Charles Thomas Munger, better known as Charlie Munger, is an American billionaire, investor, businessman and former lawyer in the real estate sector. He is the vice president of Berkshire Hathaway, the conglomerate controlled by Warren Buffett; Buffett has described Munger as his closest associate and right-hand man. Munger served as a vice president of Wesco Financial Corporation from 1984 to 2011. He is also the president of the Daily Journal Corporation, a newspaper based in Los Angeles, California, and is the director of Costco Wholesale Corporation.
Charlie Munger was born on January 1, 1924, in Omaha, Nebraska. As a teenager, he worked at Buffett & Son, a grocery store owned by Warren Buffett’s grandfather. His father, Alfred Case Munger, was a lawyer. His grandfather was Thomas Charles Munger, a district court judge and a state representative in the United States Capitol.
Munger enrolled at the University of Michigan, where he studied Mathematics. During his time in college, he joined the Sigma Phi Society fraternity. In early 1943, a few days after his 19th birthday, he dropped out of college to serve in the United States Army Air Forces, where he rose to the second lieutenant. After receiving a high rating on the Army General Classification Assessment, he was ordered to study meteorology at Calthec in Pasadena, California, the city in which he would establish his final residence.
Through GI bill, Munger took a number of diverse courses through multiple universities. When he applied to his father’s university, Harvard Law School, the dean of admissions turned him down because Munger had not completed a bachelor’s degree. However, the dean relented after a call from Roscoe Pound, a former dean of Harvard Law School and a friend of the Munger family. Munger did excellently in law school, graduating with honors with a “JD” degree in 1948. At Harvard University, Munger was a member of the Legal Aid Office.
In both the army and college, Munger developed an “important skill”: playing cards. “What you have to learn is to fold early when the odds are against you, or if you have a big edge, bet big because you don’t get a big edge often. Opportunity comes, but it’s not often, so take advantage of it when it comes.”
Charlie Munger’s career in the world of investments
Charlie Munger moved his family to California, where he joined the law firm Wright & Garrett (Later known as Musick, Peeler & Garrett). In 1962, he founded and worked as a real estate attorney at the firm Munger, Tolles & Olson LLP. After that, he resigned from law practice to focus on investment management and later went into partnership with Otis Booth, a real estate developer. He later partnered with Jack Wheeler to form Wheeler, Munger & Company, an investment firm with a seat on the Pacific Coast Stock exchange. In 1974, Munger ended the firm of Wheeler, Munger & Co, after losses of 32% in 1973 and 31% in 1974.
Although Munger is highly known for his association with billionaire Warren Buffett, he ran an investment firm on his own from 1962 to 1975. According to Buffett’s essay “The Graham and Doddsville Superinvestors” published in 1984, the firm Munger’s investment portfolio generated returns of 19.8% compounded annually during the period from 1962 to 1975, compared with an appreciation of just 5% per year for the Dow Jones for the same period.
Munger was previously the chairman of Wesco Financial Corporation, now a wholly-owned subsidiary of Berkshire Hathaway. This company began as a savings and loan association but eventually grew to control Precision Steel Corp, CORT Furniture Leasing, Kansas Bankers Surety Company, and other ventures. Wesco Financial also held a concentrated portfolio of more than $1.5 billion in stocks in companies such as Coca-Cola, Wells Fargo, Procter & Gamble, Kraft Foods, US Bancorp, and Goldman Sachs. Charlie Munger believes that maintaining ownership of a concentrated number of shares that he knows extremely well will yield superior returns on his investment in the long run.
Wesco is headquartered in Pasadena, California, the city that Munger chose as his home. Pasadena is also the site for the firm’s annual meeting of shareholders, which is typically held on Wednesdays and Thursdays after Berkshire Hathaway’s more famous and well-attended shareholder meeting. Munger’s meetings have been almost as legendary in the investment community as the ones he co-chairs with Warren Buffett in Omaha. Such meetings are often perfunctory, but Munger interacts with the other Wesco Financial shareholders for a considerable period of time, sometimes even speculating on what Benjamin Franklin would have done in a given situation. Have the minutes of the meetings been posted on Futile Finance? website,
Charlie Munger is also the president of the Daily Journal Corporation. Since the Wesco meetings ended, the Daily Journal’s annual meetings have grown in importance, as investors turn out in droves to listen to him for long periods of time.
