From the Chairman’s DeskDecember 6, 2023
The Annual Medium-Term Budget Policy SpeechDecember 7, 2023
An Article By Ian Kilbride.
Wise, crusty, acerbic, witty, creative, modest and breathtakingly successful, Charles T ‘Charlie’ Munger was a one off, the likes of whom we will never see again. This does not mean to say that we cannot learn lessons from his remarkable life however. Amidst all the hype that has surrounded the passing of this legend of the asset management world at the age of 99, it’s easy to forget that his path to financial success was littered with personal tragedy, loss and recovery.
Born into a middle-class family in Omaha Nebraska, Charlie actually worked for Warren Buffet’s Uncle’s grocery store, although due to their age difference, the two investment legends never met until much later in life. I have written before about the importance of failure and indeed Charlie’s early investment companies went south to the tune of 32% in 1973 and 31% in 1974. An inauspicious start for the lawyer turned investment ‘guru’. At the personal level, Charlie’s first marriage ended in divorce and he experienced the tragedy of losing a nine-year old son to cancer. Some say he never fully recovered from this, but that it served as a driver of the relentless pursuit of knowledge and achievement. In fact, rather than seeking wealth, fame and fortune, Charlie said that the thing that motivated him most was progress, advancement and civilisation. Characteristic of the man, after losing an eye to cataract surgery and being told that he was likely to lose his remaining healthy eye, Munger took up braille lessons in order to continue his avid passion of voluminous daily reading.
For a billionaire, he was remarkably modest and self-effacing, living in the same California house for 70 years. Typical of the Munger philosophy, Munger claimed that building and moving into a fancy house made you less happy and content as a person. His five keys to success are the sort of common-sense maxims that perhaps we should all abide by and are always worth repeating: (1) spend less money than you earn; (2) invest prudently; (3) avoid toxic people and activities; (4) defer gratification; and (5) never stop learning. When asked about his success, he claimed that while he was more intelligent than most, this was only by one percent, but that he used this advantage to the maximum, particularly when dealing with ‘stupid’ people. One of his more notable snide comments related to the world’s wealthiest man, Elon Musk. Charlie stated, “I’d rather work with someone with an IQ of 130 who believes it’s 120 than someone with an IQ of 150 who believes it’s 170 like Elon Musk”.
But it was Munger’s simple genius that turned the fortunes of his long-time friend and partner Warren Buffet and indeed those of Berkshire Hathaway by shifting Buffet’s mind set from investing in ‘cigarette butts’, that is companies with one last puff of profits, into paying a decent price for excellent companies with long term sustainability of earnings. He was also highly influential in Buffet and Berkshire Hathaway’s decisions to invest heavily and directly into quality companies such as Coca Cola, Kraft Heinz and Exxon Mobil. Charlie was sceptical of industries and companies that he didn’t fully understand, but was no Luddite as his investments in Microsoft, Apple and HP prove. He was, however, scathing in his view of crypto currency, calling it “worthless, no good and crazy”, believing that it does nothing but harm and it’s antisocial.
This latter point is particularly interesting as coursing through Charlie’s life and indeed his approach to investment was a deep sense of ethics and decency. He simply abhorred anything, any company and any investment that smacked of quick gains at shareholder or customer’s expense. For example, he was highly critical of company share buybacks and warned investors that any presentation that discussed Earnings Before Interest Taxes Depreciation and Amortisation (EBITDA) to indicate the overall profitability of a business was BS! Indeed, Charlie had a particular way with words that while it tickled Warren Buffet for decades, would make todays sometimes woke, weak and bland boards cringe.
But for all his no nonsense matter of fact crustiness, Charlie was in fact one of the world’s great philanthropists. His generosity extended to supporting schools and universities and paying for student dormitories that he himself had designed as an amateur architect.
With Charlie’s passing, the mould has been broken and while there will never be another, the challenge facing his long-time partner, Warren Buffet and Berkshire Hathaway is that of succession. It’s going to be a fascinating case study to watch.