Charlie Munger: Lessons from Warren Buffett’s Right Hand Man

Earlier this week, the legendary investor, Charlie Munger, passed away at the age of 99, just a few weeks shy of his 100th birthday. He didn’t have quite the household name as his more folksy and outgoing business partner, Warren Buffett, but the two have been co-leading Berkshire Hathaway for the past 45 years. Along the way, Munger proved himself to be a sage in his own right, offering a unique blend of wit, wisdom, and rationality. 

A life as full as Charlie Munger’s cannot be distilled into a single page, but a few key themes can be clearly seen: He identified a professional career he loved early on in his life, found a business partner that complemented his own skills, and had the humility to spend time intentionally planning so that when his own tenure was complete, the business would continue to thrive. 

During the entire time they worked together, Buffett and Munger lived more than 1,500 miles apart, with Buffett in Omaha, Nebraska, and Munger in Pasadena, California. Even with that distance, Buffett said he would call Munger to consult on every major decision he made. 

Coincidentally, Munger grew up in Omaha, about five blocks away from Buffett’s current home, but because Munger is seven years older, the two men didn’t meet as children, even though both worked at the grocery store Buffett’s grandfather and uncle ran. This is another reminder that our most important meetings often seem to happen by chance but with details that line up perfectly. 

The two men first met in 1959 at an Omaha dinner party, introduced by a mutual friend who saw their similar styles despite the fact that one was living in Nebraska and the other in California. They shared investment ideas during the 1960s and ’70s, and Munger eventually became Berkshire Hathaway’s vice chairman in 1978. The two men clearly had shared values. Like Buffett, Munger took a salary of just $100,000 annually for more than 25 years and believed that the rich should exercise self-restraint in their lifestyles. Also like Buffett, despite becoming a billionaire, he chose to live in the same house for over 60 years.  

“Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom, and participation,” Warren Buffett said. That was certainly the case. Building a successful organization requires a diverse team with complimentary skillsets, personalities, and values. In the 45 years since their partnership began, Warren and Charlie were clear examples of how this alignment can benefit a business.

Charlie Munger played a key role in helping Warren Buffet evolve his investment style beyond the pure value-investing approach of his mentor, legendary value-investor Benjamin Graham. It was Munger who persuaded the Oracle of Omaha to purchase See’s Candies in the early 1970s for what Buffett later dubbed a “fancy price.” Munger’s belief that buying very good businesses with strong brands and holding them for the long run led to superior profits, ultimately netting billions for Berkshire. 

Buffett recently credited Munger with one of Berkshire’s best investments of the past 20 years, BYD, a Chinese car and battery maker. Berkshire’s initial investment of $270,000 grew to $8-$9 billion, though Berkshire has recently trimmed its stake in the company. Munger attributed this particular idea to an article he read in 2007 on the emerging trend of electric vehicles. Charlie Munger was known to be a voracious reader. He told reporters that he spent a significant part of his day immersed in books, newspapers, and journals, often spending up to ten hours a day with a book in his hand. He believed that these countless hours spent in various states of curiosity, inquiry, and reflection were his secret weapon, enabling him to see the investment world through a multi-disciplinary lens. 

There were also investments that ‘got away.’ Most notorious is Munger’s advice to buy Costco in the late 90s, which Buffett declined based on his own bias against retail companies. Munger sat on Costco’s board of directors and recognized the competitive advantages and the strong brand loyalty of Costco customers – plus the significant profit potential of the private-label Kirkland brand. Munger remained an evangelist for the company as its stock has soared over the past 20 years.

In the days immediately following Charlie Munger’s passing, shares of Berkshire Hathaway barely budged. Munger would have viewed this as a triumph. Buffett, who is 93, and Munger have been openly discussing their succession plans for many years in order to limit any upheaval at the company and protect their shareholders. It was Charlie Munger himself who announced two and a half years ago that Greg Abel, who manages all the non-insurance businesses at Berkshire and is part of the small executive team, was the heir apparent to lead the company. 

Alongside Greg Abel, the longtime Berkshire executive Ajit Jain handles Berkshire’s insurance businesses, with both lieutenants supported by the investment managers Ted Weschler and Todd Combs, who have long been in line to become co-chief investment officers when Buffett eventually steps down. 

Berkshire has taken deliberate steps to ensure that succession planning isn’t a risk to their company or their shareholders. They began planning early, with the current succession plan first being discussed in 2006. Berkshire has also built a strong culture of continuous learning and improvement, providing extensive training and mentorship opportunities to ensure their team is prepared for future leadership positions. This succession philosophy has supported the development of the next generation of leaders at Berkshire while still growing the firm to benefit current and future shareholders. 

Munger was an inspiration to countless investors – including members of our team here at North Berkeley – and his emphasis on acquiring a diverse range of mental models, understanding the fundamental nature of businesses, and maintaining a long-term perspective has become gospel for many in the financial world. For many, it will be his personality and humor that is missed most. Summing up his overall approach to investing, he said, “People are trying to be smart – all I am trying to do is not to be idiotic, but it’s harder than most people think.” 

Another venue for Munger’s humor was Berkshire Hathaway’s annual meetings. In 2010, he told the crowd, “If I can be optimistic when I’m nearly dead, surely the rest of you can handle a little inflation.” This was characteristic of Munger’s dry sense of humor that shareholders saw on display at the company’s annual meetings in Omaha, where he and Buffett fielded questions for hours on end. Often, Buffett answered questions at length, intertwining wisdom with folksy stories. Then, Munger chimed in with something pithy or a perfect one-liner or simply followed up Warren’s long-winded answer with “I have nothing to add.”  

 
Rest In Peace, Charlie Munger.