What is Charlie Munger’s investment philosophy?
Elemental and mundane wisdom
In multiple speeches, and in the book Poor Charlie’s Almanac: Wit and Wisdom by Charles T. Munger, “worldly wisdom” consists of a set of mental models structured as an interweave to help solve critical business problems. This is according to what Munger himself has expressed about the concept.
Munger, along with Buffett, is one of the main inspirations behind the book Seeking Wisdom: From Darwin to Munger. Author Peter Bevelin explained his key learnings from both Munger and Buffett in a 2007 interview entitled: “How to think about business and investing, how to behave in life, the importance of ethics and honesty, how to deal with problems, and most importantly, how to reduce the chance of having problems.” Bevelin stated that previously, he “lacked Munger’s ability to unlearn my most beloved ideas.”
Munger states that high ethical standards are integral to his philosophy, at Wesco Financial Corporation’s annual investor meeting, he said, “Good business is ethical business. A business model that relies on tricky actions is doomed to failure.” During an interview and question and answer session at Harvard’s Westlake School on January 19, 2010, Charlie Munger referred to the American philosopher Charles Frankel in a discussion of the 2008 financial crisis and the philosophy of responsibility. Munger explained what Frankel believed as follows:
“The system is responsible in proportion to the degree to which the people who make the decisions are the ones who assume the responsibilities. So according to Charlie Frankel, you don’t have to create a credit system where all the decision makers are quick to dump the consequences on someone else through lies and nonsense, and then they don’t take responsibility for it, good or bad. bad. For Frankel, that is amoral, that is an irresponsible system.”
The Lollapalooza Effect According to Charlie Munger
Munger uses the term “Lollapalooza effect” for multiple biases, tendencies, and mental models compounding acting on one another at the same time and in the same direction. With the Lollapalooza effect, this being a mental model by itself, the result is often extreme, due to the confluence of mental models, prejudices or tendencies that act together, greatly increasing the probability of acting irrationally.
During a 1995 Harvard conversation titled The Psychology of Human Misjudgment, Munger mentions the Tupperware parties and openly criticizes the auctions, explaining that “three, four or five of these things work together and turn human brains into a quagmire.” ”, by which he meant that normal people will be highly prone to succumbing to multiple irrational tendencies acting in the same direction. At a Tupperware party, you get reciprocity, consistency, and a propensity for engagement and social proof. (The hosts give the party and the tendency is reciprocal; you say you like certain products during the party, so your purchases will be consistent with the positions or points of view with which you are previously committed, other people are buying, which is social proof). In an open shout auction, there is the social proof of other people who are bidding, the tendency to reciprocate, the commitment to buy the item, and the deprivation of the over-reaction syndrome, for example, the feeling of loss. The latter is the sense of loss that a person believes they should be in. These biases and mental patterns occur frequently, either consciously or unconsciously, and on both a macroeconomic and microeconomic scale. The latter is the sense of loss that a person believes they should be in. These biases and mental patterns occur frequently, either consciously or unconsciously, and on both a macroeconomic and microeconomic scale. The latter is the sense of loss that a person believes they should be in. These biases and mental patterns occur frequently, either consciously or unconsciously, and on both a macroeconomic and microeconomic scale.
Ultimately, the Lollapalooza effect reminds us how vulnerable we humans are to peer pressure and why we should be cautious when making decisions in the midst of massive events, such as direct sales company parties, auctions, or in the midst of stock market trading.
Munger is famous for this quote: “All I want to know is where I am going to die so that I never go there.” This way of thinking has its inspiration in the German mathematician Carl Jacobi, who frequently solved problems following a simple strategy: man muss immer umkehren (or loosely translated, “invest, always invest”).
“Jacobi knew that it is in the nature of things that many difficult problems are much better solved when they are approached in hindsight,” advises Munger. “In fact, many problems cannot be solved from a forward-looking perspective.”
Charlie Munger criticizes cryptocurrencies and investment broker Robinhood
Munger has been a fierce critic of cryptocurrencies, referring to Bitcoin in particular as “a noxious poison.” Munger has also compared retail investment broker Robinhood with gambling, saying his success is due to “people who know how to essentially take advantage of people’s gambling instincts, not just the American public, but the public all over the world,” and further explained why he thinks that individual investments, without commissions, are equivalent to bets. “If you can move the chips of the game for the first time and they say that you can make 30, 40 or even 50 transactions a day, without being charged any commission, it is possible that the information flow of your operations or the flow of your orders are being sold to anyone out there in the market. I hope we don’t have more of this in the future.”
