Lasting Lessons from Charlie Munger.

Charlie Munga: businessman, investor, mathematician, meteorologist, developer, lawyer, husband, father, and philanthropist. But most importantly, Charlie was a thinker. As much as he's known for his investment track record and decades-long partnership with Warren Buffett, Charlie Munga will go down in history as one of the world's greatest minds. With his intense focus on inversion, combating biases, and rational thinking, from learning harsh lessons in the depths of the Great Depression to being lorded by 40,000 people at the Berkshire Hathaway shareholder meetings, Charlie always went about his life in the same manner, with integrity, loyalty, and trust at the forefront of everything he did. This is the life of Charlie Munger.

Charlie Munger was best known as Warren Buffett's right-hand man and one of the richest people on earth. "I did not intend to get rich. I wanted to get independent. I just overshot." It's pretty tough to overstate his importance to Berkshire Hathaway. "I would say that every time I'm with Charlie, I’ll get at least some new slant on an idea." He's credited with really expanding the way Buffett thought about investments, teaching him the importance of paying up for high-quality businesses. We all knew Charlie for his wits, his Munger-isms, so to speak.

"What's the most important piece of advice?" "It's so simple: just get up every morning and keep plugging and keep learning, and it's amazing how it works out." Okay.

Charlie Munger, like Warren Buffett, was born in the town of Omaha, Nebraska, a very small town back in 1924, but a place Charlie cherished nonetheless. "I really liked Omaha. It was a size where I knew a lot of the people who mattered and what they did. I wasn't lost in a great metropolis." However, being born in Omaha during the middle of the 1920s meant that many of Charlie's formative years would take place during the depths of the Great Depression, an extremely difficult time for everyone around him.

"Most of my schooling was in the Great Depression but that means I'm one of the very few people that's still alive who deeply remembers the Great Depression. And that, that's been very helpful to me. It was so extreme that people like you have just no idea what the hell it was like."

While this was a hard time for Munger and his family to live through, he still found a way to use it as a learning opportunity. Instead of being crushed by a difficult time, Charlie used it to his advantage, learning many hard lessons from the people around him that would ultimately set him up for such a successful life.

"My paternal grandfather was the only federal judge in Lincoln, Nebraska, the capital city of Nebraska. He had an attitude that was pretty damn extreme. I would say his attitude was that you have a moral duty to make yourself as unignorant and as unstupid as you possibly can and that it was your pretty much your highest moral duty. Maybe taking care of your family came first, but in the ranks of moral obligations, quasi-rel. Well, he was conventionally religious, so it may have been a religious duty to him, but he really believed that that rationality was a moral duty."

With that early life lesson instilled in Charlie, he moved forward from his Omaha upbringing. He enrolled in the University of Michigan, where he studied mathematics. But with the breakout of World War II in 1939, a few days after Charlie's 19th birthday, he dropped out of college, as many young men did back at that time, to go and serve in the military. He served in the U.S. Army Air Corps, a career that by his own admission had mixed results.

"With my background, I should have gone to the Naval ROTC. I hated Infantry RTC, which I had done four years of in high school, rising to be second lieutenant, which is a very low rank, of course. I was about 5'2."

He got his growth late, so he was not your ideal of a manly soldier. In high school, despite his military career looking less than prosperous, Charlie was able to learn one important skill during this time: card playing. Charlie attributed his time playing cards in the Army to the early development of his business skills.

"The lesson I learned was to fold early when the odds are against you and in those infrequent moments where you have a big edge, bet heavily." Charlie then left the military and, alongside marrying his first wife at 21 and starting a family, he decided to go and study law at Harvard.

After finishing his studies in 1948, Charlie then moved his family to Pasadena. Charlie liked Pasadena, but little did he know he was about to go through one of the hardest time periods in his entire life. It was at this point where Charlie's marriage unfortunately fell apart, and he lost everything. And just to add salt to the wound, it was at this time that Charlie learned that his son Teddy had fallen gravely ill with leukemia.

Stunned by the news, Charlie and Nancy sought the best medical attention possible, but unfortunately, Teddy had a blood disorder that offered almost no chance of remission. Charlie bled money paying all the bills out of pocket, only to see his son get sicker and sicker. A year after his diagnosis, Teddy Munger died. Charlie said, "I can't imagine an experience worse in life than watching a child die inch by inch."

Munger's one saving grace in this time period was meeting his soon-to-be second wife, also Nancy, whom he would very soon marry in 1956. Restarting his life, Charlie moved on and started his own law firm and worked in the profession for quite some time. But ultimately, even this venture wasn't to be for Munger, who felt tied down in the profession.

He started venturing into the world of real estate development alongside his law practice, and he actually found quite some success. After completing five development projects, Munger had $1.4 million to his name. And it was at this point that Charlie decided to finally leave the world of law behind and ventured into the world of investments.

