Charlie Munger

Charlie Munger

Munger at Berkshire Hathaway's 2010 shareholder meeting
Born January 1, 1924 (1924-01-01) (age 87)
Omaha, Nebraska
Occupation

Vice-Chairman of Berkshire Hathaway Corporation
Chairman of Wesco Financial Corporation


Chairman of Daily Journal Corporation
Salary $100,000 USD
Net worth $1 billion USD [1]

Charles Thomas Munger (born January 1, 1924, in Omaha, Nebraska) is an American business magnate, investor, and philanthropist. He is Vice-Chairman of Berkshire Hathaway Corporation, the diversified investment corporation chaired by Warren Buffett; in that capacity, Buffett describes Munger as "my partner." Munger is also the chairman of Wesco Financial Corporation, based in Pasadena, California, and the Daily Journal Corporation, based in Los Angeles, California.

Contents

Biography

Like Buffett, Munger is a native of Omaha, Nebraska. After studies in mathematics at the University of Michigan, and service in the U.S. Army Air Corps as a meteorologist, trained at Caltech, he entered Harvard Law School, where he was a member of the Harvard Legal Aid Bureau, without an undergraduate degree. Graduating in 1948 with a Juris Doctor magna cum laude, he founded and worked as a real estate attorney at Munger, Tolles & Olson LLP until 1965. He then gave up the practice of law to concentrate on managing investments. He partnered with Otis Booth in real estate development. He partnered with Jack Wheeler to form Wheeler, Munger, and Company, an investment firm with a seat on the Pacific Coast Stock Exchange. He wound up Wheeler, Munger in 1976 after losses of 31% in 1973 and 1974.[2]

Although Munger is better known for his association with Warren Buffett, he ran an investment partnership of his own from 1962 to 1975. According to Buffett's essay, "The Superinvestors of Graham-and-Doddsville", Munger's investment partnership generated compound annual returns of 19.8% during the 1962–75 period compared to a 5.0% annual appreciation rate for the Dow.

Munger is also the chairman of Wesco Financial Corporation, now a wholly owned subsidiary of Berkshire Hathaway. It began as a savings and loan association, but now controls Precision Steel Corp., CORT Furniture Leasing, Kansas Bankers Surety Company, and other ventures. Wesco Financial has an equity portfolio of over $1.5 billion dollars that is concentrated in Coca-Cola, Wells Fargo, Procter & Gamble, Kraft Foods, US Bancorp, and Goldman Sachs. A single stock can make up 50% of the value of the entire portfolio. Munger believes that holding a concentrated number of stocks, that he knows extremely well, will in the long term produce superior returns. Wesco is based in Pasadena, California, Munger's adopted hometown. Pasadena is also the site of the company's annual shareholders' meeting, which is typically held on the Wednesday or Thursday after the more famous Berkshire Hathaway annual meeting. Munger's meetings are nearly as legendary in the investment community as those he co-hosts with Buffett in Omaha. Such meetings are often perfunctory, but Munger interacts with the other Wesco shareholders at considerable length, sometimes speculating about what his hero Benjamin Franklin would do in a given situation.[3] Meeting notes are taken and posted on the internet.[4]

Buffett has often publicly stated that he regards Munger as his partner. Indeed, Munger owns enough Berkshire Hathaway stock to be a bona fide billionaire in his own right. However, Munger is hardly a carbon copy of Buffett: Munger is known to be a Republican, whereas Buffett has generally supported Democrats. Buffett devotes his time almost exclusively to his business, while Munger, who does not involve himself in the day-to-day operations of Berkshire, is a generalist for whom investment is only one of a broad range of interests.

Philanthropy

Munger donated 500 shares of Berkshire Hathaway Class A stock, worth $43.5 million, to Stanford University to build a housing complex for Stanford Law School. He previously donated funds to help restore Green Library after extensive damage by the Loma Prieta Earthquake, for which he is recognized on a plaque outside the restored Bing Wing. While he did not attend Stanford, his second wife, Nancy Munger, is an alumna and served on the Board of Trustees. Their daughter, Wendy Munger (A.B., 1972, Stanford University) is currently a member of the board. In 2007 and 2011, he donated approximately $23 million for renovations at the University of Michigan Law School.

Business philosophy

In multiple speeches, and in the book Poor Charlie's Almanack, Munger has introduced the concept of "Elementary, Worldly Wisdom" as it relates to business and finance. Munger's worldly wisdom consists of a set of mental models framed as a latticework to help solve critical business problems.[5] According to Munger, only 80 or 90 important models will carry about 90% of the freight in making you a worldly-wise person.

He believes that incentives explain why people behave the way they do.

Munger's words of wisdom include those that profess high ethical standards. In the 2009 Wesco Financial Corporation annual meeting he said, "Good businesses are ethical businesses. A business model that relies on trickery is doomed to fail."[6]

In a 2010 speech to University of Michigan students Munger commented that "...I think it is very dangerous to assume that what people did to save the whole banking system was wrong...I think we come to a place where we, where everybody, has to suck it in and gulp." [7] The last part of the sentence refers to Munger's belief that United States citizens will collectively face a less opulent economic environment in the coming years.

Lollapalooza Effect

Munger uses the term "Lollapalooza Effect" for multiple biases, tendencies or mental models acting at the same time in the same direction. With the Lollapalooza effect, itself a mental model, the result is often extreme, due to the confluence of the mental models, biases or tendencies acting together. During a talk at Harvard in 1995, Munger mentions Tupperware parties and open outcry auctions, which turn the human brain into "mush". In the Tupperware party, you have reciprocation and social proof. (The hostess gave the party and the tendency is to reciprocate; other people are buying, which is the social proof.) In the open outcry auction, there is social proof of others bidding, commitment to buying the item, and deprivation super-reaction syndrome, i.e. sense of loss. The latter is an individual's sense of loss of what he believe should be or is his. These biases often occur at either conscious or subconscious level, and in both microeconomic and macroeconomic scale.[8]

References

  1. ^ [1]
  2. ^ Janet Lowe (2000). Damn Right. John Wiley and Sons. p. 251. ISBN 0471244732. http://books.google.com/books?id=LhMGSDiQghEC&pg=PA106&lpg=PA106&dq=wheeler+munger. 
  3. ^ 2008 WESCO Meeting Notes, Whitney Tilson
  4. ^ Futile France Charlie Munger page
  5. ^ Janet Lowe (2000). Damn Right. John Wiley and Sons. p. 179. ISBN 0471244732. http://books.google.com/books?id=LhMGSDiQghEC&pg=PA106&lpg=PA106&dq=wheeler+munger. 
  6. ^ Charlie Munger's got a billion words of wisdom, May 17, 2009, Los Angeles Times, Accessed January 3, 2010
  7. ^ [2] A Conversation with Charlie Munger (U Michigan)- 2010
  8. ^ Hirschey, Mark (2008). Managerial Economics. Cengage Learning. p. 20. http://books.google.com/books?id=igRaLAYvaCgC&pg=PA20&lpg=PA20&dq=Lollapalooza+Effect#v=onepage&q=Lollapalooza%20Effect&f=false. Retrieved 29 March 2011. 

Books

Regulatory filings

External links


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