The Life and Career of Charlie Munger

This essay is the first in a two-part series on the life and legacy of Charlie Munger.  

Charlie Munger, Warren Buffett’s partner and long-time vice chairman of Berkshire Hathaway, died on Tuesday November 28^th, 2023, at the age of 99.  

Charlie Munger was born on January 1, 2024, in Omaha, Nebraska to Alfred and Florence Munger. Both of Munger’s parents were highly educated and undoubtedly had an impact on the young Munger’s intellectual pursuits. Charlie, who was later known as a wise polymath, was a cerebral child with a variety of interests. 

He briefly studied mathematics at the University of Michigan but left the University in 1942 to join the Army. While in the Army, Munger was sent to the California Institute of Technology (Caltech) where he studied meteorology. While at Caltech, Munger met and married his first wife, Nancy Huggins. After training at Caltech, Munger was stationed in Nome, Alaska, where he would put his training to use developing weather forecasts used by fighter pilots. 

After his military service, Munger attended Harvard Law School, where he graduated magna cum laude in 1948. Munger then moved to Los Angeles and began practicing law at the (then) firm of Wright and Garrett. But his first few years of practice were marked with tragedy. First, his marriage ended in divorce. Then shortly after his divorce, his first son, Teddy, was diagnosed with Leukemia, a disease which at the time had no treatment. Teddy Munger died in 1955 at the age of nine. 

Munger remarried in 1956. He would remain married to his second wife, Nancy Borthwick, until her death in 2010. Together, they would raise eight children. 

While practicing law, Munger began to invest in publicly traded securities, private businesses, and real estate. Munger entered into his first real estate development deal in 1961 and had, within a few years, become independently wealthy through his real estate investments. 

In 1959, Munger flew back to Omaha to help settle his father’s estate. During this trip, he was introduced (through a mutual friend) to Warren Buffett, who was then managing investment partnerships. It was during this meeting that Buffett suggested that Munger start a similar investment operation in California. 

In 1962, Munger established his investment operation with a friend named Jack Wheeler. The firm, Wheeler, Munger & Co., controlled two specialist posts on the Pacific Coast Stock Exchange, then a regional stock exchange which listed companies too small for national trading. It was common practice at the time for smaller investment firms to hold seats on a regional exchange. Before 1975, brokers operated a price cartel, and trading commissions were fixed. The fixed-price structure put smaller operations at a disadvantage. To skirt high commissions, investment firms would often purchase exchange memberships so they could trade directly. 

In the same year that Munger opened his investment partnership, he also became a partner in his own law firm. Although he seldom practiced law, Munger was instrumental in bringing clients to the firm. The firm, Munger, Tolles, would go on to become one of the nation’s preeminent corporate law firms. 

Warren Buffett’s investment heritage stemmed from Benjamin Graham, a former investment manager and adjunct professor at Columbia Business School who authored the investment books Security Analysis and The Intelligent Investor. Through these works and his classes at Columbia, Graham espoused the idea that stocks should only be bought when they possess a significant “margin of safety” – i.e., a significant discount from a conservative appraisal of underlying business value. Graham advocated a metric called “net-net working capital”, which was defined as a firm’s current assets minus all liabilities. To Graham, net-net working capital was a conservative proxy for a firm’s underlying business value. 

Buffett attended Graham’s class at Columbia and later worked for Graham as an analyst. When Graham closed his partnership, Buffett decided to set out on his own. Buffett started his first partnership in 1956, investing along the lines of what he was taught by Graham. 

Munger, on the other hand, had read Graham’s work and later met Graham (who was then living in California), but was less married to Graham’s philosophy than Buffett was. Munger put a greater emphasis on business quality and would often keep his portfolio highly concentrated. Both Munger and Buffett would sometimes take full control of companies, and the two would often partner together on investments. 

Graham’s value approach worked well in the several decades after the 1929 stock market crash. Stocks remained out of favor through much of the ‘40s and ‘50s – the Dow Jones Industrial Average didn’t reach its 1929 peak until November 1954. By the 1960s, however, the market was entering the “go-go” era, and stocks were trading at high multiples to earnings and book value. Buffett found it increasingly difficult to find cheap stocks and shuttered his partnership in 1969. Munger, however, did not liquidate his fund until 1976. Despite poor performance in 1973 and 1974, the Munger partnership returned over 20% over its life. 

At the time that Munger liquidated his partnership, the fund owned large positions in Blue Chip Stamps and Diversified Retailing. Upon liquidation, the shares of these two companies were distributed to investors in the Munger partnership.  

