Chief Investment Strategist, The Freeport Society
Charlie Munger, vice chairman of Berkshire Hathaway and longtime comrade in arms with Warren Buffett, passed away yesterday at the ripe old age of 99. He just missed reaching his 100th birthday, which would have been on New Year’s Day.
The world has lost a great man and one of the best investors of all time. So, in honor of his memory, let’s look back at his life in awe and learn some valuable lessons while we’re at it.
Good ol’ Charlie started as vice chairman of Berkshire Hathaway in 1978. He died with his boots on, working until the very end. Retirement wasn’t for him.
As much as I’d like to claim the contrary, Munger wasn’t a member of The Freeport Society. He should have been, though. It would have been a perfect match.
He certainly had that independent streak we cherish. Who else would agree to co-manage one of the world’s most important financial conglomerates out of Omaha, Nebraska?
Frankly, if it hadn’t been for him, Berkshire Hathaway Inc. (BRK) might not have become the juggernaut that it did. When Buffett got started with it in 1965, it was a failed textile company, but he and Munger evolved it into an insurance group that also owns both a collection of private businesses selling everything from cowboy boots to candy – and a concentrated public stock portfolio that makes it one of the largest shareholders in Apple Inc. (AAPL) and Coca-Cola Co. (KO).
Nothing about that sentence makes sense because Berkshire Hathaway doesn’t make sense. It breaks just about every rule taught in business school: Conglomerates don’t work… specialization is the key to high profit margins… holding concentrated stock positions is risky…
Yet Berkshire Hathaway is the eighth-largest company in the S&P 500 with a market cap of close to $800 billion. It’s one of America’s great success stories.
Berkshire succeeded precisely because Buffett and Munger spent the past five decades together defying conventional wisdom on how to invest and build a business. And they surrounded themselves with talented, independent-minded people… then got out of the way and let them do their jobs.
One of our investment themes at The Freeport Society is quality. We like investing in America’s very best companies, or what we call “The Rich Man’s Currency.” These are durable, best-in-class businesses that have stood the test of time and flourished through inflation, deflation, and everything in between.
Berkshire Hathaway is one of those companies because, as a conglomerate, the businesses that it owns are exactly those kinds of companies, and Buffett and Munger never tried to micromanage them.
Moreover, as I wrote earlier this month, Buffett and Munger never succumbed to groupthink and never followed the rest of Corporate America down the ESG rabbit hole.
That’s why Berkshire Hathaway succeeded where most conglomerates fail. I’m bending the rules here and naming Munger an honorary member of The Freeport Society posthumously.
Warren Buffett Is Not a Value Investor
Most people associate Warren Buffett with value investing, but the truth is that he hasn’t been a true value investor in close to half a century, and that’s thanks to Munger. In fact, Buffett dismissively writes off his old value-investing ways as “cigar butt” investing. In a 1989 letter to Berkshire Hathaway shareholders, he wrote:
If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible. I call this the “cigar butt” approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the ‘bargain purchase’ will make that puff all profit.
A cigar butt might make a nice short-term trade, and I’ve made plenty of such trades over the years. But it’s not the sort of thing you can build into a durable world-class financial empire.
It was Munger who convinced Buffett to abandon cigar butt investing and pivot to what a first-year MBA student might call “growth at a reasonable price,” or GARP. As the plainspoken Buffett would say it, buying “a wonderful company at a fair price.”
Benjamin Button Your Life
Munger had another bit of advice for Buffett that we’d all be better off taking to heart. He once told his friend to live his life backward.
According to CNBC’s Becky Quick, Buffett’s favorite interviewer, Munger told Buffett that “he should write his obituary the way he wants it written, and then live his life accordingly.”
In Munger’s own words, from his final interview with Quick, he said, “I’ve written my obituary the way I’ve lived my life, and if you want to pay attention to it, it’s alright with me. And if they want to ignore it, that’s OK with me too. I’ll be dead.”
He did it his way, and you were welcome to join him. Or you were welcome to buzz off. It was no skin off his back either way.
Perhaps the greatest lesson we can learn from Charlie Munger and his partnership with Warren Buffett is the importance of having strong partners that force you to be better. This is, in fact, one of the underlying premises of The Freeport Society.
While Buffett got most of the attention over the decades, Munger was never a lackey or a yes-man. He would tell Buffett exactly what he thought, even when they disagreed.
In a 2016 joint interview on CNBC, Buffett said that he and Munger “don’t agree totally on everything, and yet we’re quite respectful of each other.” But when they disagreed, Munger would tell him, “Well, you’ll end up agreeing with me because you’re smart and I’m right.”
After decades of working together, Buffett never found a good comeback to that one!
Warren Buffett is a lifelong Democrat, and Munger was a lifelong Republican. It didn’t matter. They found their commonalities in business, investing, and life and went on to build American capitalism’s greatest and longest-lived partnership.
Rest in peace, Charlie Munger.
The investing world won’t be the same without you.