Charles Thomas Munger (January 1, 1924 – November 28, 2023)
Charles Munger, a name synonymous with astute business acumen, unwavering ethical values, and a remarkable commitment to philanthropy, left an indelible mark on the world of finance and beyond. As the vice chairman of Berkshire Hathaway, a conglomerate under the stewardship of his close friend and business partner Warren Buffett, Munger was hailed as the architect of their mutual success. His journey, spanning nearly a century, was characterized by a rich tapestry of experiences, from humble beginnings to profound wisdom, from principled investing to outspoken criticism of emerging financial trends. This article delves into the life and legacy of a man whose intellectual prowess and dedication to ethical business practices continue to inspire generations.
Early Life and Education
Born in Omaha, Nebraska, in 1924, Charles Munger’s early years were shaped by modest circumstances. During his teenage years, he worked at a grocery store owned by the grandfather of his future business partner, Warren Buffett. Despite the financial constraints, Munger was resolute in pursuing education. He initially attended the University of Michigan but put his academic pursuits on hold to serve in the U.S. Army Air Corps at the age of 19. Following his military service, he studied meteorology at Caltech.
Munger’s educational journey culminated at Harvard Law School, where he graduated magna cum laude in 1948. His time in college and the military instilled in him valuable life lessons, including a proficiency in card-playing that would later influence his investment philosophy. He emphasized the significance of seizing opportunities as they arise, cautioning against treating company shares as mere commodities, likening them to baseball cards due to the unpredictability of human behaviour.
The Investment Career of a Visionary
Munger’s relocation to California marked the beginning of his illustrious career. He joined the law firm Wright & Garrett, which would later become known as Musick, Peeler & Garrett. In 1962, he founded Munger, Tolles & Olson LLP, initially practicing as a real estate attorney. However, his true passion lay in the world of investments.
A pivotal moment occurred when he crossed paths with Warren Buffett, an encounter that would lead to enduring discussions about the art of investing. Together, they ventured into real estate development, partnering with Otis Booth. Munger also joined forces with Jack Wheeler to establish Wheeler, Munger, and Company, an investment firm with a seat on the Pacific Coast Stock Exchange. However, the firm faced significant losses in 1973 and 1974, leading to its closure in 1976.
Despite his close association with Buffett, Munger operated his own investment partnership from 1962 to 1975. Remarkably, during this period, his partnership achieved impressive compound annual returns of 19.8%, a feat that far outpaced the Dow’s annual appreciation rate of 5.0%.
Munger’s impact extended beyond his individual investments. He served as the chairman of Wesco Financial Corporation, which later became a Berkshire Hathaway subsidiary. The acquisition of Wesco was not without controversy, as allegations swirled that Buffett’s company, Blue Chip, had purchased Wesco shares to thwart a potential merger between Wesco and Financial Corp. Under Munger’s leadership, Wesco evolved from a savings and loan association into a conglomerate overseeing ventures such as Precision Steel Corp., CORT Furniture Leasing, and Kansas Bankers Surety Company. The company also managed a concentrated equity portfolio valued at over US$1.5 billion, featuring prominent names like Coca-Cola, Wells Fargo, Procter & Gamble, Kraft Foods, US Bancorp, and Goldman Sachs.
Munger’s investment strategy was characterized by a concentrated portfolio of stocks he thoroughly understood, with an unwavering focus on achieving superior long-term returns. Wesco’s headquarters in Pasadena, California, served as the backdrop for the company’s annual shareholders’ meetings. These gatherings, held shortly after Berkshire Hathaway’s meetings in Omaha, became legendary in the investment community, epitomizing the standard for annual general meetings convened by corporations.
A Philosophy Rooted in Wisdom and Ethics
At the core of Charles Munger’s investment philosophy lay the principles of “elementary, worldly wisdom” and a latticework of mental models employed to address critical business challenges. He placed a strong emphasis on upholding high ethical standards in business, firmly believing that a business model reliant on deception would ultimately meet its demise. His philosophy echoed the importance of personal responsibility within financial systems, a concept articulated by American philosopher Charles Frankel.
One of Munger’s enduring legacies was the concept of the “Lollapalooza effect.” Coined by Munger, this term referred to the compounding impact of multiple biases, tendencies, or mental models operating in the same direction, leading to extreme outcomes. This phenomenon illustrated the convergence of various psychological factors, biases, or tendencies, significantly increasing the likelihood of irrational behavior. Munger’s elucidation of the Lollapalooza effect, showcased in a 1995 talk at Harvard titled “The Psychology of Human Misjudgment,” utilized examples such as Tupperware parties and open auctions to demonstrate how these factors, when combined, could overwhelm and impair human judgment. These biases could operate at both conscious and subconscious levels, influencing behavior at both microeconomic and macroeconomic scales.
