No. of Recommendations: 28
Here is Li Lu's tribute to Charlie:
https://www.facebook.com/li.lu.376043/posts/pfbid0..."Remembering my teacher Charlie Munger
Thursday, November 30, 2023
I was on a business trip in Asia on Tuesday when I got the call from the Munger family informing me that Charlie was in his final hours. I hopped onto the next flight I could find to California, and before departure, was able to talk to Charlie through the help of his daughter. Charlie had largely lost consciousness, but still I could clearly hear him trying to make a sound to acknowledge he had heard me. Upon landing, I learned that Charlie had left us a few hours earlier.
I arrived at his Santa Barbara home and had the opportunity to spend cherished time with family members, reminiscing about all things Charlie. Charlie was engaging, humorous and full of wit even at Thanksgiving dinner just a few days ago, family members told me. I visited his home library again. In that very room, exactly 20 years ago, also on a post-Thanksgiving weekend afternoon, following the introduction by our mutual friend Ron Olson, Charlie and I first struck up a deep conversation which ran for several hours. It began an investment partnership that has now endured two decades. Charlie became my mentor, partner, dear friend and above all, life-long role model.
I was so deeply grateful that the Munger family made a special arrangement the next day for me to say a proper and private goodbye to Charlie.
There, lying quietly with eyes closed, Charlie looked the same as ever, peaceful and sincere with a subtle smile on his face. There was a serenity about him. For a moment, I was reminded of the Living Buddhas I once saw in the Buddhist temples of Thailand. In the Buddhist tradition, the bodies of truly enlightened monks, through life-long self-cultivation, can remain incorrupt, without any traces of mummification after death. In that moment, it is what I saw in Charlie, an enlightened sage with an incorruptible body, surrounded by a glimmer of eternal light.
Charlie was not a Buddhist. That vision can never be tested. But it is incontrovertible that his legacy and impact will live on for generations to come.
In our capitalist society, where do virtue, moral responsibility, truth-seeking and public service fit in? Charlie Munger answered these questions through his long exemplary life. He insisted on making money in the most morally sound way, entering transactions only when, if positions were reversed, he would comfortably take the other side. He sought worldly wisdom through life-long learning. He guided life with rationality devoid of mental deficiencies such as envy, resentment and self-pity. He faced and persevered through countless adversities with stoicism and equanimity. As he gained in wealth and stature, he showed little appetite for the trappings of that success, and instead spent his wealth on worthy causes and tirelessly spread his worldly wisdom to those who would listen, often with humor. He remained deeply engaged with family, friends, partners and the broader world with loving assiduousness through his last days.
In his later decades, Charlie Munger’s ideas began to spread across the world, particularly in the most populous countries of China and India. In China, the Mandarin language version of “Poor Charlie’s Almanack,” an anthology by and about Charlie Munger, sold over 1.2 million copies over the last 10 years. There, the educated class increasingly came to view Charlie as the embodiment of the modern-day Confucianism, maintaining a virtuous and enlightened life while embracing the market forces of capitalism. In time, that vision of modern Confucianism will be crucial for Chinese modernization and how China interacts with the rest of the world.
Charlie’s teachings will continue to spread, inspire and impact the world even more profoundly. That will be his eternal legacy."
No. of Recommendations: 35
We were deeply saddened to learn of the passing of Charles T. Munger, the Vice Chairman of Berkshire Hathaway, who died last week about one month shy of his 100th birthday. After attending my first Berkshire Hathaway meeting more than 25 years ago, I immediately fell in love with Charlie’s wisdom, wit, and curmudgeonly manner of answering shareholder questions. I still fondly recall the annual meeting I received his autograph, which is a prized possession.
Warren Buffett, CEO of Berkshire Hathaway, said: “Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation.” In fact, Buffett has said his greatest investment accomplishment was, “Recruiting Charlie!” In 1972, Charlie Munger helped shape Berkshire’s investment philosophy during the acquisition of See’s Candies with the lesson that: “It is better to buy a good business at a fair price than a fair business at a good price.”
Charlie Munger was a great exemplar and teacher to millions of long-term investors, including us. In reviewing our notes from the Berkshire Hathaway annual meetings that we summarized every June in our newsletter for the past quarter century, I have included a few timeless lessons Warren and Charlie imparted to us over the years:
1997
Insurance is Berkshire Hathaway’s most important business activity and provides a major opportunity for the company’s continued outstanding performance. Buffett forewarned shareholders to occasionally expect a huge loss from this business. Charlie grumbled that if Berkshire must write out a check for $1 billion, it will be “irritating,” but certainly won’t put them out of business, since it will be a tiny fraction of their liquid assets.
