Who Is: Charlie Munger

Photo Credit: Nick J Webb

Photo Credit: Nick J Webb

While Warren Buffett is the the public face of the phenomenally successful Berkshire Hathaway (ETR: BRH), it’d be a mistake to overlook Buffett’s right-hand man, Charlie Munger, as a key contributor to that success.

Munger may be less well known and give fewer interviews than Buffett, but he is not nearly as self-deprecating: “I have a black belt in chutzpah,” he’s said, “I was born with it.” Of course, for someone with his resume, why be shy about it?

Born in Omaha, Nebraska in 1924 — nearly seven years before Buffett — Munger joined the army and spent some of World War II working in their meteorology section in Alaska. He then earned a degree from Harvard Law School and became an attorney in California.

Munger had a keen interest in investing, which he took up full time in 1965. Through the 1960s and 1970s he and Buffett, whom he first met in a restaurant in their hometown in 1959, worked together on a number of deals, including the purchase of See’s Candies in 1972.

It was not until 1978 that Munger officially joined Berkshire Hathaway as Vice-Chairman. He was the head of Wesco Financial, a California-based financial company that was seen as a mini version of Berkshire Hathaway. Berkshire owned majority stake in Wesco until 2011, when it purchased the remaining 20% of Wesco that it didn’t already own. While Munger’s annual shareholder meetings didn’t attract the crowds that Berkshire’s annual meetings did, he gained a hard-core investor following, and was given the moniker “the Oracle of Pasadena.”

Investment style
Munger believes in using all the tools at one’s disposal, combining elements of psychology, mathematics, business, and so on, in making decisions — because otherwise we are hampering ourselves. As he’s said, “To the man with only a hammer, every problem looks pretty much like a nail.”

Munger is particularly scathing of academics who behave “like truffle hounds,” exceptionally adept in their own areas of expertise, but unable to integrate the various disciplines. “If you want to go through life like a one-legged man in an ass-kicking contest, be my guest. But if you want to succeed, like a strong man with two legs, you have to pick up these tricks, including doing economics while knowing psychology.”

And it’s in the area of investment psychology that Munger really shines. His Psychology of Human Misjudgement (opens a PDF in English) speech at Harvard Law School, outlines 24 modes of distorted thinking that afflict investors. Unless you believe we are all rational, information-processing machines, this is essential reading.

Munger also warns us not to mistake a bull market for skill, as so many novice investors have done over the years to their detriment. “Bull markets go to people’s heads,” he warns. “If you’re a duck on a pond, and it’s rising due to a downpour, you start going up in the world. But you think it’s you, not the pond.”

As you might expect from a partner of Buffett, Munger advocates buying the right companies and then sitting tight. “You do better to make a few large bets and sit back and wait. There are huge mathematical advantages to doing nothing.” Or, more colorfully: “If you buy a few great companies, you can sit on your ass.”

And like his partner, Munger has little respect for the efficient market hypothesis, and has described the capital asset pricing model as an obscenity. “People calculate too much and think too little.”

Warren Buffett is widely lauded for being clear and transparent in his communication. But if one of the Buffett/Munger duo gets the award for being plain-spoken and getting right to the point, Charlie Munger’s your man.