Charlie Munger

Charlie Munger

Munger at Berkshire Hathaway's 2010 shareholder meeting
Born Charlie Thomas Munger
(1924-01-01) January 1, 1924
Omaha, Nebraska, U.S.
Alma mater

University of Michigan (transferred)
Caltech (did not graduate)
Harvard Law School

Salary $100,000 USD
Net worth US$1.27 billion (March 2016) [1]

Charles Thomas Munger (born January 1, 1924) is an American businessman, lawyer, investor, and philanthropist. He is vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett; in this capacity, Buffett describes Charlie Munger as “my partner." Munger served as chairman of Wesco Financial Corporation from 1984 through 2011 (Wesco was approximately 80% owned by Berkshire Hathaway during that time). He is also the chairman of the Daily Journal Corporation, based in Los Angeles, California, and a director of Costco Wholesale Corporation.

Early life

Munger was born in Omaha, Nebraska. As a teenager he worked at Buffett & Son, a grocery store owned by Warren Buffett's grandfather.[2] After enrolling in the University of Michigan, where he studied mathematics, he never returned to Omaha except to visit.[3] In early 1943, a few days after his 19th birthday, he dropped out of college to serve in the U.S. Army Air Corps. As a Second Lieutenant he trained as a meteorologist[4] at Caltech in Pasadena, California, the town he was to make his home.[3] Through the GI Bill he took a number of advanced courses through several universities; without an undergraduate degree, he entered Harvard Law School and graduated in 1948 with a J.D. magna cum laude. At Harvard he was a member of the Harvard Legal Aid Bureau.[4][5] In college and the Army he developed "an important skill": card playing. “What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don't get a big edge often. Opportunity comes, but it doesn't come often, so seize it when it does come.”[3]

Career

He moved with his family to California, where he joined the law firm Wright & Garrett (later Musick, Peeler & Garrett).[3] In 1962 he founded and worked as a real estate attorney at Munger, Tolles & Olson LLP.[3] He then gave up the practice of law to concentrate on managing investments and later partnered with Otis Booth in real estate development. He then 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, and Co. in 1976, after losses of 32% in 1973 and 31% in 1974.[3]

Although Munger is better known for his association with Buffett, he ran an investment partnership of his own from 1962 to 1975. According to Buffett's essay, "The Superinvestors of Graham-and-Doddsville," published in 1984, 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.[6]

Munger was previously the chairman of Wesco Financial Corporation, now a wholly owned subsidiary of Berkshire Hathaway. It began as a savings and loan association, but eventually grew to control Precision Steel Corp., CORT Furniture Leasing, Kansas Bankers Surety Company, and other ventures. Wesco Financial also held a concentrated equity portfolio of over US$1.5 billion in companies such as Coca-Cola, Wells Fargo, Procter & Gamble, Kraft Foods, US Bancorp, and Goldman Sachs. Munger believes that holding a concentrated number of stocks, that he knows extremely well, will in the long term produce superior returns.[7]

Wesco is based in Pasadena, California, Munger's adopted hometown. Pasadena was also the site of the company's annual shareholders' meeting, which were typically held on the Wednesday or Thursday after the more famous Berkshire Hathaway annual meeting. Munger's meetings were nearly as legendary in the investment community as those he co-hosts with Buffett in Omaha. Such meetings were often perfunctory, but Munger interacted with the other Wesco shareholders at considerable length, sometimes speculating about what his hero Benjamin Franklin would do in a given situation.[8] Meeting notes have been posted on the Futile Finance? website, but no updates exist beyond 2011.[9]

Philanthropy

Munger Graduate Residence at Stanford University

Munger is a major benefactor of the University of Michigan. In 2007, Munger made a $3 million gift to the University of Michigan Law School for lighting improvements in Hutchins Hall and the William W. Cook Legal Research Building, including the noted Reading Room. In 2011, Munger made another gift to the Law School, contributing $20 million for renovations to the Lawyers Club housing complex, which will cover the majority of the $39 million cost. The renovated portion of the Lawyers Club will be renamed the Charles T. Munger Residences in the Lawyers Club in his honor.[10][11][12][13] On December 28, 2011, Munger donated 10 shares of Berkshire Hathaway Class A stock (currently valued at $202,285 per share, or $2.02 million total) to the University of Michigan.[14]

In addition to the University of Michigan, Munger and his wife Nancy B. Munger have been major benefactors of Stanford University. Nancy Munger was an alumna of Stanford, and Charlie Munger's daughter from a previous marriage, Wendy Munger was also an alumna (A.B. 1972). Both Nancy and Wendy Munger served as members of the Stanford board of trustees. In 2004, the Mungers donated 500 shares of Berkshire Hathaway Class A stock, then valued at $43.5 million, to Stanford to build a graduate student housing complex.[15][16] The Munger Graduate Residence opened in late 2009 and now houses 600 law and graduate students.[17] The Mungers also gave a major gift to Stanford's Green Library to fund the restoration of the Bing Wing as well as the construction of a rotunda on the library's second floor, and endowed the Munger Chair in Nancy and Charles Munger Professorship of Business at Stanford Law School.[3][18]

