam Walton first goes public and so forth. And a lot of people try to do just that. And it’s a very beguiling idea. If I were a young man, I might actually go into it.”

Then during 2003, Warren Buffett made the following statement regarding Coca-Cola, See’s Candies, and Buffalo News at the 2003 Berkshire Hathaway meeting:

“The ideal business is one that generates very high returns on capital and can invest that capital back into the business at equally high rates. Imagine a $100 million business that earns 20% in one year, reinvests the $20 million profit and in the next year earns 20% of $120 million and so forth. But there are very very few businesses like this. Coke has high returns on capital, but incremental capital doesn’t earn anything like its current returns. We love businesses that can earn high rates on even more capital than it earns. Most of our businesses generate lots of money, but can’t generate high returns on incremental capital — for example, See’s and Buffalo News. We look for them [areas to wisely reinvest capital], but they don’t exist.

So, what we do is take money and move it around into other businesses. The newspaper business earned great returns but not on incremental capital. But the people in the industry only knew how to reinvest it [so they squandered a lot of capital]. But our structure allows us to take excess capital and invest it elsewhere, wherever it makes the most sense. It’s an enormous advantage.”

This mentality had a dramatic effect on Berkshire Hathaway’s performance over the years. All you need to do is to look at Buffett’s acquisition of See’s Candies in the late 1960’s, to realize that without Charlie Munger’s quality over value influence on Buffett, Berkshire wouldn’t have become the American corporate giant it is today.

Charlie Munger: Daily Journal

Charlie Munger is best known for his career as Vice-Chairman of Berkshire Hathaway Corporation and for being Warren Buffett’s right hand man. He is also chairman of the Daily Journal Corporation and has been instrumental in the Journal’s growth over the past six years.

The Daily Journal is a publisher specializing in legal text. The Daily Journal provides news of interest to members of the legal profession, specializes in public notice advertising, publishing state-mandated notices of death, fictitious business names, and sells software used to administer court cases. Charlie Munger started his working life as a lawyer, so the Daily Journal is a natural fit for him.

The Daily Journal was a strong business up until the financial crisis. Return on equity averaged 25% to 30% per annum; cash conversion was 70% per annum on average, and book value doubled between 2005 and 2008. However, since 2010 revenue growth has slowed to around 2.6% per annum and net income has fallen by 75%. EBITDA has more than halved.

Luckily, during the first quarter of 2009, Charlie Munger used $15.5 million of the Daily Journal’s cash to purchase a number of securities for the company. At first, neither Charlie Munger nor the Journal disclosed these positions, (although with both Munger and Rick Gurin working at the Journal, these positions we certain to value orientated and low-risk). This post from The Value Investors Club blog post, written only a few months after Munger started buying shows the secrecy surround the transactions:

“During the first quarter of 2009, Charlie Munger, Chairman of Daily Journal Corp. (DJCO), made a significant redeployment of the company’s excess cash into an investment in common equities. Based on circumstantial evidence, we believe (but cannot be 100% certain since the Company has not disclosed what its invested in) that Munger purchased shares of Wells Fargo & Co (NYSE:WFC) and/or possibly U.S. Bancorp (NYSE:USB) at their recent early-March lows.”

“As such, DJCO now contains a hidden asset that may not be fully reflected in its current share price.”

“Based on circumstantial evidence, it appears possible that Munger plunked $15.5mm of DJCO cash to buy WFC (or USB or both). If this speculation on DJCO’s equity purchase(s) is correct, then that $15.5 million investment which rose to $24.7mm at the end of March would now be up to $33-42 million at today’s prices for USB/WFC. Thus in summary, DJCO looks cheap at a market cap of $64.5 million…we believe there is good value in DJCO based on the strength of Munger’s legendary capital allocation skills.” — Value Investors Club July 2009.

Charlie Munger started buying securities with the Journal’s cash for two reasons. Firstly, value:

“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.” —Charlie Munger Daily Journal 2015 Meeting [FULL NOTES]

Secondly, the Journal’s board believed that jumping into stocks was the safest move during the financial crisis:

“The board recognized that this decision would be contrary to the conventional (but questionable) notion that the least risky way to preserve corporate capital for the long-term benefit of stockholders is to invest it in government bonds at interest rates approximating zero,” Source.