1998
During the dot-com mania, Warren and Charlie noted it was very tough to allocate capital since they were not finding bargains as they looked around the world. While Berkshire continually seeks ways to sensibly deploy its growing capital, Buffett noted, “It may be some time before we find the opportunities that get us truly excited.” Buffett asserted, “We will wait indefinitely for good values to reappear.” When turning to Charlie to respond, Charlie dryly retorted, “I have nothing to add.” This common refrain always made the crowd laugh.
1999
Buffett was asked about the Long Term Capital Management (LTCM) debacle that helped cause a sharp decline in the stock market when the hedge fund imploded. He noted that super bright, extremely talented people, who had their own net worth at risk, caused the problem because of too much leverage. Charlie added, “This will not be the last convulsion we see in derivatives.” Buffett was called to see if he would be interested in helping bail out LTCM. He was on vacation in Yellowstone Park at the time and made an unaccepted bid for LTCM. He showed shareholders a picture of him on his cell phone negotiating the deal in front of an erupting Old Faithful. Buffett joked the picture should be dubbed, “The Geezer and the Geyser.”
2000
Berkshire’s insurance business provided the company with over $25 billion in float. (Today, float approximates $167 billion!) Float is the insurance premiums that Berkshire gets to invest before losses have to be paid out, an interval that sometimes extends for many years. Charlie noted, “I’ve been amazed by the growth and cost of our float. It’s wonderful to grow billions of dollars of float at a cost well below Treasury rates.” Warren and Charlie’s remarkable skill in investing Berkshire’s growing float has resulted in the incredible compounding of Berkshire’s net worth over the years.
2001
Charlie commented that Berkshire is willing to lay off large sums of money for good businesses run by smart people when the businesses can be acquired at a reasonable price. He noted that if Berkshire borrows money at 3% through its insurance business and earns 13% returns from its operating businesses, that’s a pretty good position to be in. He wryly added, “You don’t need more intelligence than that at corporate headquarters.”
2002
In the prior year, Berkshire’s net worth declined for the first time since 1965 due to a $2 billion insurance loss related to the 9/11 terrorist acts. Buffett openly criticized himself for having recognized the potential for huge monetary damages from terrorist acts but failing to price it in Berkshire’s insurance policies. Charlie added, “Sept. 11 has made us less weak, foolish and sloppy. We now are facing reality with more intelligence.” Since Sept. 11, Berkshire is either excluding terrorist risks or pricing it into policies issued but excluding nuclear, chemical or biological events.
On a lighter note, Berkshire acquired Fruit of the Loom. Buffett quipped that the idea to buy the company came from Charlie when he called and said, “Warren, we have to get in women’s underwear!” Warren figured since Charlie was 78, “It is now or never!”
2003
Munger has adopted an approach to business and life that he refers to as worldly wisdom. Munger believes that by using a range of different models from many different disciplines—psychology, history, mathematics, physics, philosophy, biology, and so on—a person adds a tremendous interlocking strength to our understanding of how the world works. Charlie stated, “Economics involves too complex a system… economics should emulate physics’ basic ethos, but its search for precision in physics-like formulas is almost always wrong in economics.”
2004
Berkshire Hathaway’s cash on the balance sheet tripled last year to $30 billion. (Today, it tops $318 billion!) Charlie presciently remarked that much of Berkshire’s future value will be determined by how well they deploy the growing amounts of cash with the hope that they will invest it as well as they have in the past.
2005
Despite expressing concerns about the trade deficit, U.S. dollar, pensions, hedge funds, real estate and potential terrorist activity, Buffett said, “Overall, I’m an enormous bull on the U.S. This is the most remarkable success story in the history of the world. It does not make sense to bet against America. If you can buy very good businesses at attractive valuations, it is crazy to sit out of the market due to macro factors.” Charlie added that the best time to buy into a well-run company is when there is “a batch of bad news.”
2006
Warren Buffett explained that investing is not that complicated. Investors just need to “find the best pockets of undervaluation, have the courage of their conviction and buy when others are paralyzed by fear.” He further added that investors don’t need a ton of ideas—just one idea worth a ton.” He quoted Ben Graham: “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.” He further instructed investors to focus on what is “important and knowable” and pay heed to Graham’s wise observation that “the market is there to serve you, not instruct you.” Charlie more succintly summarized, “We simply try to buy things for less than they’re worth.”
2007
Warren Buffett favors businesses where he “knows the answers.” If he can’t determine what the nature of a business will look like in 5-10 years, he won’t invest in it. When you invest in great businesses, you don’t need huge margins of safety. Charlie added that margin of safety boils down to getting more value than you are paying. Buffett seeks businesses with high returns on capital and good management that can be held for a long time. Both Charlie and Warren emphasized staying within your circle of competence when investing. Charlie said Berkshire throws almost all investment decisions into the “Too Hard” pile and only focuses on making easy investment decisions.
