The Life and Legacy of Charlie Munger

As many would now be aware, Berkshire Hathaway’s Vice President, Charlie Munger, has passed away, just a month shy of his 100^th birthday. Despite the sadness of his passing, Charlie lived a life to be celebrated, a life of wit and wisdom that provides an incredible legacy for us today and for future generations.

Charlie Munger was one of the great thinkers of our time. Warren Buffett once said, “Charlie has the best 30-second mind in the world. He goes from A to Z in one move, and sees the essence of everything before you even finish the sentence”.

Warren Buffett’s son, Howard, said that his father was the second smartest person he has ever known, with Charlie Munger being the smartest.

The impact that Charlie had on Berkshire Hathaway and Warren Buffett was immense. Buffett said, “He has given me the ultimate gift that a person could ever give to another. He has made me a better person”.

Early life

Charlie Munger was born on 1 Jan 1924 in Omaha, Nebraska. He grew up in Omaha, and as a teenager worked at Warren Buffett’s grandfather’s grocery store, Buffett & Son, though he never knew Warren at this time.

Charlie left Omaha in 1941 to study mathematics at the University of Michigan. In 1943 he dropped out of university to work as a meteorologist in the US Army Air Corps during World War 2. While studying meteorology in Pasadena, California, he met and married Nancy Huggins. After the war they moved to Boston where Munger studied law at Harvard University where he graduated magna cum laude.

In 1949, he, Nancy and their three kids moved back to California, and Munger began his career in law.

In 1953, however, Nancy divorced him, taking almost everything (including the house), and two years later further tragedy struck when his beloved 9-year-old son, Teddy, died of leukemia. In 1956 he remarried another Nancy, Nancy Barry, and eventually their blended family would include 8 children and many grandchildren.

When Charlie met Warren

In 1959, after the death of his father, Charlie returned briefly to Omaha to administer the estate. To welcome him home, a mutual friend, Dr. Ed Davis and his wife Dorothy, arranged a dinner party where they invited a number of guests including Warren and Susie Buffett.

Charlie instantly recognised Buffett’s name, due to Charlie working at Buffett & Son grocery store as a teenager. Warren too recognised Munger’s name, because many years earlier when Buffett was raising money for his partnership, Dr. Ed Davis had invested $100,000, because “Warren reminded him of Charlie Munger”. Buffett later said, “that he was interested in meeting Charlie because he wanted to find out whether that was a compliment or an insult”.

At the dinner party the two men hit it off straight away, as both realised, that they shared many ideas. Susie Buffett said, “It was amazing to me to see Warren get quieter and let Charlie take the lead. I have never seen that before”. Warren felt that Charlie was the smartest person he’d ever met, and Charlie thought the same of Warren. After the dinner party, Charlie and Warren spoke regularly.

In 1962, Munger founded law firm Munger, Tolles and Olson. In the same year he also began an investment partnership, which operated from 1962 to 1975, and returned on average 19.8% p.a. (before fees), compared to 5% p.a. for the Dow Jones Industrial Average over the same period.

After years of Buffett encouraging Munger to leave his career (in law) and join him at Berkshire Hathaway, it all became a reality, when in 1978 Munger joined as Vice Chairman.

Munger said, “Warren talked me into leaving the law business, and that was a very significant influence on me. I was already thinking about becoming a full-time investor, and Warren told me I was far better suited to that. He was right”.

Charlie’s Mental Models

Charlie was a lifelong learner, and an avid reader across multiple subjects and disciplines, and during his life, he championed a multi-disciplinary approach to investing.

This involved learning the big ideas from all the major disciplines including psychology, science, economics, mathematics and engineering. These ideas he called ‘mental models’, which are thought patterns and frameworks, that help us understand the world.

One example of a mental model is ‘inversion’, which is the idea of thinking about a problem backwards in order to solve it. Other examples of mental models include the confirmation bias (from psychology), backup systems (from engineering) and the compound effect (from mathematics). Munger said, “80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person”.

Charlie said, “developing the habit of mastering the multiple models which underlie reality, is the best thing you can do”. He said, “I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up”.

Virtues

Charlie spoke a lot about the importance of developing virtues in one’s life.

On honesty, Munger said, “Track records are very important. If you start early trying to have a perfect one in some simple thing like honesty, you’re well on your way to success in this world”.

On wisdom, Charlie said, “In my whole life, I have known no wise people who didn’t read all the time – none, zero. You’d be amazed at how much Warren reads and how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out”.

Charlie also saw rationality as a moral duty. He said, “Being rational is a moral imperative. You should never be stupider than you need to be”.

On reliability, Munger said, “If you’re unreliable it doesn’t matter what your virtues are, you’re going to crater immediately. So faithfully doing what you’ve engaged to do should be an automatic part of your conduct”.

On patience, Munger said, “The big money is not in the buying or selling, but in the waiting”. He also said, “The first rule of compounding is to never interrupt it unnecessarily”.

Charlie was also a strong believer in hard work. He said, “Hard work and honesty, if you keep at it, will get you almost anything”.

Giving back

Giving back to society was a life principle of Charlie Munger. This principle was also shared by his hero Benjamin Franklin, who devoted his life to public service.

Inspired by Franklin, Charlie Munger wanted to become wealthy so that he could devote his time to making a meaningful contribution to humankind. Munger said, “I always cared more about being useful than dying rich”.

Munger said he felt guilty about making so much with “soft white hands”. He said that he tried to atone for this by sharing his wisdom and performing charitable acts.

Munger served on the board of trustees at Harvard-Westlake school for more than 40 years, and as chairman of the Good Samaritan Hospital in Los Angeles, donating tens of millions of dollars to each. He also donated millions of dollars to many other schools, universities and libraries in California and Michigan.

Charlie Munger has given so much to society. The knowledge, wit and wisdom that he has generously imparted to investors is incalculable.

Just as Benjamin Franklin was a hero to Charlie Munger, so too is Charlie a hero to many of us today.

Rest in peace Charlie.