From a starting point of just under $16 million, the Daily Journal’s portfolio had grown to $135.3 million as of 31 December 2014. The portfolio’s holding were revealed for the first time during 2014, and they are typical Buffett/Munger style investments. Four main companies account for the bulk of the portfolio; Wells Fargo (by far the largest position around 70% of portfolio), Bank of America, U.S. Bancorp and Korean steel producer Posco.

“Posco is the most efficient steel company in the world. It had a pretty close to a local monopoly position in its country for a long time. It is very hard to avoid being commoditized in the modern world. In the places like The The Dow Chemical Company (NYSE:DOW) Company (NYSE:DOW) with complex chemical process, with 1000 PhDs, it is still hard to not be commoditized. Posco was able to do so.” — Charlie Munger Daily Journal 2015 Meeting [FULL NOTES]

And Charlie Munger’s investments have put a rocket under the Daily Journal’s book value growth. Here’s the Journal’s book value per share from year-end 2008 to year-end 2014.

Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 CAGR
Book Value Per Share $9.69 $11.31 $14.85 $19.66 $38.23 $43.94 $46.99 $63.17 $82.09 $98.77 29.43%

Data from Morningstar

Charlie Munger: Investment advice

  1. While carrying out any investment assessment, first calculate risk.
  2. Make decisions on your own and be self-determining. After listing risks, you make decisions based on involved risks. Whatever you decide, you should be be self-determining regarding your decisions and actions.
  3. Plan to encompass a few imminent, possible complications.
  4. Being humble and admitting where you are deficient the first step towards perception. Committing mistakes is human, and admitting your mistakes is part of being humble.
  5. In order to reduce errors and mistakes, investigate thoroughly. Accepting mistakes is good but nothing is as good as avoiding mistakes.
  6. While making any investment capital is assigned, allocating capital and assets intelligently is a must.
  7. Oppose the normal inclination to do something and have patience.
  8. In appropriate situations, be determined and confident.
  9. Accept change. Change is a common phenomenon of any business and investment so recognize, accept, and acknowledge it instead of fighting it tooth and nail.
  10. Pay attention. When you lack attention and concentration, you’ve taken your first step towards failure.

Charlie Munger: A philanthropist

Charlie Munger has donated and funded much in the shape of hard money or in a form of his shares. He was too young when he left his law profession but he helped many legal institutions for providing good services to law students. Stanford Law School is one of them. He generously contributed shares equal to $43.5 million, to Stanford University, for the Construction of Residences for Stanford Law School. Another case in point of his generosity is his donations of three million dollars to the University of Michigan Law School in the year 2007, for upgrading lighting in Hutchins Hall and the William W. Cook Legal Research. Therefore, those students can study books without having strain on their eyes. He further contributed $23 million to Lawyer School for the restoration of their Lawyer Club Residencies in the year 2011. Those residencies are named on his name. His generously and philanthropy is not limited for lawyers only, he also contributed for the reconstruction of Green Library. Specifically he made the following donations.

  • For the Construction of Residences for Stanford Law School, he contributed shares equal to $43.5 million, to Stanford University.
  • He contributed for the renovation of Green Library after wide-ranging harm by the Loma Prieta Earthquake.
  • For lighting improvements in Hutchins Hall and the William W. Cook Legal Research, Charlie Munger donated $3 million to the University of Michigan Law School in 2007.
  • For restoration of Lawyers Club Residencies, Charlie Munger donated $23 million, to the Lawyer School in 2011.

Charlie Munger: Philanthropy writing

Exclusive ValueWalk series on Charlie Munger’s life

Charlie Munger: Quotes

“All intelligent investing is value investing – acquiring more than you are paying for. You must value the business in order to value the stock.”

“The best thing a human being can do is to help another human being know more.”

“Acquire worldly wisdom and adjust your behavior accordingly. If you are new, behavior gives you a little temporary unpopularity with your peer group then to hell with them.”

“In my whole life, I have known no wise people (over a broad subject matter area) who did not read all the time – none, zero.”

“Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime. A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. Then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available because of prudence and patience in the past.”

“I find it quite useful to think of a free-Market economy – or partly free Market economy – as sort of the equivalent of an ecosystem. Just as animals flourish in niches, people who specialize in some narrow niche can do very well.”

“The number one idea is to view a 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.”

“Over the very long term, history shows that the chances of any business surviving in a manner agreeable to a company’s owners are slim at best.”

“It is not given to human beings to have such talent that they can just know everything about everything all the time. However, it is given to human beings who work hard at it. Who look and sift the world for a mispriced bet – that they can occasionally find one.”