2008
In the midst of the Great Financial Crisis, Charlie exclaimed that it is crazy to allow companies to get too big to fail, especially in today’s “culture of greed and overconfidence in algorithms.” It is “demented” to allow derivative accounting to have become embedded in the financial system. It is too easy for financial institutions to report earnings and assets that are “good until reached for.” Charlie continued, “Wall Street believes in the tooth fairy. The accounting profession utterly failed us.”
2009
Buffett stated Berkshire’s competitive advantage is its business model and culture, which is very difficult to copy. Other competitive advantages include Berkshire Hathaway’s loyal shareholders, managers who understand business differently and Berkshire’s ability to provide private businesses with a good home. Berkshire’s culture is deeply embedded in the CEO’s of its various companies and will continue. This will provide long-lasting advantages to Berkshire even without Buffett and Munger around. Charlie added that many companies in the U.S. are “run stupidly.” When they focus on quarterly earnings management, they make terrible business decisions. This is not the case at Berkshire. The “stupid practices” of the rest of the world will give Berkshire a competitive advantage well into the future.
2010
Following the Great Financial Crisis, Charlie exclaimed, “If all derivatives vanished from the face of the earth, it would be a safer place.” He added that if he were in charge of financial reform, he would make “Paul Volker look like a sissy!” He would reduce the activites of the investment banks. He noted we should not have financial statements that no one can understand. “Crazy complexity is unproductive!” He added that if you give banks the flexibility “to do whatever they damn please, they will go plumb crazy, which is what they did.”
On the increase in government debt and inflation concerns, Charlie bluntly stated, “If I can be an optimist when I’m nearly dead, surely the rest of you can handle a little inflation!”
2011
When asked about investing in gold as an inflation hedge, Buffett said, “If you take all of the gold in the world and put it into a cube, it would be about 67 feet on a side, and you could get a ladder and get up on top of it. You can fondle it, you can polish it, and you can stare at it. But it isn’t going to do anything. All you can hope is that someone down the road will pay you more for it down the road.” Charlie agreed, “There’s something peculiar in buying an asset that will only really go up if the world goes to hell.” Buffett concluded that a smarter and safer strategy to beat inflation would be to concentrate your efforts on investing in businesses that have little debt, the ability to increase prices and a history of paying strong dividends.
2012
Given the news of Buffett’s prostate cancer, he was asked how he was feeling. He replied, “I feel terrific. I love what I do. I have more fun every day, a good immune system and a great diet,” as he munched on See’s peanut brittle and chugged cherry Cokes throughout the meeting. His radiation treatments will not involve hospitalization, and the survival rate is 99.5%. Charlie joked that he resented all the attention and sympathy Buffett was receiving as he believed that he had more prostate cancer than Buffett, but he just doesn’t get tested for it. Both see the prostate cancer as a non-event for Berkshire. In a post-Buffett/Munger Berkshire Hathaway, the culture is unlikely to change with a well-thought out succession plan in place. Charlie added that the first $200 billion of market capitalization was hard for Berkshire to create, but the second $200 billion will be pretty easy to achieve given the momentum of Berkshire’s businesses. Buffett agreed that Berkshire has the businesses in place to take Berkshire’s market capitalization to $400 billion in the future. (Today, Berkshire’s market capitalization tops $777 billion!)
2013
Buffett believes the Berkshire brand will continue to generate attractive returns without Buffett having to be at the helm. Charlie noted that in the early days, Berkshire earned attractive returns because Buffett was a value investor who had little competition. Today, Berkshire earns attractive returns because Berkshire is a good home for good companies again with little competition. Charlie added that Berkshire’s ability to “stay sane when others like to go crazy” is a competitive advantage.
2014
Charlie emphasized that Berkshire’s business model “has legs” and will go on for a long time. It is a credible business model with enough advantages to last a long time. He said, “Berkshire will keep doing what we are doing and learn from our mistakes.” The momentum and ecosystem are in place. He advised young folks, “Do not be too eager to sell Berkshire stock.”
2015
Over the past 50 years, Berkshire Hathaway’s stock has compounded at a glittering 21.6% annual rate versus the 9.9% annual return of the S&P 500 (with dividends reinvested). If you had invested $10,000 in the S&P 500 index 50 years ago, you would now have more than $1.1 million. In contrast, if you had invested the same $10,000 with a young whippersnapper named Warren Buffett, you would now have over $182 million. This windfall demonstrates not only the magic of compounding high returns over long periods of time but also how active management with sound investment principles outperforms passive investments by a landslide. Charlie stated, “Berkshire will do fine after we are gone. In fact, it will do better in dollar terms. We will never gain as much in percentage terms as we did in the beginning years. There is a worse tragedy than having Berkshire’s growth slow a little.” Buffett laughed, “Name one!”
