Charlie Munger, RIP

 A few decades ago, I was going through outpatient surgery for a minor issue. As I was being prepped for the procedure, the surgeon told me that he was from Omaha and had moved to my locale a few years ago. I said you must be familiar with Warren Buffett. He said yes but added that he had met Berkshire Hathaway’s vice-chairman Charles T. “Charlie” Munger at a party and at a dinner and was very impressed. He said that Charlie was hilarious, direct and the most brilliant person that he had ever met. From then on, I began to follow Mr. Munger closely. I was saddened but not surprised when Charlie died a few days ago just several weeks short of his 100th birthday.

Most people have heroes and some say that it is good for us to have them. For me, a New England boy, Ted Williams was always there. Over the years, President Teddy Roosevelt joined the list. In finance, Jack Bogle who founded Vanguard, popularized the index fund which saved many disciplined and patient investors thousands in fees, and made many millionaires. Charlie Munger made the cut for the last 23 years and may well be on top of the small list (there are a few others whom most of you do not know so I leave them out of this post).

Each year, I avidly watch the Berkshire Hathaway annual meeting (known as Woodstock for Capitalists) where Warren Buffett and Charlie Munger held court for several hours at a big arena in Omaha. They got the necessary but perfunctory formal part of the meeting over quickly but then answered questions from the assembled shareholders for hours. 

Warren would generally start to answer each question in his folksy way and ramble on for a few minutes. He would then say, “Charlie, do you have anything to add?” In a few remarkably concise sentences, Charlie would cover the topic. After a while, I would watch to hear Charlie rather than Warren. The man was an absolute master of clarity and was funny, irreverent, and totally undiplomatic. 

Warren Buffett gave him full credit for changing his investment philosophy. Buffett was a student and disciple of investment writer and guru Benjamin Graham. His approach was to buy assets at a steep even huge discount. Warren was a strict adherent to this guideline in the early years of his career. Charlie convinced him to look at potential growth of companies that had a “franchise” with the public. The shift was to go from buying into good companies at a great price to one of investing in great companies at a fair price. Soon Berkshire Hathaway was buying large positions in Coca-Cola, American Express, Gillette (now part of Procter & Gamble) as well as a fairly recent enormous position in Apple.

Charlie Munger could be scathing regarding American graduate schools. His target was often MBA programs and the way they instructed students on financial analysis. I confess that I had to unlearn some things when I began to follow Charlie.

While Buffett praised Jack Bogle for getting many into index funds, Charlie called diversification—“deworseification.” His idea was to find a few really good ideas and stick with them. 

With equal bluntness he said of analysis of companies using EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization)—“whenever you see EDITDA in a sentence, substitute it with the world Bullshit.”

As he grew older, he was willing to offer life advice to young people. Here are a few of my favorite gems:

—The secret to happiness is to lower your expectations.

—Acknowledging what you don’t know is the dawning of wisdom

—Develop into a lifelong self-learner through voracious reading. (I often would go back to this when colleagues told me that I read too much)

—The big money is not in the buying and selling….but in the waiting.

—In my whole life, I have known no wise person who did not read all the time—none. ZERO

—I like people admitting that they were complete stupid horses asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.

Charlie is gone but he left behind a few books and his interviews will live forever on You Tube. Check them out. I bet that many of you will find them as beneficial as I do.

Rest in peace, Charlie. You were a true renaissance man.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.