Munger, along with Warren Buffett and a third partner, Rick Guerin, came to control Blue Chip Stamps. Blue Chip Stamps’ business was to sell redemption stamps to retailers. These retailers would issue the stamps to customers who would collect them and redeem them for prizes such as small appliances and jewelry. Because there would be a significant time lag between when Blue Chip would collect payment for stamps and when they had to purchase merchandise to provide to redeeming customers, Blue Chip had a significant amount of cash on hand. This “float” could be used to invest in stocks and purchase other businesses.  Although the stamp business was waning, the float had substantial value for capital allocators such as Buffett and Munger. 

When See’s Candy, a California-based confectioner, came up for sale, Blue Chip acquired it for $25 million. The deal was a milestone for Buffett and Munger. Not only was it their largest acquisition at the time, but the price represented a significant multiple of earnings and book value. For a value-investor such as Buffett, the price was hard to swallow. But See’s proved to have what Buffett and Munger would later call an “economic moat” – i.e., a durable competitive advantage which would make it hard for competitors to gain market share. Over the years, See’s candy would produce billions in discretionary cash flow which Buffett and Munger allocated as they saw fit. 

Blue Chip Stamps also made two other whole acquisitions: Wesco Financial and the Buffalo News. The three acquisitions made by Blue Chip would later become part of Berkshire Hathaway, the holding company for which Buffett and Munger are best known. 

In 1962, a young Warren Buffett began to purchase shares in a dying New England textile manufacturer named Berkshire Hathaway. Despite its poor business, Berkshire was trading for below its working capital, thus representing a classic Ben Graham value play. Buffett kept buying the stock and by 1963 the Buffett Partnership was Berkshire’s largest shareholder.  

The company’s CEO, Seabury Stanton, began to buy back the company’s shares so as to avoid a possible takeover from Buffett. Since Buffett had no intention of controlling the company, he was more than willing to negotiate with Stanton. However, when Stanton’s offer came to Buffett and was slightly below the agreed-upon price, an angered Buffett began to aggressively purchase more shares through the Buffett Partnership and through his personal account. In 1965, Buffett had full control of Berkshire Hathaway and fired Seabury Stanton. When Buffett liquidated his partnership in 1969, he gave his investors the option of redeeming their partnership interests in cash or taking stock in Berkshire Hathaway.  

Munger was yet to have any direct involvement with Berkshire Hathaway. Munger and Buffett mostly partnered through two entities in which they had dual interests: Blue Chip Stamps and Diversified Retailing (which was the holding company for several department stores). Buffett controlled his interests in both Blue Chip and Diversified in part through Berkshire Hathaway. Eventually, Berkshire Hathaway would acquire the remaining interests in both Blue Chip Stamps and Diversified Retailing in a stock transaction, thus giving Munger approximately 2% of the outstanding shares of Berkshire Hathaway. 

In 1976, Munger became vice chairman of Berkshire Hathaway. By that time, Berkshire had begun to diversify away from textile manufacturing and into businesses which would provide significant cash flow and an adequate return on capital. In 1967, Buffett made his first acquisition under the Berkshire umbrella. The company was National Indemnity, the first of many acquisitions Berkshire would make in the insurance industry. Insurance companies gave Buffett and Munger something that they had with Blue Chip Stamps – financial float. Insurance companies take in premiums from customers and get to invest that money before having to pay out claims. Most insurance companies were highly conservative in how they invested their float, investing it mostly in investment grade bonds and highly collateralized real estate loans. Buffett, however, saw that as long as an insurance company was both growing and operating at (at least) a modest underwriting profit, the insurance float was essentially free capital which could be invested in high grade common stocks. 

Munger would also retain the chairmanship of Wesco Financial until its full acquisition by Berkshire Hathaway in 2011. Munger also served as the chairman of the Daily Journal, a legal publication business, where he was in charge of the company’s stock investments. 

Over the years, Buffett and Munger would brilliantly deploy the capital provided them from the operating earnings of Berkshire’s subsidiary companies and from the growing insurance float from their insurance companies. 

Although Buffett and Munger worked from separate offices, they would speak often. Buffett has described Munger as the “abominable no man”, given Munger’s reputation for extreme selectivity in making investments. 

Every year, tens of thousands of Berkshire Hathaway shareholders would flock to Omaha to hear Buffett and Munger speak in what was often dubbed the “Warren and Charlie show”. Munger was known for either interjecting his broad wisdom into a subject or by following Buffett’s comments with “I have nothing to add”. 

Over Munger’s long life and storied career, he helped build one of the most enduring companies in the history of American capitalism and showed the world that one could achieve financial success while still retaining his humanity. 

Sources and Further Reading: 

Lowe, Janet. Damn Right!: Behind the Scenes with Berkshire Billionaire Charlie Munger. New York: Wiley & Sons, 2000. 

Lowenstein, Roger. Buffett: The Making of an American Capitalist. New York: Random House, 2008.