2016
When asked how he thinks ahead of the crowd, Buffett remarked, “I owe a great deal to Ben Graham in terms of investing, and I owe a great deal to Charlie in terms of learning a lot about business. I spent a lifetime looking at businesses and why some work and why some don’t work…pattern recognition. As Yogi Berra said, ‘You can see a lot just by observing.’ That’s pretty much what Charlie and I have been doing for a long time. It is important to recognize what you can’t do. We’ve generally tried only to swing at things in our particular strike zone. It’s really not much more complicated than that. You don’t need the IQ in the investment business that you need at certain activities in life. You do have to have emotional control. We’ve seen very smart people do very stupid things with unnecessary risks. Charlie explained, “There are a few simple tricks that work well. Temperament that has a combination of patience and opportunism in it is one. I think it’s largely inherited, but it can be learned to some extent. Another factor that Berkshire has done so well is we really try to behave well. I had a great-grandfather that when he died, the preacher said, ‘None envy the man’s success won fairly and used wisely.’ It’s exactly what Berkshire is trying to do. It works!”
2017
After famously avoiding technology investments, Buffett said, “Fairly recently, we took a large position in Apple, which I do regard more as a consumer goods company in terms of certain economic characteristics. It has a huge tech component in terms of what that product can do or what other people might come along to do to leapfrog it in some way. I certainly can get a lot of information on consumer behavior and then try to draw inferences as to what consumer behavior is likely to be in the future.” Charlie Munger noted, “I think it’s a very good sign that you bought Apple. It shows either one of two things. Either you’ve gone crazy or you’re learning. I prefer the learning explanation.” Buffett laughed, “So do I, actually.”
2018
Buffett forecast, “Cryptocurrencies will come to bad endings. Along with the fact that nothing is being produced in the way of value from the asset, you also have the problem that it draws in a lot of charlatans and that sort of thing. It’s something where people who are of less than stellar character see an opportunity to clip people who are trying to get rich because their neighbors are getting rich buying this stuff. It will come to a bad ending.” Charlie muttered, “Well, I like cryptocurrencies a lot less than you do. To me, it’s just dementia. I think the people who are professional traders that go into trading cryptocurrencies, it’s just disgusting. It’s like somebody else is trading turds and you decide, I can’t be left out. “
2019
One of Berkshire’s investment managers (not Buffett) recently made a nearly $1 billion investment in Amazon. Charlie Munger revealed, “I don’t mind not having caught Amazon early. I give myself a pass on that. But I feel like a horse’s ass for not identifying Google better.” Buffett agreed, “He’s saying we blew it. And we did have some insights into that because we were using them at GEICO, and we were seeing the results produced. And we saw that we were paying $10 a click, or whatever it might’ve been, for something that had a marginal cost to them of exactly zero. And we saw it was working for us.” Charlie added, “We could see in our own operations how well that Google advertising was working. And we just sat there sucking our thumbs. So, we’re ashamed. We’re trying to atone. Maybe Apple was atonement.”
2020
At the height of the global pandemic, Berkshire’s annual meeting was held virtually and without the thousands of attendees. Buffett’s opening comments were: “This is the annual meeting of Berkshire Hathaway. It doesn’t look like an annual meeting. It doesn’t feel exactly like an annual meeting, and it particularly doesn’t feel like an annual meeting because my partner of 60 years, Charlie Munger, is not sitting up here. I think most of the people that come to our meeting really come to listen to Charlie. But I want to assure you, Charlie at 96 is in fine shape. His mind is as good as ever. His voice is as strong as ever, but it just didn’t seem like a good idea to have him make the trip to Omaha for this meeting. Charlie is really taking to this new life. He’s added Zoom to his repertoire.”
2021
Buffett discussed that Berkshire spent about $25 billion last year repurchasing shares. “We can’t buy companies as cheap as we can buy our own, and we can’t buy stocks as cheap as we can buy our own.” Buffett explained that share repurchases are a way essentially of distributing cash to the people that want the cash when other co-owners mostly want you to re-invest it. Charlie added, “Well, if you’re repurchasing stock, just to bull it higher, it’s deeply immoral, but if you’re repurchasing stock because it’s a fair thing to do in the interest of your existing shareholders, it’s a highly moral act, and the people who are criticizing it are bonkers.”
2022
Charlie Munger said, “I like having big reserves of oil. If I were running the benevolent despot of the United States, I would just leave most of the oil we have here, and I’d pay whatever the Arabs charge for their oil and I’d pay it cheerfully and conserve my own. I think it’s going to be very precious stuff over the next 200 years. And nobody else has my view, so it doesn’t bother me, I just think they’re all wrong.”
2023
Charlie Munger’s advice for a good life: “It's so simple to spend less than you earn, avoid toxic people, toxic activities, keep learning all your life, defer gratification because you prefer it that way, and if you do it all this way, you will succeed. If not, you will need a lot of unusual luck.”
*****
Charlie Munger succeeded in living a good life, and we will greatly miss him.