In 1997, the Mungers donated $1.8 million to the Marlborough School in Los Angeles, of which Nancy Munger was an alumna.[3] The couple also donated to the Polytechnic School in Pasadena and the Los Angeles YMCA.[19]

Munger has been a trustee of the Harvard-Westlake School in Los Angeles for more than 40 years, and previously served as chair of the board of trustees. His five sons and stepsons as well as at least one grandson graduated from the prep school. In 2009, Munger donated eight shares of Berkshire Hathaway Class A stock, worth nearly $800,000, to Harvard-Westlake.[3][20] In 2006, Munger donated 100 shares of Berkshire Hathaway Class A stock, then valued at $9.2 million, to the school toward a building campaign at Harvard-Westlake's middle school campus. The Mungers had previously made a gift to build the $13 million Munger Science Center at the high school campus, a two-story classroom and laboratory building which opened in 1995 and has been described as "a science teacher's dream".[21][22] The design of the Science Center was substantially influenced by Munger.[3]

On April 18, 2013, the University of Michigan announced the single largest gift in its history: a US$110 million gift from Munger to fund a new "state of the art" residence designed to foster a community of scholars, where graduate students from multiple disciplines can live and exchange ideas.[23] The gift includes US$10 million for graduate student fellowships.[24]

In October 2014, Munger announced that he would donate $65 million to the Kavli Institute for Theoretical Physics at the University of California, Santa Barbara. This is the largest gift in the history of the school. The donation will go toward the construction of a residence building for visitors of the Kavli Institute in an effort to bring together physicists to exchange ideas as Munger stated,"to talk to one another, create new stuff, cross-fertilize ideas".[25]

In March 2016, Munger announced a further $200 million gift to UC Santa Barbara for state of the art student housing, tripling the record gift he gave for the Kavli Institute for Theoretical Physics.[26][27]

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.[3]

Munger, along with Buffett, is one of the main inspirations behind the book "Seeking Wisdom: From Darwin to Munger". Author Peter Bevelin explained his key learnings from both Munger and Buffett in a 2007 interview: "How to think about businesses and investing, how to behave in life, the importance of ethics and honesty, how to approach problems but foremost how to reduce the chance of meeting problems." Bevelin stated that previously, he "was lacking the Munger ability to un-learn my own best-loved ideas".[28]

High ethical standards are integral to Munger's philosophy and, at 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."[29] During an interview and Q&A session at Harvard-Westlake School on January 19, 2010, Munger referred to American philosopher Charles Frankel in his discussion on the financial crisis of 2007–08 and the philosophy of responsibility. Munger explained that Frankel believed:

... the system is responsible in proportion to the degree that the people who make the decisions bear the consequences. So to Charlie Frankel, you don’t create a loan system where all the people who make the loans promptly dump them on somebody else through lies and twaddle, and they don’t bear the responsibility when the loans are good or bad. To Frankel, that is amoral, that is an irresponsible system.[30]

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, greatly increasing the likelihood of acting irrationally.

During a talk at Harvard in 1995 entitled The Psychology of Human Misjudgment, Munger mentions Tupperware parties and open outcry auctions, where he explained "three, four, five of these things work together and it turns human brains into mush," meaning that normal people will be highly likely to succumb to the multiple irrational tendencies acting in the same direction. In the Tupperware party, you have reciprocation, consistency & commitment tendency, and social proof. (The hostess gave the party and the tendency is to reciprocate; you say you like certain products during the party so purchasing would be consistent with views you've committed to; other people are buying, which is the social proof.) In the open outcry auction, there is social proof of others bidding, reciprocation tendency, 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.[31][32]

Personal life

From his first marriage to Nancy Huggins,[3] Munger is a father of 2 living children: Wendy Munger, a former corporate lawyer and trustee of Stanford University,[33] and Molly Munger, a civil rights attorney and funder of a ballot initiative to raise Californian taxes for public education.[34]

From his marriage to Nancy Barry, Munger is a father of four children—physicist and Republican activist Charles T. Munger, Jr., Emilie Munger Ogden, Barry A. Munger and Philip R. Munger—and two stepchildren: William Harold Borthwick and David Borthwick.[35] Nancy Barry Munger died in 2010.[36]

Munger enjoys architecture and has designed multiple buildings, including dormitories at Stanford University and University of Michigan as well as the house he currently inhabits.[37]

