MUNGER | Warren Buffett's BFF
“I measure success by how many people love me. And the best way to be loved is to be loveable.” — Warren Buffett
Charlie Munger died today. He was 99, just one month shy of his 100th birthday on Jan 1. He was loved by millions.
Warren Buffett may be remembered by history as our era’s iteration of JP Morgan — but behind him every step of the way was Charlie Munger. Charlie first met Buffett after they were introduced to each other at a dinner by one of Buffett’s investors. It was apparently an instant connection, with the two talking into the night like soulmates who had just found one another. Soon after that, Munger would wrap up his work as a locally renowned lawyer at Wheeler, Munger and Co. and officially joined Berkshire Hathaway in the mid-1970s. He has been Berkshire Hathaway’s vice chairman and Buffett’s consigliere ever since.
Munger contributed significantly to Buffett’s pivot away from Graham’s ‘cigar butt’ style of value investing, to the ‘wonderful business’ style that he is currently known for. While Buffett did find inspiration for investing in good businesses from Philip Fisher, Munger was indubitably instrumental as well in changing Buffett’s mindset towards investing in good businesses with long reinvestment runways. Without Munger’s presence, Buffett might not have discovered and subsequently popularize the investment concept of ‘Moats’ that has become commonplace today.
Munger and Buffett’s first major joint investment was Blue Chip Stamps (BCS) in 1970. BCS was the precursor to the modern-day loyalty card program — which allowed customers to collect points when making purchases at their favorite stores, that could be subsequently exchanged for gifts at BCS. The investing duo were particularly taken by BCS’s float — which was money paid upfront by participating stores that could be invested to earn a return, prior to customers exchanging their points for gifts. This was likened to free temporary investment capital, and would later inspire Buffett to make his legendary insurance investments, National Indemnity in 1967 and GEICO in 1976.
Munger was also instrumental in convincing Buffett to invest in See’s Candies. In Berkshire’s 2007 letter, Buffett admitted that he nearly forsook the investment which would go on to become enshrined in value investing lore. This was because the founders of See’s insisted on $30M as the acquisition price, while Buffett only wanted to pay a maximum of $25M — which was 6x its trailing earnings and 3x its book value, a price Graham would have been aghast at paying. Fortunately, Munger’s insistence on the value of See’s intangible assets and the See’s family’s willingness to come down to Buffett’s demands resulted in Buffett eventually making the investment. And the rest is history, with See’s Candies going on to contribute $2B in cumulative profits to Berkshire until the present-day.
Munger also popularized the investment concept which has since come to be known as ‘The Latticework of Mental Models’. This formed the basis for many contemporary investing concepts that the value investing community takes for granted today — e.g. inversion, first-principles, second-level thinking, and circle of competence. This notion also relates to another key investment concept attributed to Munger — the advocacy of Multi-disciplinary thinking. In essence, this approach champions the merits of understanding the holistic web of linkages between disparate domains, as doing so ultimately leads to gaining a better understanding of the greater whole. Or in other words, being a ‘Jack of All Trades’ (i.e. Generalist) rather than just a ‘Master of One’. (i.e. Specialist) This notion is oft-compared to being the investment application of Sun Tzu’s Art of War, and would eventually come to be appreciated for contributing towards gaining better holistic insight into global markets.
Finally, Munger is appreciated for his blunt candor. Amidst our societal status quo of political correctness, Munger’s proclivity for ‘calling a spade a spade’ is welcome. Perhaps the most iconic manifestation of this by Charlie was his quote above, where he recommends substituting the financial metric EBITDA with “bullshit earnings”. It also lends itself well to his penchant for spotting corporate chicanery, heralding back to 2016 when he called out Valeant Pharmaceuticals for being a "sewer”. His bluntness bears witness to his intellectual honesty, a critical ingredient of successful investing.
All in all, Munger is someone who will go down in the annals of history as a defining icon of our era. He will be missed — not just by his best friend Warren Buffet, but by millions of value investors around the world. Rest in Peace, Charlie Munger.
CM was a master investor, and truly one of a kind. Well done!
Beautiful tribute.