Charlie Munger
CHARLIE MUNGER
THE COMPLETE INVESTOR
TREN GRIFFIN
Columbia University Press
Publishers Since 1893
New York Chichester, West Sussex
Copyright 2015 Columbia University Press
All rights reserved
E-ISBN 978-0-231-54041-4
Library of Congress Cataloging-in-Publication Data
Griffin, Trenholme J.
Charlie Munger: the complete investor / Tren Griffin.
pages cm
Includes bibliographical references and index.
ISBN 978-0-231-17098-7 (cloth : alk. paper); 978-0-231-54041-4 (ebook)
1. Munger, Charles T., 1924- 2. Investments. 3. Finance.
I. Munger, Charles T., 1924- II. Title.
HG172.M84G75 2015
332.6dc23
2015002292
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CONTENTS
CHARLIE MUNGER IS one of the worlds most successful investors and most interesting people. He is best known as the outspoken partner of Warren Buffett at the fabulously successful company known as Berkshire Hathaway. Buffett acknowledged Mungers contributions when he pointed out, One plus one with Charlie and me certainly adds up to more than two. Mungers success as an investor in businesses outside of Berkshire is also impressive. What is most interesting about Munger is not his success as an investor but the way he thinks and keeps his emotions under control.
Mungers ability to cut to the heart of an issue with a few well-chosen words is legendary, as is his desire to think independently. A fundamentally important truth about investing is that people rarely make decisions independently. This means that people who can think independently, gain control of their emotions, and avoid psychological errors have an advantage as investors. Buffett once illustrated Mungers desire to do his own thinking with this story:
In 1985, a major investment banking house undertook to sell Scott Fetzer, offering it widely, but with no success. Upon reading of this strikeout, I wrote Ralph Schey, then and now Scott Fetzers CEO, expressing an interest in buying the business. I had never met Ralph, but within a week we had a deal. Unfortunately, Scott Fetzers letter of engagement with the banking firm provided it a 2.5 million dollar fee upon sale, even if it had nothing to do with finding the buyer. I guess the lead banker felt he should do something for his payment, so he graciously offered us a copy of the book on Scott Fetzer that his firm had prepared. With his customary tact, Charlie responded: Ill give you 2.5 million not to read it.
WARREN BUFFETT, CHAIRMANS LETTER, 1999
Stories like this one, together with colorful reports on what Munger has said in a range of settings, are a big part of what motivated me to write this book. Munger is such an interesting person, in no small part because he is, in a word, unrestrained. He says exactly what is on his mind, with little consideration given to tact and social conventions. This candor is valuable because sometimes we need to hear that the emperor is not wearing clothes. Munger has said that, although he has accumulated an outstanding record as a stock picker and accumulated substantial wealth, people should not emulate his example in life in general. He believes his life has been too devoted to improving his own mind and that peculiarities of his personality (including, but not limited to, irreverence) will make people unpopular if they blindly follow his example.
Munger recognizes that he is a lightning rod that may attract criticism on some issues. Munger said once, I may be remembered as a wise ass, whereas his investing partner Warren Buffett will be remembered as a teacher. People sometimes say to me that they do not understand the fuss about Charlie Munger. Unfortunately, they are missing a key point: no one can ever be Charlie Munger, just like no one can be Warren Buffett. The point is not to treat anyone like a hero, but rather to consider whether Munger, like his idol Benjamin Franklin, may have qualities, attributes, systems, or approaches to life that we might want to emulate, even in part. This same process explains why Munger has read hundreds of biographies. Learning from the success and failure of others is the fastest way to get smarter and wiser without a lot of pain.
Despite his irreverence, Munger is a teacher in his own inimitable way. He said once:
The best thing a human being can do is help another human being know more.
CHARLIE MUNGER, BERKSHIRE ANNUAL MEETING, 2010
Much of what is interesting about Munger is explained by this simple sentence: I observe what works and what doesnt and why. Life happens to Munger as it does to everyone, but unlike many people he thinks deeply about why things happen and works hard to learn from the experience.
Like Warren Buffett, Munger was born and raised in Omaha, Nebraska. He studied mathematics at the University of Michigan, but his path toward a college degree there was interrupted by World War II. During the war he served as a meteorologist in the U.S. military, receiving his training at the California Institute of Technology. After the war ended he was able to secure a place at Harvard Law School without an undergraduate degree. He learned to like California during his time at Cal Tech, and after law school he proceeded to form with a few partners what would become one of the nations most prestigious law firms. Despite that success, he soon left the legal profession to invest on a full-time basis at the urging of Warren Buffett, whom he did not meet until after he was living in Pasadena, California. Between 1962 and 1975, Munger ran a partnership for a group of investors, which generated annual financial returns of nearly 20 percent, compared to a less than 5 percent return for the Dow Jones industrial average during the same period. Munger does not collect Ferraris or have a huge mansion. In many aspects of his life that do not involve ideas or investing, Munger is quite ordinary despite being a billionaire.
While Munger has delivered numerous speeches, written essays, and entertained legions of shareholders at Wesco Financial and Berkshire Hathaway annual meetings, his ideas have not yet been presented in a form that might be called a unified theory . This is probably because Mungers mind is capable of feats that are too hard for people of more conventional intelligence. For ordinary people, simultaneously juggling what he calls multiple models in their head is not an easy task without an understandable framework for the ideas. The intent of this book is to teach you how to think more like Charlie Munger.
How did I find my way to the ideas of Munger? The genesis of this book can be traced to the period immediately before the collapse of the Internet bubble. Many assumptions about investing were being questioned during this time. The wealth created during the Internet bubble was unreal to anyone paying attention. Marc Andreessen expressed it well when he said on Twitter that during this bubble, the overwhelming feeling people had was panicthat they were missing out. What was going on seemed to be mass insanity, but most people thought to themselves, What if its real? What if value doubled or tripled again? It was natural for anyone who, like me, was seeking answers about what was going on in the markets during this crazy period to read the views of successful and thoughtful investors.
