Lawyer, real estate developer, investor, businessman… these are some of the titles of Charles Thomas Munger.
Last week I spoke about the legendary Warren Buffett. This week I’ll be sharing details on the guy that is usually next to him at meetings and in pictures.
Background
Charles Thomas Munger was born on January 1, 1924, in Omaha. His dad was a lawyer and his granddad was a court judge and state representative.
As a youth, Charlie worked at a small grocery store called Buffett & Son. Munger went to Michigan University but soon dropped out to serve in the US army. His seniors were impressed with his score on a test and later had him enrolled at Caltech, a university in California.
The brilliant Charlie Munger later decided to study law at Havard but was rejected because he had not completed undergraduate studies. He was later accepted after a former dean spoke with the present dean at that time. That former dean; Roscoe Pound was a family friend of Munger (it pays to know people in this world).
Charlie has been married twice and is the father of eight children. He's a rational investor and a philanthropist, who has given millions to universities and foundations.
Career
Charlie Munger graduated magna cum laude (with great praise) in 1948. He moved to California to work at a law firm Wright & Garrett. In1962 Charlie founded Munger, Tolles & Olson LLP.
Munger later decided to give up his practice to focus on investment management. He partnered with Otis Booth to do real estate development. An investment company that he later founded with Jack Wheeler was wound up after two years of consecutive losses of over 30%.
Munger had an exclusive partnership that he also ran from 1962 to 1975. this partnership generated annual returns of 19%. This kind of return was almost 4 times what investors in the main market were getting at that time.
Munger met Buffett in 1959. The two clicked so much that they knew that one day they would do some great things together. They began working together in the late 1960s. The two made everything official in the 1970s when Charlie Munger took on the role of Vice-Chairman of Berkshire Hathaway.
An opportunity came about for Berkshire to purchase Sees Candies for $25 million in 1972. Warren was reluctant but Charlie showed him that it would be money well spent. As of today, See’s Candies has generated over $1 billion for Berkshire Hathaway.
Mental Models
I first learned about this concept from Charlie Munger. It’s the process of learning different ideas and concepts from various fields and applying them in your life to solve problems or make improvements.
Here are some popular examples:
Circle of Competence
When ego and not competence drives what we undertake, we have blind spots. If you know what you understand, you know where you have an edge over others. When you are honest about where your knowledge is lacking you know where you are vulnerable and where you can improve. Understanding your circle of competence improves decision making and outcomes.
Probabilistic Thinking
Probabilistic thinking is essentially trying to estimate, using some tools of math and logic, the likelihood of any specific outcome coming to pass. It is one of the best tools we have to improve the accuracy of our decisions. In a world where each moment is determined by an infinitely complex set of factors, probabilistic thinking helps us identify the most likely outcomes. When we know these our decisions can be more precise and effective.
Inversion
Inversion is a powerful tool to improve your thinking because it helps you identify and remove obstacles to success. The root of inversion is “invert,” which means to upend or turn upside down. As a thinking tool it means approaching a situation from the opposite end of the natural starting point. Most of us tend to think one way about a problem: forward. Inversion allows us to flip the problem around and think backward. Sometimes it’s good to start at the beginning, but it can be more useful to start at the end.
Wise Old Charlie…
Witty jokes and wisdom. Thousands of people gather each year at Berkshire’s annual meeting to hear about the company’s performance but I think the best part of the event is the Q&As section. You can find some of Charlie’s speeches here:
Quotes by Charlie
“Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Systematically you get ahead, but not necessarily in fast spurts. Nevertheless, you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve.”
“I always say I want to know where I would die so I can never go there.”
“I paid no attention to the territorial boundaries of academic disciplines and I just grabbed all the big ideas that I could.”
The Secret I Forgot Last Week
Remember the secret tool that I forgot to mention last week? It’s Charlie. Finding a good business or marital partner in life is worth more than you can ever imagine.
A good business partner will help you to filter out bad deals, and stay away from troublesome activities. A good supportive spouse will push you to maximize your potential. This point may seem light but it is a major key to success and happiness. Go research all the old people in the world sharing their life stories and you will hear it.
In Warren’s case, Charlie was the ideal business partner. The one who helped him to move from looking at half-dead companies and instead buy valuable companies with competitive advantages.
From the inception of Berkshire Hathaway to today, investors have seen an average annual return of 20%. Another way to look at it is for every $1 invested at the beginning is now worth around $20,000. Who wouldn’t love a 2,000,000% return on their money?
Today, Charles Munger has a net worth of over $2 billion.
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