References

  1. ↑ Profile of Charles Munger, Forbes
  2. ↑ "Charlie Munger: Background & bio". Value Walk. Retrieved March 8, 2016.
  3. 1 2 3 4 5 6 7 8 9 10 11 12 Janet Lowe. Damn Right!: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger (2000). John Wiley and Sons.
  4. 1 2 "The World's Billionaires #1324 Charles Munger". Forbes. October 31, 2014.
  5. ↑ "A Special Event". Harvard Law School Alumni Center. Retrieved March 8, 2016.
  6. ↑ Warren Buffett (Fall 1984). "The Superinvestors of Graham-and-Doddsville" (PDF). Safal Niveshak.
  7. ↑ Jill Perry (January 29, 2008). "Financier Munger Gives DuBridge Lecture". California Institute of Technology.
  8. ↑ Whitney Tilson (9 May 2007). "Whitney Tilson’s 2007 Wesco Annual Meeting Notes" (PDF). Tilson Funds. Tilson Funds. Retrieved 7 April 2014.
  9. ↑ Various (2014). "Charlie Munger". Futile Finance?. Futile Finance?. Retrieved 7 April 2014.
  10. ↑ "Munger: A Leading Light." University of Michigan Law School.
  11. ↑ Janet Lorin, "Berkshire’s Munger Gives $20 Million to Michigan Law School"(March 14, 2011). Bloomberg.
  12. ↑ Kyle Feldscher, "Former Michigan student Charles Munger donates $20 million for Lawyers Club renovation project" (March 14, 2011). AnnArbor.com.
  13. ↑ "$20 million gift jumpstarts renovation at M Law's Lawyers Club." University of Michigan Law School.
  14. ↑ Kevin Roose, "Munger Donates $1.2 Million to University of Michigan." New York Times. January 10, 2011.
  15. ↑ "Mungers donate $43.5 million to help construct new graduate student residence" (August 26, 2004). Stanford University.
  16. ↑ Ulysses Torassa. "Stanford: $43.5 million given for more graduate student housing" (August 27, 2004). San Francisco Chronicle.
  17. ↑ Kathleen J. Sullivan, "Memorial to be held in March for former trustee Nancy Barry Munger" (February 23, 2010). Stanford University.
  18. ↑ "Farewells" (May/June 2011). Stanford Magazine.
  19. ↑ "Financier Munger Gives DuBridge Lecture" (January 29, 2008). California Institute of Technology.
  20. ↑ Jamie Kim, "Munger donates $800,000 of stock to school" (February 11, 2010). Harvard-Westlake Chronicle.
  21. ↑ Steve Jordon, "[www.redorbit.com/news/education/547277/munger_gives_100_shares_of_berkshire_to_prep_school/ Munger Gives 100 Shares of Berkshire to Prep School]" (June 22, 2006). Omaha World-Herald.
  22. ↑ Beth Schuster, "A Science Teacher's Dream in Studio City: New $13-million center gives students at Harvard-Westlake School top-notch, hands-on lessons" (December 24, 1995). Los Angeles Times.
  23. ↑ O'Toole, James. "Buffett associate Charlie Munger pledges $110 million to University of Michigan". CNNMoney. Retrieved 19 April 2013.
  24. ↑ Associated Press. "$110 million donation largest in UM history". The Toledo Blade. Retrieved 19 April 2013.
  25. ↑ De La Merced, Michael. "Charles Munger, Warren Buffett’s Longtime Business Partner, Makes $65 Million Gift". Retrieved 24 October 2014.
  26. ↑ Brugger, Kelsey (March 24, 2016). "Charlie Munger Donates $200 Million to UCSB for New Dorms". Santa Barbara Independent (Santa Barbara, California). Retrieved March 25, 2016.
  27. ↑ Yelimeli, Supriya (March 28, 2016). "Billionaire Donates $200M To Fix ‘Gross’ Dorms". Daily Nexus (Santa Barbara, California). Retrieved March 29, 2016.
  28. ↑ Joe Koster (17 October 2007). "Interview with Peter Bevelin, author of Seeking Wisdom - from Darwin to Munger". Value Investing World. Google Inc. Retrieved 7 April 2014.
  29. ↑ Charlie Munger's got a billion words of wisdom, May 17, 2009, Los Angeles Times, Accessed January 3, 2010
  30. ↑ "Munger Talk at Harvard-Westlake". Scribd (from Santangel's Review). Scribd Inc. 17 October 2012. Retrieved 7 April 2014.
  31. ↑ Kaufman, Peter. Poor Charlie's Almanack. Donning Company. ISBN 1-57864-303-1.
  32. ↑ Hirschey, Mark (2008). Managerial Economics. Cengage Learning. p. 20. Retrieved 29 March 2011.
  33. ↑ "Munger elected to Board of Trustees". Stanford University. February 12, 2003.
  34. ↑ Steven Harmon (March 1, 2012). "Political novice no stranger to upending status quo". San Jose Mercury News.
  35. ↑ Janet Lowe (16 August 2000). "Chapter One: AN EXTRAORDINARY COMBINATION OF MINDS" (PDF). Damn Right!: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger. Wiley. Retrieved 7 April 2014.
  36. ↑ Kathleen J. Sullivan (23 February 2010). "Memorial to be held in March for former trustee Nancy Barry Munger". Stanford News. Stanford University. Retrieved 7 April 2014.
  37. ↑ "Warren Buffet on Charlie Munger" (PDF). Berkshire Hathaway. p. 26.

Books

Further reading

Regulatory filings

External links

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