"I wanted more independence than I was going to have as a lawyer. I hated sending other people invoices and needing money from richer people. I thought it was undignified. I wanted my own money, not because I loved ease or social prestige. I wanted the independence."

With that quest for independence at the forefront of his mind, Charlie quit law and, around this time, met a young man named Warren Buffett. The two met at a dinner arranged by two acquaintances back in 1959 and immediately hit it off. Warren once said, "I knew after I met Charlie after a few minutes in the restaurant, I knew this guy is going to be in my life forever. We were going to have fun together. We were going to make money together. We were going to get ideas from each other, and we're both going to behave better than if we didn't know each other."

"I met him in 1959 and we instantly became partners in thinking. I knew immediately while meeting Charlie that we were in sync, and we've lasted a lot longer than I thought we would. But Charlie, 60 years – did you know at that first meeting that you'd have a partnership like this?"

"Well, I knew that we were on the same page. If two people collaborate in their own way, they're better off. Einstein would not have been able to do what he did if he didn't have various people to talk to. It's more fun, too. Yeah, the ideas are better than that, but it's also more fun."

The two were a perfect investment match. It was Buffett that ultimately convinced Charlie to leave his law firm and move into investment management. In 1962, as Warren Buffett was buying shares in a failing textile mill called Berkshire Hathaway, Charlie Munger was teaming up with Jack Wheeler to form Wheeler Munger and Company, an investment firm with a seat on the Pacific Coast Stock Exchange.

Warren and Charlie kept close during this time, calling each other regularly, and they frequently discussed their investments. While the Buffett and Munger portfolios were different, there were also many similarities—two chains of retail stores—and they even teamed up to buy work in control of Blue Chip Stamps.

But despite Charlie having finally found his calling in investment management and finally having his hands on a decent base of capital, there was still something that just didn't quite sit right with him.

"Well, I had 3 or 4 million, which was a lot of money then, and I also knew how to handle that 3 or 4 million very well by that time. I found that when you got into things like the '74-'75 crunch, which was the worst since the '30s, I didn't suffer. I knew everything was going to work out, but the quoted prices of these things really went down to ridiculous levels and some of my investors, I knew, were suffering. You know, I needed the money, and of course, I have enough of a fiduciary gene that that pained me greatly."

With that pain growing in the business of managing other people's money, Charlie decided to go out on his own. By 1969, Buffett had liquidated his investment partnership, but Munger chose to stick around a little longer and in 1976, closed his partnership. A few years later, in 1978, Charlie Munger officially joined Berkshire Hathaway as Vice Chairman.

But little did Berkshire shareholders know Charlie already had a huge influence on Berkshire's success even before this point. For a long time, Warren Buffett was caught in the mindset of cigar-butt investing, buying failing companies at unbelievably cheap prices in the hope of getting one last puff out of them. But it was Charlie Munger that instead brought forward the idea of abandoning that approach to instead focus on high-quality businesses at fair prices and to stick with them for a long period of time.

"Well, Warren had been taught by Ben Graham to buy things for less than they were worth, no matter how lousy the business was. But at the time, Warren was— that's what he was doing. And so how did you convince him?"

"I helped him. He bought a windmill company in a little town in Nebraska and Warren didn't know anything about running a windmill company. He bought it because it was cheap. We eventually learned not to buy these cigar butts when they're cheap and do these painful liquidations and to stand by better businesses. And with that, the Warren Buffett—Charlie Munger investment strategy was born, staying patient, looking for a few great companies and buying them at fair prices."

"So how did you convince Warren to stop buying the bad apples and start buying the good apples?"

"I think Warren gives me credit for that. He was going to learn it anyway. He just made so much money in this other stuff, and he'd been taught it by Ben Graham. It was hard for him to quit when he was just coining money, but he saw the point and well, you couldn't scale that business."

It started with Blue Chip Stamps, then they used the money lying around in Blue Chip to purchase See's Candies. In 1972, Blue Chip's balance sheet net worth was $46 million. By the end of 1981, it was $169 million. Between 1976 and 1981, Berkshire invested $45 million in Geico, which grew to be worth $1.9 billion by 1995.

Having now formally teamed up, Buffett and Munger decided at best to consolidate their early web of purchases under the Berkshire Hathaway name. It was at this point that people started to notice the Buffett-Munger duo was really working. They added Nebraska Furniture Mart to the list in 1983, Borsheim's in 1989.

In the second half of 1989, they made a $1.3 billion investment in Gillette, US Air, and Champion International, and Berkshire was now a big player in the investment world. A large part of Berkshire's success at the time was its approach to management and the treatment of shareholders.

While making a lot of stock investments, Buffett and Munger much preferred to take ownership of whole companies. But instead of imposing their beliefs and opinions on managers of these businesses, they took a hands-off approach, allowing the managers the freedom to choose how they think their business should be run.

