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Charlie Munger

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Charles Thomas Munger (b. January 1 1924, Omaha, Nebraska) is Vice-Chairman of Berkshire Hathaway Corporation, the diversified investment corporation chaired by investor Warren Buffett.

Biography

Like Buffett, Munger is a native of Omaha. After studies at the University of Michigan, and service in the U.S. Army Aircorps as a meteorologist, trained at Caltech, he entered Harvard Law School without an undergraduate degree. Graduating in 1948 with a Juris Doctor magna cum laude, he founded and worked as a real estate attorney at Munger, Tolles & Olson LLP until 1965. He then gave up the practice of law to concentrate on managing investments. He partnered with Otis Booth in real estate development. He partnered with Jack Wheeler to form Wheeler, Munger, and Company, an investment firm with a seat on the Pacific Coast Stock Exchange. He wound up Wheeler, Munger in 1976 after some gut-wrenching results.[1]

Although Munger is more famous for his association with Warren Buffett, Munger ran a very successful investment partnership of his own from 1962 to 1975. According to Buffett's famous essay, "The Superinvestors of Graham and Doddsville", Munger's investment partnership generated compound annual returns of 19.8% during the 1962-75 period compared to a 5.0% annual appreciation rate for the Dow.

Munger is also the chairman of Wesco Financial Corporation, an 80.1%-owned subsidiary of Berkshire Hathaway. It began as a savings and loan association, but now controls Precision Steel Corp., CORT Furniture Leasing, Kansas Bankers Surety Company, and other ventures. Wesco Financial has an equity portfolio of over $1.5 billion dollars that is concentrated in Coca-Cola, American Express, Wells Fargo, Procter & Gamble, and Kraft Foods. A single stock can make up 50% of the value of the entire portfolio. Munger believes that holding a concentrated number of stocks, that he knows extremely well, will in the longterm produce superior returns. Wesco is based in Pasadena, California, Munger's adopted hometown and the site of the company's annual shareholders' meeting, which is typically held on the Wednesday or Thursday after the more famous Berkshire Hathaway annual meeting. Munger's meetings are nearly as legendary in the investment community as those he co-hosts with Buffett in Omaha. Such meetings are often perfunctory, but Munger interacts with the other Wesco shareholders at considerable length, sometimes speculating about what his hero Benjamin Franklin would do in a given situation.[2] Meeting notes are taken and posted in the internet.[3]

Buffett has often publicly stated that he regards Munger as his partner. Indeed, Munger owns enough Berkshire Hathaway stock to be a bona fide billionaire in his own right. However, Munger is hardly a carbon copy of Buffett: Munger is known to be a Republican, whereas Buffett has generally supported Democrats. Buffett devotes his time almost exclusively to his business, while Munger, who has not involved himself in the day-to-day operations of Berkshire for many years, is a generalist for whom investment is only one of a broad range of interests. Each man feels that their differences complement rather than detract from their relationship.

Philanthropy

Munger donated 500 shares of Berkshire Hathaway Class A stock, worth $43.5 million, to Stanford University to build a housing complex for Stanford Law School. He previously donated funds to help restore Green Library after extensive damage by the Loma Prieta Earthquake, for which he is recognized on a plaque outside the restored Bing Wing. While he did not attend Stanford, his second wife, Nancy Munger, is an alumna and served on the Board of Trustees. Their daughter, Wendy Munger (A.B., 1972, Stanford University) is currently a member of the board. In 2007, he donated funds for renovations at the University of Michigan Law School.

Business Philosophy

In multiple speeches, and in the book Poor Charlie's Almanack, Munger has introduced the concept of "Elementary, Worldly Wisdom" as it relates to business and finance. Munger's worldly wisdom consists of a set of mental models framed as a latticework to help solve critical business problems. According to Munger, only 80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person.

Incentives are an idea that explains why people behave the way they do, Munger tells us.

The Lollapalooza Effect is Munger's term when multiple biases act at the same time; the tendency to get extreme results from confluences acting together. These biases often occur at either conscious or subconscious level, and in both microeconomic and macroeconomic scale.

References

  1. ^ Janet Lowe (2000). Damn Right. John Wiley and Sons. ISBN 0471244732.
  2. ^ 2008 WESCO Meeting Notes, Whitney Tilson
  3. ^ Futile France Charlie Munger page

Books

Regulatory Filings

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