Charlie Munger’s investing style
Charlie Munger has developed his own style of investment over the years, and instead of focusing on the traditional value investing strategy, he has structured an investment philosophy that favors asset quality. Instead of looking for highly undervalued investments, Munger privileges the search for value-quality assets. In 1965 he convinced billionaire Warren Buffett to adopt the same style of investing.
In fact, it was Charlie Munger who encouraged Warren Buffett to make one of Berkshire Hathaway’s most famous acquisitions: See’s Candy.
See’s was a legendary West Coast chocolate retailer. By then he was earning $4 million a year before taxes while using only $8 million in net tangible assets. In addition to the balance of tangible assets, See’s had a huge asset that did not appear on its balance sheet: A broad and enduring competitive advantage that gave it significant pricing power.
Buffett was initially hesitant and reluctant to pay more than the ledgers indicated because he was influenced by the value investing school. However, Munger was emphatic that making the deal was a good idea.
It turned out that the deal was wildly successful, yielding over $1 billion in pre-tax profits, and a return on investment of over 4,000%.
Even though Munger was influential in Buffett’s investment decisions early on, he continued to run his own investment company until the late 1970s. His style at the time was to look for arbitrage opportunities and look for discount stocks in the market.
In the late 1990s and early 2000s, Munger’s quality-over-value perspective began to really shine through and be praised in the writings of Warren Buffett. For example, in a 1995 speech by Charlie Munger titled “An Elementary Lesson in Business and Investment Management,” Buffett stated the following:
“We have really made money with high-quality businesses. In some cases, we have bought entire businesses, and in some cases, we have ended up buying a large block of shares. But when you look at what’s happened, we’ve made a lot of money on high-quality businesses, and most other companies that have made a lot of money have made it on high-quality businesses.
In the long run, it’s hard for a good stock to outperform the underlying business. If the company earns 6% on equity over 40 years, it’s not going to make much of a difference to that 6% earnings, even if you originally bought the stock at a deep discount. On the contrary, if a company earns 18% on the capital for 20 or 30 years, even if one pays a very expensive price, one will end up with a very good result.
The trick is to get the best deals, and that implies all these advantages of scale that we could think of as momentum effects.
How do you get into these big companies? One method is what I would call the method of finding businesses when they are small. For example, buying Walt-Mart when Sam Walton took the company public, and so on. Many people try to do this and it is a very risky and misleading gamble. But if I were a young man, I would actually make these kinds of bets.”
Fortune and philanthropic activities
As of January 2021, Charlie Munger had an estimated wealth of $1.9 billion according to Forbes magazine.
Munger is one of Michigan University’s major benefactors, having donated $3 million to the University of Michigan Law School for lighting and lighting upgrades in Hutchins Hall and the William W. Legal Research Building. Cook, including the renowned reading room. In 2011, Munger made another donation to the law school, contributing $20 million toward the renovation of the Lawyers Club residential complex, which will cover most of the estimated $39 million cost. The renovated portion of the bar club complex was named the Charles T. Munger Residences in Munger’s honor.
In 1997, the Mungers donated $1.8 million to the Marlborough School in Los Angeles, of which Nancy Munger was a student. The couple also donated to Pasadena Polytechnic and the Los Angeles YMCA.
On December 28, 2011, Munger donated 10 Berkshire Hathaway Class A shares (currently valued at $422,214 per share or $4.22 million total) to the University of Michigan.
Munger and his late wife Mancy B Munger have been the biggest beneficiaries of Stanford University. Nancy Munger was an alumna there as well (graduated 1972). Both Nancy and Wendy Munger served as members of the Stanford University Board of Directors. In 2004, the Mungers donated 500 Berkshire Hathaway Class A shares valued at $43.5 million to Stanford University to build a graduate student housing complex.
Charlie Munger has not signed The Giving Pledge pledge, which was started by his partner Warren Buffett and co-chair Bill Gates, and has stated that he “can’t do it” because he has already transferred so much of this wealth to his children, so much so that even he has already stopped fulfilling some of his commitments to them.”
