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Charlie Munger
Born January 1, 1924 (1924-01-01) (age 86)
Omaha, Nebraska
Occupation Investor
Salary $100,000 USD
Net worth $1.7 billion USD

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.

Contents

Biography

Like Buffett, Munger is a native of Omaha, Nebraska. After studies in mathematics at the University of Michigan, and service in the U.S. Army Air Corps 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.

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, Wells Fargo, Procter & Gamble, Kraft Foods, US Bancorp, and Goldman Sachs. 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.[1] Meeting notes are taken and posted in the internet.[2]

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 for multiple biases, tendencies or mental models acting at the same time in the same direction. With the Lollapolooza effect, itself a mental model, the result is often extreme, due to the confluence of the mental models, biases or tendencies acting together. In his talk at Harvard in 1995, Munger mentions Tupperware parties and open outcry auctions,which turn the human brain into "mush". In the Tupperware party, you have reciprocation and social proof. (The hostess gave the party and the tendency is to reciprocate; other people are buying, which is the social proof.) In the open outcry auction, there is social proof of others bidding, commitment to buying the item, and deprivation super-reaction syndrome, i.e. sense of loss. The latter is an individual's sense of loss of what he believe should be or is his. The term is probably a Munger neologism. These biases often occur at either conscious or subconscious level, and in both microeconomic and macroeconomic scale.

References

Books

  • Lowe, Janet (2000) Damn Right! Behind the scenes with Berkshire Hathaway billionaire Charlie Munger, John Wiley & Sons (ISBN 0-471-24473-2)
  • Kaufman, Peter (2005 and 2006 for the second edition) "Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger" http://www.poorcharliesalmanack.com/
  • Bevelin, Peter (2007) Seeking Wisdom: From Darwin to Munger (ISBN 1-578-64428-3)

Regulatory filings

External links

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Quotes

Up to date as of January 14, 2010

From Wikiquote

Charles Thomas Munger (born 1924-01-01) is Vice-Chairman of Berkshire Hathaway Corporation, the diversified investment corporation chaired by investor Warren Buffett.

Sourced

  • You have to learn all the big ideas in the key disciplines in a way that they’re in a mental latticework in your head and you automatically use them for the rest of your life. If you do that, I solemnly promise you that one day you’ll be walking down the street and you’ll look to your right and left and you’ll think "my heavenly days, I’m now one of the few competent people in my whole age cohort." If you don’t do it, many of the brightest of you will live in the middle ranks or in the shallows.

Unsourced

  • Our investment style has been given a name - focus investing - which implies ten holdings, not one hundred or four hundred. The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obvious idea. But 98% of the investment world does not think this way. It's been good for us.
  • Both Warren & I insist on a lot of time being available almost every day to just sit and think. That is very uncommon in American business. We read and think. So Warren and I do more reading and thinking and less doing than most people in business.

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