Our Person of the Month for June, Charlie Munger, is a key figure in the world of finance and business. He was born in 1924 and died at age 99 in 2023. Munger was an American entrepreneur, investor, businessman, and philanthropist known for his association with Warren Buffett and his role as vice chairman of Berkshire Hathaway.
Munger’s education
He was born in Omaha, Nebraska. As a teenager he worked at Buffett & Son, a grocery store owned by Warren Buffet’s grandfather.
He studied mathematics at the University of Michigan until early 1943, a few days after his 19th birthday, when he left the university to serve in the US Army Air Corps, where he became a second lieutenant.
He then completed several advanced courses at various universities; He entered Harvard Law School without a bachelor’s degree, graduating magna cum laude with a Juris Doctor in 1948. At Harvard he was a member of the Harvard Legal Aid Bureau.
Investor’s path
In 1962 he founded Munger, Tolles & Olson LLP where he worked as an attorney.
From 1962 to 1975 he managed his own investment firm, Wheeler, Munger & Co, a company registered on the Pacific Coast Stock Exchange. It earned annualized returns of 19.8%, while the Dow Jones index achieved 5% in the same period.
In 1978, already over 50 years old, Munger assumed the role of vice president of Berkshire Hathaway and his influence on the company and on Warren Buffett achieved exorbitant results. About USD 1,000 invested in 1978 in Berkshire Hathaway would have resulted in USD 3,962,820 in 2022.
Munger was previously the president of Wesco Financial Corporation, which is currently a subsidiary of Berkshire Hathaway. He started as a mutual savings and loan and then grew to control Precision Steel Corp., CORT Furniture Leasing, Kansas Bankers Surety, and other companies.
Wesco Financial also managed stakes over $1.5 billion in companies such as Coca-Cola, Wells Fargo, Procter&Gamble, Kraft Foods, US. Bancorp, and Goldman Sachs.
Munger focused on finding companies with durable competitive advantages at reasonable prices and maintaining those investments for years, taking advantage of compound interest.
Charlie Munger’s investment strategy
Investment Value: Munger was recognized for his investment value approach, based on the valuation of solid companies and the search for long-term investment opportunities. Munger focused on finding companies with lasting competitive advantages at reasonable prices and maintaining those investments for years, taking advantage of compound interest.
The “Circle of Competence” – Munger and Buffett recognized that they could not be experts in all sectors, so they focused on areas where they had deep knowledge, allowing them to make more informed decisions and reduce the risk of ill-informed investments.
The 4 investment principles according to Charlie Munger:
- Invest in things you understand
- Invest in businesses that have a durable competitive advantage
- Choose the company that has a competent and ethical management team
- Invest in the company with an adequate price
Key acquisitions by Charlie Munger
In 1970, Berkshire Hathaway, the textile company, was facing serious economic problems and Munger and Buffet made the bold decision to transform the textile company into an investment and holding company in a wide range of industries, focusing on solid, well-managed companies. Buffet attributes the company’s transformation to Munger’s investment approach and below we will look at Munger’s strategy and how he transformed the company.
Munger’s investment approach transformed Berkshire Hathaway from a small textile company into a massive, diversified conglomerate with a market capitalization of approximately $780 billion at the time of his death.
In 1972, Munger persuaded Buffett to approve the $25 million acquisition of See’s Candies, a move that has since produced more than $2 billion in sales for Berkshire.
Munger used capital from the Wesco subsidiary to build an investment portfolio that helped the company diversify away from the distressed savings and loan sector and turn it into a financial powerhouse. In 1999, Wesco’s portfolio was worth $2.8 billion.
One of Munger’s other great successes was with the Chinese electric vehicle manufacturer BYD. Berkshire Hathaway took a bet on the company in 2008, and that stake grew into a multibillion-dollar position in one of the leading companies in the energy transition space.
Another successful investment was the purchase of shares of American Express, a financial services company in 1963. In 1988, American Express acquired Shearson Lehman Hutton for $640 million, which represented a return of more than 1,000% for Munger.
Berkshire Hathaway has also been a major shareholder in Wells Fargo and Bank of America, two of the main US banks.
Important advice and reflections from Charlie Munger
“The big money is not in buying and selling, but in waiting.”
“The desire to get rich quickly is quite dangerous.”
“Never underestimate human stupidity, it is the most powerful force on Earth.”
“You have to have the courage of your convictions. You have to be a disciplined independent thinker, and never be intimidated by the opinion of the crowd.”
“You don’t need to be brilliant, just a little bit smarter than other people, in the right direction.”
“A man with a new idea is a fool until the idea triumphs.”
“Be frugal in your expenses, generous in your investment and brave in your life.”
Known for his wit and wisdom, Munger’s life advice included avoiding envy and resentment, managing finances wisely, staying cheerful despite problems, and surrounding himself with trustworthy people.
In his words, the secret to a long and happy life is to follow these simple rules. Our Person of the Month will continue to live on through his legacy of being a wise, successful and impactful man in the world of finance.
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