Charlie Munger held his last Wesco Annual Meeting in Pasadena today. He is 87 years old. His wife, Nancy, passed away a year and a half ago. He has been blind in one eye for some years and faces the prospect of going blind in his other eye too.
Charlie’s sharp mind, irreverent, outspoken outlook and common sense thinking have been a huge influence on me. Charlie is unapologetically intelligent. The smartest guy in the room. His passion for self-improvement and expanding his wide ranging knowledge and wisdom is amazing. Charlie is an incessant reader. His grandchildren call him “a book with legs.” He has said, “as long as I have a book in my hand, I don’t feel like I’m wasting time.” He is a role model for unflinchingly pursuing one’s curiosity and a passion to learn. Benjamin Franklin is Charlie’s hero. Charlie is mine. He has probably gotten more out of life than almost anyone that I can think of. He has had 3 major successful careers— 1). founder of the prestigious law firm, Munger, Tolles & Olson; 2). running his own real estate and investment partnership; and 3). as Warren Buffett’s partner and as Vice Chairman of Berkshire Hathaway. Along the way, Charlie has also been an important philanthropist. He has given generously to Stanford Law School, Harvard-Westlake School, and the University of Michigan.
Charlie’s philosophy has been compiled into one of the finest books on investing and life ever written, Poor Charlie’s Almanack, now in its Third Edition. Li Lu’s forward to the Chinese edition is highly recommended. Janet Lowe’s noteworthy biography of Charlie, Damn Right!, is excellent too. Charlie is not normally as vocal and as public as Warren Buffett. In 2010, Charlie penned a rare essay for Slate entitled, “Basically, It’s Over: A Parable about How One Nation Came to Financial Ruin,” that I think is perhaps the best take on the financial situation in the world that has been written in the past few years. Charlie makes the point that the problem with Wall Street is with the way that Wall Street thinks. Even though Berkshire Hathaway is a huge success, nobody imitates it.
This year’s Wesco meeting was Charlie in top form— at Wesco, Charlie is typically animated and chatty compared to his laconic manner at Berkshire Hathaway. There were about 500 people on a sunny Friday morning at the Pasadena Convention Center. Charlie usually begins by covering a few topics of general interest. He opened by mentioning that the meeting itself was not being charged to Berkshire. ”I am paying for this myself.” He talked about Wesco’s merger with Berkshire, some observations about why academic economists cannot understand the real world, and some general views on the current investment scene. ”Lousy.” Then Q&A. Charlie is quick, direct, and blunt. Dick Fuld was a boob. Wall Street? An unregulated casino. High frequency trading? Legalized front-running. ETF’s? He doesn’t invest in them but he likes the low-cost nature. He lauds Jamie Dimon’s JP Morgan Chase Annual Reports. He pans Alan Greenspan. ”He overdosed on Ayn Rand.” He mentions that he is in favor of consumer finance reform. ”I am a Republican but I like Elizabeth Warren.” (Munger also made hard copies available of a short fable that he had written on the mortgage bankers, investment bankers, and CDO’s).
On Investments: Charlie’s investment philosophy in a nutshell— patience and opportunism. ”When you see a great investment idea. Be bold.” Tech stocks? No opinion except that Google seems to have a pretty strong position. How to raise your kids? Don’t necessarily do what he did. Costco is the company that he admires most outside of Berkshire. “Jim Sinegal (Costco’s CEO) may be one of the top 3 or 4 retailers of all time.” (It is Charlie’s only outside directorship. He sits on the Costco Board of Directors with Bill Gates, Sr. (Bill Jr. is a BRK director) and Susan Decker, who is also a BRK director). Costco is messianic in its mission to provide value for its members. ”Make money by doing good for your customers,” Charlie intones. Thrift is also the Berkshire way. ”We are the only company that pays its CEO a $100,000 a year for as long as we can remember. I don’t see many others rushing to follow us.” Charlie is humble about previous investment mistakes, like buying Dexter Shoe for 2% of Berkshire stock outstanding and completely ignoring the threat from Chinese shoe manufacturing. ”We rub our noses in our mistakes.” BYD’s stock price is back to where it was two years ago, down 35% YTD and down to $25 from $80 at the peak. He doesn’t know where it is going exactly, but he isn’t selling. He doesn’t think Coca-Cola is as big of a slam dunk as 20 years ago, but it is still a solid franchise that he would hold. Should value investors be more involved in shareholder activism and proxy battles? It’s not really for him. Advice for a foundation CIO who runs a concentrated, long-term portfolio? ”You have the answer already. The consultants drive me crazy with their style boxes and their overweighting and underweighting by basis points.” Picking an investment manager? ”It’s really, really hard. There are a lot of good managers out but they are only successful in niches that cannot scale. One of the important differences for us [Buffett and Munger at Berkshire] has been our ability to evolve and scale. Scaling is important.”
