Please ensure Javascript is enabled for purposes of website accessibility

Important Lessons from the Late Charlie Munger

Charlie Munger passed away last month at 99, but he left behind important lessons for all of us, about life and investing.

Sparklers and Champagne Glasses

Last month, Charlie Munger passed away at the age of 99. He may not have been as well known as his friend (and some would say protege) Warren Buffett, but he was instrumental in shaping the direction of Berkshire Hathaway (BRK.A/B), which he co-chaired.

Before meeting Munger, Buffett was a “cigar butt” investor who looked to squeeze every last bit of value from discarded companies. But Charlie Munger helped him realize the value of buying good companies at fair prices – arguably one of the defining traits of Buffett’s legacy.

In interviews and the media, Munger was plainspoken and unafraid to voice his thoughts on anything from rampant stock speculation (“wretched excess”) to Bitcoin (“rat poison” and “a venereal disease”) to the importance of optimism and “old-fashioned” values.

Charlie Munger also chaired the Daily Journal Corporation (DJCO), which, like Berkshire Hathaway, holds public stocks – in its case, $154 million worth, about a third of its $440 million market cap.

Daily Journal is primarily a technology company that serves lawyers, providing legal information and automated reporting services but, following the Great Financial Crisis, became significantly more notable for its investments (and its association with Mr. Munger).

Over the years, Munger has flaunted conventional wisdom by investing in only a few companies. Until the end of last year, Daily Journal held five portfolio positions. Currently, that’s down to four.

His life will be well-summarized in the days to come, and this obituary from the Daily Journal seems the most fitting to share. So rather than recount stories of personal hardship (of which he endured many), or fortunes made or lost, we wanted to share the lessons he left behind, and which he’d gladly share with any who asked.

Lessons from the Late Charlie Munger

On finding happiness …

Munger was asked in a 2019 episode of “Squawk Box” about the secret to a long and happy life. The answer, he said, is simple:

“You don’t have a lot of envy, you don’t have a lot of resentment, you don’t overspend your income, you stay cheerful in spite of your troubles. You deal with reliable people and you do what you’re supposed to do. And all these simple rules work so well to make your life better. And they’re so trite.”

On values …

In an interview for Michigan Ross Business School, Mr. Munger once said:

“I sometimes use the old saying, ‘They got the boy out of Omaha but they never got Omaha out of the boy.’ All those old-fashioned values — family comes first; be in a position so that you can help others when troubles come; prudent, sensible; moral duty to be reasonable [is] more important than anything else — more important than being rich, more important than being important — an absolute moral duty.”

On investing …

“All intelligent investing is value investing — acquiring more than you are paying for … You must value the business in order to value the stock.”

… and on value investing in particular

“The idea of getting more value than you pay for, that’s what investment is. If you want to be successful, you have to get more value than you pay for. So it’s never going to be obsolete.”

On his portfolio …

“You’re lucky if you got four good assets. If you’re trying to do better than average, you’re lucky if you have four things to buy. To ask for 20 is really asking for egg in your beer.”

And, owing to his credit or coincidence, his portfolio just happened to have four good assets when he passed.

Alibaba (BABA) – Munger was vocal about the value of building an economic partnership with China, and when asked about the investment in Alibaba, had this to say: “Well, we did it for a very, very simple reason. We got more strength per dollar invested in China. The companies we invest in are stronger relative to their competition and priced lower. That’s why we’re in China.”

Bank of America (BAC), U.S. Bancorp (USB) and Wells Fargo & Company (WFC) – Large U.S. banks were three-quarters of the names he held and made up nearly 84% of Daily Journal’s portfolio. When he was asked about them earlier this year, he was as pragmatic as you would expect, saying, “Those bank stocks I bought on the bottom tick in the foreclosure crisis. It literally was the bottom tick … And they’re practically all gain, so I immediately give the government 40-some percent of everything we sell out of those bank stocks. And of course the dividends are almost tax-free.”

We don’t typically advocate putting all your eggs in one basket (or in your beer for that matter), but a highly concentrated portfolio in U.S. bank stocks seems like a fitting portfolio for Mr. Munger: optimistic about the future of the country and committed to doing what he thought was best, even in the face of “conventional” wisdom.

Brad Simmerman is the Editor of Cabot Wealth Daily, the award-winning free daily advisory.