A graduate of Harvard Law School, Charlie Munger was given some solid advice by Warren Buffett, who said that law was fine as a hobby, but he could do better.
A few years later, Munger left his law firm and started investing. Today he works with Buffett as vice chairman of Berkshire Hathaway. His net worth is about $1.3 billion. He guided Buffett from a pure Graham style of investing, which looked only at the financials of a company, to focus more on the quality of the business. Buffett gives him the credit for much of the enormous success of Berkshire Hathaway and always refers to Munger as “my partner.”
Munger is a worthwhile model for how value investing can work. First, he limits his investments to businesses with a sustainable competitive advantage, then he buys them at a fair price, and finally, he believes that a portfolio of three companies is plenty of diversification. When Munger ran his own partnership from 1962 to 1975, the partnership returned a compound annual return of 13.7 percent, after fees, versus 5.0 percent for the Dow Jones Industrial Average.
During that time, a $100,000 investment in the partnership would have grown to $530,745, versus $188,565 if it had been invested in the Dow Jones Industrial Average. He was content to invest a lot of capital in very few holdings and hold those positions for a long time. His extreme patience combined with extreme decisiveness paid off handsomely.
Unlike Buffett, Munger keeps a very low profile and is rarely quoted in the media. The last Berkshire Hathaway shareholders meeting in May 2008 drew over 31,000 people to hear words of wisdom from both Buffett and Munger. But when Munger held his annual shareholder meeting just a few days later (he is the Chairman of Wesco Financial Corporation, 80 percent owned by Berkshire Hathaway) and answered questions, there were only 500 or so shareholders in attendance. Munger is not one that enjoys the limelight.
Over the past 20 years, Munger has given several memorable speeches at places such as the University of Southern California, Stanford Law School, and, most recently, the California Institute of Technology.[1] While Buffett outlines his investing approach in off-the-cuff remarks and shareholder letters, Munger has said he has no interest in being so detailed with the public.
In those speeches Munger doesn’t really give investment advice. Instead he offers something more valuable: lessons on the importance of elementary worldly wisdom. He says that this is the starting point to being a good investor.
