Charlie Munger

Charles Thomas Munger (January 1, 1924November 28, 2023) was an American businessman, investor, attorney and philanthropist. He was the vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett, from 1978 until his death in 2023. Buffett described Munger as his closest partner and right-hand man, and credited him with being the "architect" of modern Berkshire Hathaway's business philosophy. His grandfather, Thomas Charles Munger, was a state representative and later a U.S. district court judge appointed by Theodore Roosevelt.

He enrolled in the University of Michigan, where he studied mathematics. In early 1943, a few days after his 19th birthday, he dropped out of college to serve in the U.S. Army Air Corps, where he became a second lieutenant. the town he was to make his home. Munger excelled in law school, becoming a member of the Harvard Legal Aid Bureau and graduating in 1948 with a J.D., magna cum laude.

In college and the Army, he developed what he considered "an important skill": card playing. He used this in his approach to business. "What you have to learn is to fold early when the odds are against you, or if you have a big edge, back it heavily because you don't get a big edge often. Opportunity comes, but it doesn't come often, so seize it when it does come."

Career

Munger moved with his family to California, where he joined the law firm Wright & Garrett (later Musick, Peeler & Garrett). In 1962, he founded and worked as a real estate attorney at Munger, Tolles & Olson LLP.

In 1962, Munger partnered with Jack Wheeler to form Wheeler, Munger, and Company, an investment firm with a seat on the Pacific Coast Stock Exchange. According to Buffett's essay "The Superinvestors of Graham-and-Doddsville", published in 1984, Munger's investment partnership generated compound annual returns of 19.8% during the 1962–75 period compared to a 5.0% annual appreciation rate for the Dow.

In 1974, Munger bought control of Mitchum, Jones, and Templeton, a publicly traded competitor of Wheeler Munger. Mitchum Jones was led by Bill Lupien and Joe Taussig. He wound up Wheeler, Munger, and Co. in 1976, after losses of 32% in 1973 and 31% in 1974. Wesco began as a savings and loan association, but eventually grew to control Precision Steel Corp., CORT Furniture Leasing, Kansas Bankers Surety Company, and other ventures. Wesco Financial also held a concentrated equity portfolio of over US$1.5 billion in companies such as Coca-Cola, Wells Fargo, Procter & Gamble, Kraft Foods, US Bancorp, and Goldman Sachs. Munger believed that holding a concentrated number of stocks that he knew extremely well would in the long term produce superior returns.

Wesco is based in Pasadena, California, Munger's adopted hometown. Pasadena was also the site of the company's annual shareholders' meeting, which were typically held on the Wednesday or Thursday after the more famous Berkshire Hathaway annual meeting. Munger's meetings were nearly as legendary in the investment community as those he co-hosted with Buffett in Omaha. Such meetings were often perfunctory, but Munger interacted with the other Wesco shareholders at considerable length, sometimes speculating about what Benjamin Franklin would do in a given situation. Meeting notes have been posted on the Futile Finance? website, but no updates exist beyond 2011.

Munger was also the chairman of the Daily Journal Corporation. After Wesco meetings ended, the Daily Journal annual meeting grew in importance, as investors flocked to the meeting to listen to him speak at length.

Investment philosophy

"Elementary, worldly wisdom"

In multiple speeches, and in the 2005 book Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger, "worldly wisdom" consists of a set of mental models framed as a latticework to help solve critical business problems.

High ethical standards were integral to Munger's philosophy. One writer described his thinking as "Good businesses are ethical businesses. A business model that relies on trickery is doomed to fail." During an interview and Q&A session at Harvard-Westlake School on January 19, 2010, Munger referred to American philosopher Charles Frankel in his discussion on the 2008 financial crisis and the philosophy of responsibility. Munger explained that Frankel believed:

<blockquote>The system is responsible in proportion to the degree that the people who make the decisions bear the consequences. So to Charlie Frankel, you don't create a loan system where all the people who make the loans promptly dump them on somebody else through lies and twaddle, and they don't bear the responsibility when the loans are good or bad. To Frankel, that is amoral, that is an irresponsible system.</blockquote>

As part of his philosophy Munger lived in the same relatively modest California home for 70 years. When asked about living in more luxurious homes, Munger was quoted as stating: "in practically every case, they make the person less happy, not happier.” Munger appreciated the utility of a "basic house" with few advantages over living in an ostentatious home. Munger appreciated modesty stating, "don't have a lot of envy" and "don't overspend your income". In Munger's last 2023 interview with CNBC he credited his success and longevity to a long-held sense of caution and ability "to avoid all standard ways of failing".

Lollapalooza effect

Munger used the term "Lollapalooza effect" for multiple biases, tendencies or mental models acting in compound with each other at the same time in the same direction. With the Lollapalooza effect, itself a mental model, the result is often extreme, due to the confluence of the mental models, biases or tendencies acting together, greatly increasing the likelihood of acting irrationally.

During a talk at Harvard in 1995 titled The Psychology of Human Misjudgment, Munger mentioned Tupperware parties and open outcry auctions, where he explained "three, four, five of these things work together and it turns human brains into mush," meaning that normal people will be highly likely to succumb to the multiple irrational tendencies acting in the same direction. In the Tupperware party, you have reciprocation, consistency, and commitment tendency, and social proof. (The hostess gave the party and the tendency is to reciprocate; you say you like certain products during the party so purchasing would be consistent with views you've committed to; other people are buying, which is the social proof.)

In the open outcry auction, there is social proof of others bidding, reciprocation tendency, commitment to buying the item, and deprivation super-reaction syndrome, i.e. sense of loss. The latter is an individual's sense of loss of what he or she believes should be (or is) his or hers. These biases often occur at either conscious or subconscious level, and in both microeconomic and macroeconomic scale. Munger advised not attending such auctions.