Charlie Munger once said, "Our chief contribution to the businesses we acquire is what we don't do." This created a high degree of trust between business managers and Warren and Charlie, and thus the best operating environment for businesses anywhere on Earth. They set the example for their wholly-owned businesses by keeping their own overhead costs at Berkshire to an absolute minimum, and this also helped build trust with Berkshire Hathaway shareholders—shareholders who felt as if they were really partners in Warren and Charlie's business family.

It was this sense of loyalty and community that started another amazing Berkshire legacy: the annual shareholder meetings.

"Thank you. Sometimes it's hard to tell if this is a shareholder meeting or a giant festival. This has got to be the Woodstock of capitalism." The meeting brought all types of people to Omaha from all over the country and all over the world. "It is so far away from the regular German shareholder meetings. This is unique."

It was in 1973 that Berkshire held their first shareholder meeting, a little bit different from what we see today. The first Berkshire shareholder meetings were hosted in the employee lunchroom of National Indemnity's office. But in 1985, with Berkshire's snowballing success, the crowd had grown to 250 people.

Fast forward another decade, and that crowd size was over 4,000 shareholders flocked to hear the legendary investing duo speak. And meetings, as they do today, went for hours with question after question being fired from the audience.

Somehow, the chemistry between Warren and Charlie turned what would be dull questions about the world of investment management into a fun, engaging discussion. "Anticipating a few questions on banks, I decided to just start using bank language here to describe me and Charlie. Well, shareholder meetings are known for being lightly attended, staid, and downright boring. This was anything but."

"You can feel the integrity and the humility. Charlie's big on lowering expectations. Absolutely. That's the way I got married. My wife lowered her expectations. All you succeed in doing in your life is to get early rich from passive holding of little bits of paper. It's a failed life. Life is more than being shrewd at passive wealth accumulation over time."

Warren and Charlie built the relationship with Berkshire shareholders, and thus Berkshire shareholders built the relationship with them. Over the years, the Berkshire Hathaway shareholder meetings continued to grow and grow, now dubbed the Woodstock of capitalism. Each year, the meeting now plays host to roughly 40,000 loyal Berkshire Hathaway shareholders.

By the mid-1990s, Charlie and Warren had built Berkshire Hathaway into one of the largest companies in the world. However, as the business grew into its gargantuan size, the availability for doing lucrative small-scale deals dwindled.

Munger once said, "Size, at a certain point, gets to be an anchor which drags you down." Realizing that their era of explosive growth was naturally coming to a close, the duo decided to adopt a new strategy, transitioning Berkshire into an unbreakable financial fortress and focusing on elephant-sized acquisitions.

In 1995, they acquired the remaining stake of Geico. In 1998, they added Gen Re, and it was clear at this point that their insurance businesses were set up to be the engine of Berkshire Hathaway going forward. They built a large cash cushion of short-term Treasury bonds on the site to protect from any financial calamity and over time became known along Wall Street as the white knights.

Warren and Charlie would often be seen as the go-to guys if a big company was in desperate need of saving. They were the patient capital, the ones that could help and see out the problems. They were the people to turn to if you needed saving fast. Because of this reputation, this also led to Warren and Charlie frequently being able to negotiate very favorable terms on big deals, which continued to please their shareholder base.

There’s been a lot of discussion about Berkshire's investments in the Japanese trading houses. "Well, if you're as smart as Warren Buffett, maybe two or three times a century you get an idea like that. The interest rates in Japan were half a percent per year for 10 years, and so you could borrow for 10 years ahead all the money and you could buy the stocks and the stocks had 5% dividends. So there's a huge flow of cash with no investment, no thought, no anything. We could do that; nobody else could."

As the years ticked on, Munger slowly stepped back from Berkshire and naturally, Warren and Charlie spoke less. Munger, having achieved so much in his life, turned towards philanthropy and passion projects. He turned around the Good Samaritan Hospital, donating $21 million. He donated heavily to the University of Michigan Law School and Stanford University.

He even returned to real estate and architecture, notably pledging $200 million to UC Santa Barbara, but only if he got to upgrade an undergraduate dormitory with his own design—a design which notably had completely windowless bedrooms and common areas.

Despite being well into his 90s, Charlie still maintained the position of chairman at the Daily Journal Corporation and up until his death, continued to serve on the Berkshire Hathaway board as Buffett's trusty sidekick. He still came along to the Berkshire shareholder meetings, even if he hadn't nothing, and he still cared for those who put their trust in him.

Over the years, Charlie remained incredibly sharp in his later years, frequently doing interviews, podcasts, and side projects. His energy at 99 made it seem like his time would never come. However, on the 28th of November, 2023, he passed away peacefully at a Santa Barbara hospital.

In a statement following his death, Warren Buffett said, "Berkshire Hathaway could not have been built to its present status without Charlie's inspiration, wisdom, and participation." On behalf of Berkshire shareholders, "Thank you for everything, Charlie, and may you rest in peace."