Efforts in the field of architecture and controversies
Although Charlie Munger has no official training in the field of architecture, he has contributed heavily to numerous building designs, including those for the student dormitories at Stanford University and the University of Michigan – as well as the design of his current home. He has donated to various universities on the condition that they follow his design models exactly. In each case, Munger promotes key architectural concepts of his own initiative, as well as ceding architectural responsibility to a licensed architectural firm, for example, Hartman Cox Architects for the University of Michigan dorms, and VTBS for the residential hall of the University of Santa Barbara.
On April 18, 2013, the University of Michigan announced the largest donation in its history, $110 million from Charlie Munger to fund a new residence hall designed to empower students in the community, where graduate students from multiple disciplines can live and exchange ideas. The donation included $10 million for student scholarships. Munger designed the residence, in which there were 600 bathrooms, most of which were designed to be windowless.
The Munger Graduate Residence, funded and designed by Munger himself, opened in late 2007 and now houses 600 law students. The Munger family has also made a significant donation to the Stanford Green Library to fund the reconstruction of the Bing Wing, as well as the construction of a rotunda on the second floor of the library, and awarded the Munger Chair in Business Professionalism to Stanford University School of Law.
Charlie Munger has also been a principal at Harvard-Westlake School in Los Angeles for more than 40 years, previously serving as chairman of the board of directors. All five of his children and sons-in-law, as well as at least one grandson of his, have all graduated from high school at this school. Munger has donated eight Berkshire Hathaway Class A shares, valued at more than $800,000, to the school. In 2006, Munger donated 100 Berkshire Hathaway Class A shares, then valued at $9.2 million, to the school for a campus building campaign. The Mungers had previously made a $13 million donation to the high school campus Science Center for a two-room history room and the construction of a laboratory, which opened in 1995 and has been described as “a science teacher’s dream”. The design of the Science Center was substantially influenced by Charlie Munger.
In October 2014, Charlie Munger announced that he would donate $65 million to the Kavli Institute for Theoretical Physics at the University of California, Santa Barbara. This is the largest donation in the history of this university. The donation went towards the construction of a residential complex designed by Munger for visitors to the Kavli Institute in an effort to bring physicists together for the exchange of academic ideas, as Munger himself put it: “to talk to each other, so that they create new things so that they cross ideas of interest”.
Personal life of Charlie Munger
In 1945, while Munger was studying at Caltech, he met and married Nancy Huggins, the daughter of Frederick R. Huggins and Edith M. Huggins. She was originally from Pasadena and had been a roommate of Munger’s sister at Scripops College. Munger and Nancy Huggins had three children: Wendy Munger, a former corporate attorney, principal at Stanford University, and member of the Huntington Library board of directors, Molly Munger (a civil rights attorney and founder of a voting initiative for raising taxes in California to fund public education, and Teddy Munger, who died of leukemia at the age of 9).
After Munger’s divorce, he married again in a couple of years. From his second marriage to Nancy Barry, the daughter of David Noble Barry Jr and Emile Henever Barry, he had four children: physicist and Republican activist Charles T. Munger Jr, Emilie Munger Ogden, Barry A. Munger and Phillip R Munger and two stepchildren: William Harold Borthwick and David Bortchwick.
On July 22, 2002, Munger’s first wife, Nancy Huggins Freeman, died of cancer at the age of 76. And on February 6, 2010, his second wife, Nancy Barry Munger, died of natural causes at her home at the age of 86.
In his fifties, after a failed cataract surgery that left his left eye blind, Munger had to undergo an operation to remove this eye due to severe pain. When doctors told him that he had developed a condition that could cause his good eye to fill with blood and lose his sight there as well, Munger began taking braille lessons. His visual condition has since improved and he still retains vision in his right eye.
Political views of Charlie Munger
Munger is a Republican and has provided opinions on a number of political issues, including the policies of the Trump administration. He himself points out that he is not a “normal Republican”, for example, he defends a universal health system as a means to fix the United States health system, “I think we should have a single-payer health system eventually” he said referring to the need for a health system fully financed by the state. Munger echoed these sentiments in another interview, praising Singapore’s single-payer health care system, in contrast to the “sick system” in the United States, which is a “national disgrace.”