“In addition, the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time they don’t. It is just that simple.”

“Mimicking the herd invites regression to the mean.”

“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.”

“Acknowledging what you do not know is the dawning of wisdom.”

“Above all, never fool yourself, and remember that you are the easiest person to fool.”

“Determine value apart from price; progress apart from activity; wealth apart from size.”

“Recognize reality even when you do not like it – especially when you don’t like it.”

“Remember that reputation and integrity are your most valuable assets – and can be lost in a heartbeat.”

“I think records of accomplishment are very important. If you start early trying to have a perfect one in some simple thing like honesty, you are well on your way to success in this world.”

“We try more to profit from always remembering the obvious than from grasping the esoteric.”

“Intelligent people make decisions based on opportunity costs.”

“If all you succeed in doing in life is getting rich by buying little pieces of paper, it is a failed life. Life is more than being shrewd in wealth accumulation.”

“Someone will always be getting richer faster than you. This is not a tragedy.”

“Over the long term, it’s hard for a stock to earn a much better return that the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you are not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you will end up with one hell of a result.”

“You must have the confidence to override people with more credentials than you whose cognition is impaired by incentive-caused bias or some similar psychological force that is obviously present. Nevertheless, there are also cases where you have to recognize that you have no wisdom to add – and that your best course is to trust some expert.”

“The safest way to try to get what you want is to try to deserve what you want. It is such a simple idea. It is the golden rule. You want to deliver to the world what you would buy if you were on the other end.”

“I am not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I have reached that state.”

“Thinking that what is good for you is good for the wider civilization, and rationalizing foolish or evil conduct, based on your subconscious tendency to serve yourself, is a terrible way to think.”

“If you do not allow for self-serving bias in the conduct of others, you are, again, a fool.”

“Avoid working directly under somebody you do not admire and don’t want to be like.”

“Intense interest in any subject is indispensable if you are really going to excel in it.”

“Never, ever, think about something else when you should be thinking about the power of incentives.”

“Fixable but unfixed bad performance is bad character and tends to create more of it, causing more damage to the excuse giver with each tolerated instance.”

“Good businesses are ethical businesses. A business model that relies on trickery is doomed to fail.”

“In my whole life, I have known no wise people who did not read all the time-none, zero. You would be amazed at how much Warren reads-and at how much I read. My children laugh at me, they think I’m a book with a couple of legs sticking out.”

Charlie Munger: Speeches and letters

Charlie Munger: A collection

A PDF entitled “The Best of Charlie Munger: 1994-2011 A collection of speeches, essays, and Wesco annual meeting notes” including :

  • Tilson’s column: “Munger on Human Misjudgments”
  • Munger on “The Psychology of Human Misjudgment”
  • Munger’s speech at USC: “A Lesson on Elementary, Worldly Wisdom as it Relates to Investment Management and Business”
  • Munger on “Investment Practices of Leading Charitable Foundations”
  • Munger’s “Master’s Class” on Foundation Investing
  • Munger’s speech to the Philanthropy Round Table
  • Munger on “The Great Financial Scandal of 2003”
  • Tilson’s column, “Munger Goes Mental”, on Munger’s Speech at UC Santa Barbara
  • Munger’s speech at UC Santa Barbara: “Academic Economics: Strengths and Faults After Considering Interdisciplinary Needs”
  • Munger on “Sacrificing To Restore Market Confidence”
  • Munger’s “A Parody about the Great Recession”
  • 1999 Wesco meeting notes
  • 2000 Wesco meeting notes
  • 2001 Tilson’s column: “Charlie Munger Holds Court”
  • 2001 Wesco meeting notes
  • 2002 Tilson’s column: “The Best of Charlie Munger”
  • 2002 Wesco meeting notes
  • 2003 Tilson’s column: “Charlie Munger’s Worldly Wisdom”
  • 2003 Wesco meeting notes
  • 2004 Wesco meeting notes
  • 2005 Wesco meeting notes
  • 2006 Wesco meeting notes
  • 2007 Wesco meeting notes
  • 2008 Wesco meeting notes
  • 2009 Wesco meeting notes
  • 2010 Wesco meeting notes
  • 2011 Wesco meeting notes

Charlie Munger: News Articles

Charlie Munger: Videos

Charlie Munger: Newspaper archives

Charlie Munger: Books

Charlie Munger: Book recommendations

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