On the Macro Environment: The outlook for Greece? ”An ounce of prevention is worth a TON of cure,” he paraphrases Benjamin Franklin. ”Those people are afraid of working. They want sinecures.” He makes a reference to the Second Punic Wars and how Rome repaid its debts because in those days, if you lost a war, you were subject to slavery. “The world of our distant ancestors was a lot harsher place then.” Taxes? “The left seems to think we should only soak the rich. The right doesn’t want to pay any taxes at all. Both can’t be right.” He mentions his son, Charlie T. Munger, Jr.’s work on Prop 20 in California to prevent gerrymandering.
On General Advice: How does he structure his day? The first hour is an hour to himself, an hour for self improvement. Generally he and Buffett keep a pretty unstructured schedule. ”Generally, I go to the office, read a lot and I am available to chat with partners and friends. You would be surprised at how open our schedule is. I am pretty ruthless about saying no to things. However, when I have a commitment, I honor it. ” He mentions reading a book on Astrophysics (“I think I understand this better than the average 87 year old”) as well as re-reading Matt Ridley’s The Rational Optimist. He likes Freeman Dyson. (“And not just because we think the same way.”) He doesn’t believe in artificially keeping your children poor if you are wealthy (a la Buffett). ”They will hate you. Hate you. Can you believe that?” He praises Asia and the Asian culture and work ethic— Japan, Korea and China— multiple times. He singles out Lee Kuan Yew in Singapore too. He thinks that Lee Kuan Yew influenced China in its decision to open up and embrace the free market. His favorite periodical in the world? The Economist. ”It is the best journalism in the modern thinking world.”
In the end, Charlie is more positive on economic progress than people might imagine. What about inflation? A questioner points out that a pastrami sandwich cost 55 cents in 1955 and 13 dollars today. The dollar has lost 95 percent of its value. When will it lose the last 5 percent? Munger tells the younger person that he essentially has it all wrong. “What you are talking about as a lost period is really a golden age. The United States has been able to compound its GDP at 2 percent a year for over a century. That may not sounds like a lot but it is a big deal. Over a long period, that has led to an amazing leap in living standards. The period that you talk about since 1955 has been particularly good. I would be happy to experience a ‘dark era’ like the one that you describe again.”
Charlie is a cult figure. Life has not been all perfect, however.
When he was 29 years old, Charlie got divorced from his first wife and lost everything, including his house in South Pasadena. Shortly afterwards, his 7-year old son was diagnosed with leukemia. Teddy died two years later. A friend once described Charlie as visiting his son in the hospital and holding his boy in his arms and then walking the streets, crying. Eventually, Charlie met his second wife, Nancy, and started a new life together, including his investment partnership and eventually his longstanding association with Warren Buffett and Berkshire.
Recently, someone told me a story about Charlie Munger worth mentioning here. Charlie was developing a condition in his remaining eye that was causing it to fill up with blood. He would eventually go blind in his one remaining eye and lose his eyesight completely. Blindness. When you are an obsessive reader like Charlie, losing your ability to see would seem to be a prison sentence. However, Charlie was undeterred. He told someone close to him, “It’s time for me to learn braille.” He has been taking braille lessons since. Most recently the worrisome eye condition has receded but the story is a good example of Charlie’s philosophy on life. No self pity. No emotional wallowing. Staying rational. It is hard enough to learn new things, but at 87 years old, Charlie remains an inspiration of a life well lived.
There will be no more Wesco Annual Meetings. Thank you, Charlie.