Cryptocurrencies and Robinhood

Munger was critical of cryptocurrencies, referring to Bitcoin in particular as "noxious poison". He also said the use of cryptocurrency should be banned and said it was "beneath contempt"; that bitcoin was "stupid, "immoral," and "disgusting" and that It's like somebody else is trading turds and you decide, 'I can't be left out; and that it was like a venereal disease, among other things.

Munger has compared Robinhood to gambling, saying that its success is due to "people who know how to take advantage essentially of the gambling instincts of, not only American public, worldwide public" and further explained why he thinks individual investments without commission is tantamount to gambling. "If you cater to those gambling chips, when people have money in their pocket for the first time, and you tell them they can make 30 or 40 or 50 trades a day, and you're not charging them any commission, but you're selling their order flow or whatever, I hope we don't have more of it."

Wealth and philanthropy

At the time of his death, Munger had an estimated net worth of $2.6 billion and was ranked as the 1,182nd richest person in the world, according to Forbes.

thumb|Munger Graduate Residence at Stanford University

Munger was a major benefactor of the University of Michigan. In 2007, Munger made a $3 million gift to the University of Michigan Law School for lighting improvements in Hutchins Hall and the William W. Cook Legal Research Building, including the noted Reading Room. In 2011, Munger made another gift to the Law School, contributing $20 million for renovations to the Lawyers Club housing complex, which covered the majority of the $39 million cost. The renovated portion of the Lawyers Club was renamed the Charles T. Munger Residences in the Lawyers Club in his honor.

In 1997, the Mungers donated $1.8 million to the Marlborough School in Los Angeles, of which Nancy Munger was an alumna.

On December 28, 2011, Munger donated 10 shares of Berkshire Hathaway Class A stock (then valued at approximately $1.2 million total) to the University of Michigan.

Munger and his late wife Nancy B. Munger were major benefactors of Stanford University. Nancy Munger was an alumna of Stanford, and Wendy Munger, Charlie Munger's daughter from a previous marriage, was also an alumna (A.B. 1972). Both Nancy and Wendy Munger served as members of the Stanford board of trustees.

In 2023, Munger made a gift of stock worth $40 million to the Henry E. Huntington Library and Art Museum in San Marino, California. He gave 77 Class A Berkshire Hathaway shares valued at more than $40.3 million to the Huntington, according to a filing with the Securities and Exchange Commission. A decade ago, he gave the institution nearly $33 million worth of Berkshire stock to help pay for a new education and visitors center.

Munger did not sign The Giving Pledge that was started by his partner Warren Buffett and co-director, Bill Gates, explaining that he "[could]n't do it" because "[he had] already transferred so much to [his] children that [he had] already violated it."

Architectural activities

Though Munger had no formal architectural training, he contributed heavily to numerous building designs, including dormitories at Stanford University and the University of Michigan, as well as his final home. He donated to universities on the precondition that the universities follow his architectural blueprints exactly. and ceded professional architectural responsibility to a licensed architect of record, e.g., Hartman-Cox Architects in the case of the dormitory at Michigan, and the firm of VTBS for the U.C. Santa Barbara residence hall.

In 2004, the Mungers donated 500 shares of Berkshire Hathaway Class A stock, then valued at $43.5 million, to Stanford to build a graduate student housing complex. The Munger family gave a major gift to Stanford's Green Library to fund the restoration of the Bing Wing as well as the construction of a rotunda on the library's second floor, and endowed the Munger Chair in Nancy and Charles Munger Professorship of Business at Stanford Law School.

Munger was a trustee of the Harvard-Westlake School in Los Angeles for more than 40 years, and previously served as chair of the board of trustees. His five sons and stepsons as well as at least one grandson graduated from the prep school. In 2006, Munger donated 100 shares of Berkshire Hathaway Class A stock, then valued at $9.2 million, to the school toward a building campaign at Harvard-Westlake's middle school campus. The Mungers had previously made a gift to build the $13 million Munger Science Center at the high school campus, a two-story classroom and laboratory building which opened in 1995 and has been described as "a science teacher's dream". The design of the Science Center was substantially influenced by Munger.

On April 18, 2013, the University of Michigan announced the single largest gift in its history: a $110 million gift from Munger to fund a new "state of the art" residence designed to foster a community of scholars, where graduate students from multiple disciplines can live and exchange ideas. The gift included $10 million for graduate student fellowships. Munger designed the residence, which houses 600 single bedrooms, most of which are windowless in order to accommodate a greater number of single-occupant bedrooms. Munger Graduate Residences at the University of Michigan opened in 2015.

In October 2014, Munger announced that he would donate $65 million to the Kavli Institute for Theoretical Physics at the University of California, Santa Barbara. This is the largest gift in the history of the school. The donation went toward construction of a premier residence building designed by Munger for visitors of the Kavli Institute in an effort to bring together physicists, as Munger stated, "to talk to one another, create new stuff, cross-fertilize ideas".. The Charles T. Munger Physics Residence opened in January 2017.

In March 2016, Munger announced a further $200 million gift to UC Santa Barbara, conditioned on the university's commitment to spend it on the construction of Munger Hall, an undergraduate dormitory of Munger's own unconventional design preferences, notably windowless bedrooms and common areas, while tripling the record gift he gave for the Kavli Institute for Theoretical Physics. In October 2021, Munger's insistence that the university follow his design compelled architect Dennis McFadden, who had served the university for two decades, to resign from the university's Design Review Committee. McFadden stated that the windowless, 1.68-million-square-foot dormitory would be