Criticism of Cryptocurrencies and Robinhood
While celebrated for his investment acumen, Munger was not one to shy away from expressing his reservations about emerging financial trends. He was particularly critical of cryptocurrencies, notably Bitcoin, which he labelled as “noxious poison” and vehemently advocated for their prohibition. Munger likened the trading of cryptocurrencies to gambling and expressed concerns about platforms like Robinhood that facilitated frequent, commission-free trading, asserting that they preyed on people’s gambling instincts. He didn’t mince words in his assessment of Bitcoin, deeming it “stupid,” “immoral,” and “disgusting,” even comparing it to trading “turds.”
Munger’s Legacy and Wealth
At the time of his passing, Charles T. Munger’s estimated net worth of $2.6 billion ranked him as the 1,182nd richest individual globally, according to Forbes. Beyond his financial success, Munger was a notable philanthropist, with a particular focus on supporting educational institutions. His contributions included a $3 million donation to the University of Michigan for lighting improvements and a subsequent $20 million gift for renovations to the Lawyers Club housing complex, now known as the Charles T. Munger Residences. Additionally, he generously donated shares of Berkshire Hathaway stock to Stanford University for graduate student housing and provided a substantial gift of stock, valued at over $40 million, to the Henry E. Huntington Library and Art Museum in California. Despite these acts of generosity, Munger chose not to sign ‘The Giving Pledge,’ initiated by Warren Buffett and Bill Gates, citing prior significant transfers of wealth to his children as a reason.
A Personal Journey Marked by Resilience
Charles T. Munger’s personal life was characterized by resilience and unique perspectives. He married Nancy Huggins in 1945, with whom he had three children: Wendy, Molly, and Teddy. Following their divorce, Munger married Nancy Barry and became the father of four children: Charles Jr., Emilie, Barry, and Philip, in addition to two stepchildren. Tragedy struck with the passing of his first wife, Nancy Huggins Freeman, in 2002, followed by the loss of his second wife, Nancy Barry Munger, in 2010.
Munger’s political views were distinct, advocating for “Medicare for all” and lauding Singapore’s single-payer healthcare system. In his 50s, he faced a severe eye condition that necessitated the removal of his left eye, and he even undertook braille lessons at one point. Despite these challenges, he retained his eyesight in his right eye.
On November 28, 2023, at the age of 99, Charles T. Munger passed away in Santa Barbara, California, leaving behind a legacy highly regarded by Warren Buffett, who acknowledged Munger’s pivotal role in the building of Berkshire Hathaway.
A Life of Wisdom and Philanthropy
Charles Munger’s life serves as an enduring testament to his exceptional intellect, unwavering commitment to ethical business practices, and dedication to philanthropy. His partnership with Warren Buffett at Berkshire Hathaway forged a legacy of unparalleled financial success. Beyond his investments, Munger’s insights into the “Lollapalooza effect” shed light on the complex interplay of psychological factors in decision-making. His outspoken views on cryptocurrencies and trading platforms sparked crucial discussions about the ethical implications of financial innovation. Charles Munger’s life continues to inspire aspiring investors and philanthropists, illustrating the transformative power of intellect, integrity, and a commitment to shaping a better future.
Appendix
- “Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger, 3rd Ed.” Expanded by Charles Munger – This book is a collection of Munger’s speeches, commentaries, and talks. (January 1, 2005)
- “On Success” by Charles Munger – This book features some of Munger’s insights on success. (January 1, 2009)
- “Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger” by Janet Lowe – A biography of Charlie Munger, exploring his journey from a lawyer to an investor. (30 October 2000)
- “University of Berkshire Hathaway” by Daniel Pecaut – This book offers insights into the strategies and philosophies of Warren Buffett and Charlie Munger. (March 22, 2017)
- “Tao of Charlie Munger” by David Clark – This work presents Munger’s quotes and philosophies in a concise format, ideal for beginners in investing and finance. (January 3, 2017)
- “Charlie Munger: The Complete Investor” by Tren Griffin – This book provides lessons and anecdotes from Munger’s life, applicable to various aspects of finance and beyond . (September 15, 2015)