After the Bell: Charlie Munger — a distant and modest tribute
You might see a lot of adulatory reminiscences about Berkshire Hathaway vice-chairperson Charlie Munger following his death on Tuesday, one month short of his hundredth birthday, but please allow me just a few cents’ worth.
As far as I know, I have never been in the same city as Charlie Munger, never mind in the same room. I don’t have any intimate knowledge to share, other than a general appreciation of a masterful investor. My appreciation is akin to watching a skilled pianist or carpenter at work, nothing more — or less.
One thing does especially intrigue me about Munger and that is this: why he was so necessary to his partner, friend, and possibly more esteemed cohort Warren Buffett. Buffett famously called Munger the “abominable no-man” because of the amount of times he ferociously nixed investments in which Buffett was keen to invest.
Buffett has explained why Munger was important to the partnership, saying their differences coalesced around the decision to buy, or not buy, a set of stores called See’s Candies way back in 1971. The asking price was three times the stores’ net worth, which was much higher than Buffett said he was accustomed to paying. But the stores would go on to earn $2-billion in cumulative earnings over the successive decade. Berkshire paid $25-million for the business.
The Wall Street Journal tribute to Munger records that Buffett wrote in 2015, “This purchase ended my pursuit of ‘cigar-butt’ investments — mediocre companies at ‘bargain’ prices — and set me in pursuit of splendid businesses selling at [reasonable] prices.” Munger had been urging this course for some years, “but I was a slow learner”.
Munger was famously the “man of few words” at Berkshire’s annual meetings, which still take place in front of tens of thousands of attendees. He allowed the company’s chairperson to take the limelight and hog the microphone. But often after Buffett had discussed an issue at length, he would unleash a single-sentence zinger.
The best known is perhaps when the two were asked at Berkshire’s annual meeting in 2000 about how investable internet stocks were at the time (some of which were showing enormous returns). Buffett delivered a 500-word treatise. Munger said only, “If you mix raisins with turds, they’re still turds.”
But people who knew the pair well said Munger’s reticence was really part of the act; in different circumstances, it was almost impossible to keep him quiet. There are some great examples on the internet, including his hour-long dissertation on The Psychology of Human Misjudgment, which was broken down into 25 cognitive biases.
I suspect this was the other thing he brought to the world’s greatest investment house: a fascination with cognitive psychology. While Buffett often responds to questions in public with a financial perspective, Munger was more interested in the economics of psychology, a topic that invites too little academic interest.
One other thing Munger brought to Berkshire was a kind of philosophical adeptness. Munger loved to learn and to try and look at businesses from the opposite direction. In his book Poor Charlie’s Almanack, Munger advised: “Invert, always invert: Turn a situation or problem upside down. Look at it backward.”
A good example of how this would work is to answer the speculative question: “How can we help India?” According to Munger’s “backwards” adage, the real question was not “How can we help India?”, but: “What is doing the worst damage to India, and how can we avoid it?” Suddenly a question that is conjectural and even philosophical becomes much more immediate and practical.
I suspect that the other thing Munger brought to the relationship with Buffett was simply friendship, a very underestimated force in my experience. People have a natural tendency to look at the advice of opponents or even just interlocutors with suspicion. But you listen to your friends. You just do.
The same Wall Street Journal tribute to Munger records Buffett’s first wife, Susan, saying after their first meeting in 1998, “I think Warren felt that Charlie was the smartest person he’d ever met, and I think Charlie felt Warren was the smartest person he had ever met.”
I see a lot of this in successful businesses and partnerships; a balance between certain senior executives who like and respect each other, even if one is technically superior to the other, is often an absolutely crucial piece of organisational magic. Discussions between friends have a wonderful ability to clarify, enhance and advance good ideas while booting the bad ones. When it works, it works exponentially well.
Really, the first line of the Wall Street Journal tribute says it all: “No equal business partner has ever played second fiddle better than Charlie Munger.” DM