Holding specialist Michael Gielkens pays a tribute to Charlie Munger, the right-hand man of Warren Buffett. “His legacy is a treasure trove of investment wisdom and life insights, a legacy that will continue to enrich the minds of investors around the world will continue to enrich for decades to come.”
This month Charles T. Munger passed away at the age of 99. An article does not do justice to the influence Munger had on the investment world, not least the investment vision of Tresor Capital. Nevertheless, we do not want to let this event go unnoticed. Together with his friend and associate Warren Buffett, Munger has established one of the most impressive track records in the investment world. Our clients capitalized on this in part through an equity stake in the holding company Berkshire Hathaway.
Warren Buffett (left) counted on the advice of Charlie Munger
Since 1965, Berkshire Hathaway has earned an average return of 19.8% per year, according to the table that appears as the first page of the holding company’s annual report each year. The S&P500 stock index achieved a return of 9.9% per year during this period. Both returns may be there, but the difference in absolute returns is aan-significant due to the miracle of compound interest. Berkshire Hathaway posted a total ren-dement of 3 787 464 % through 2022 versus 24 708 % for the stock market index. Charlie Munger always emphasized that success in investing does not depend on your IQ, but on your behavior and temperament. Munger argued be-separately that Berkshire really hasn’t done exceptional things, it has simply tried to do less stupid things than others.
“It is remarkable how much advantage men- sen like us have gained in the long run by consistently not being stupid, rather than trying to be very intelligent.” – Charles T. Munger
Charlie Munger is known for his perceptive, often humorous comments. For example, he once said, “If people weren’t so often wrong, we wouldn’t be so rich.” It is no secret that many investors achieve sub-optimal ren-dents through their actions due to a variety of psychological effects. One example is getting in at re-cord prices and chasing all sorts of hypes, and, on the contrary, getting out at lows because one fears incurring further losses. Munger was often on the other side of such transactions with Buffett.
“Since 1965, Berkshire Hathaway has achieved an average annual return of 19.8%.”
Munger was crucial in building today’s Berkshire Hathaway, but also in the transition of Buffett’s investment vision. Buffett attributes the transition from a focus on low-valued, poor-quality value stocks (“cigar butts” with one last puff left on them) to high-quality companies with a sustainable competitive advantage entirely to Munger. “Because of him, we started looking for wonderful companies at reasonable prices, rather than reasonable companies at wonderful prices,” Buffett said later. “Berkshire was shaped according to Charlie’s blueprints.” Much of Munger’s investment vision can be seen at Berkshire. For example, the portfolio is highly concentrated because, according to Munger, “the whole secret of investing is to find investments where it is safe and prudent not to diversify. Diversification is for the uninformed investor; it’s not for the professional. Berkshire also does relatively few trades because Munger states, “In investing, you select a few great companies and then sit on your ass. The big money is not in buying or selling, but in waiting.” Most tellingly, Munger still announced new investments in recent years as “long-term investments,” despite his advanced age. Reportedly, his last purchase several quarters ago was a position in China’s Tencent. A lifetime of learning Munger has spent his life preaching rationality and becoming aware of psychological biases. He has accumulated a very broad knowledge through continuous learning. Among other things, Munger studied mathematics, physics, meteorology and mechanical engineering. He then graduated magna cum laude in law from the prestigious Harvard University. Like his great role model Benjamin Franklin, one of the founding fathers of the U.S., Munger was a true autodidact. For example, he became an expert in architecture and psychology. Through the quotes below, Munger encourages everyone to keep learning.
“If you want to live long, you have to keep learning. What you used to knew, is not enough. If you don’t adapt, you are like a one-legged man in a match ass-kicking.” – Charles T. Munger
Berkshire Hathaway after Munger (and Buffett)
Munger’s passing also makes investors look at 93-year-old ceo Buffett with an oblique eye. Buffett wrote just before Munger’s death in a letter to shareholders, “I realize I am in extra time. We have the right CEO to succeed me and also the right Board of Directors. Both are needed. The advantage of Berkshire is that it is built to last.” Buffett and Munger have built a business form and culture since 1965 that should be able to propel the organization along nicely for decades to come – even without Buffett or Munger at the helm. The Financial Times devoted a readable article to Berkshire’s future without both top executives at the helm. In any case, the succession plan has been public for several years. As chairman, Buffett’s son Howard (68) will be responsible for overseeing the company’s culture. Greg Abel (61) will be given day-to-day management and ultimate responsibility as CEO. As vice president, he is already currently responsible for the ins and outs of all operations except insurance, that responsibility falls to vice president Ajit Jain (72). Todd Combs (52) and Ted Weschler (61) will manage the listed equity portfolio. They already manage more than $30 billion independently, without any interference from Buffett. Jokingly, but with a grain of truth, Buffett has hinted many times in recent years that Berkshire may actually be improving with this new format. Abel is much more “hands-on,” taking an active approach in improving the businesses within the holding company. Buffett repeatedly stated that Jain has a much better understanding than him in terms of insurance, while Combs and Weschler have made better returns than him in recent years, according to Buffett.
“I constantly see people moving forward in life who are not the brightest, and sometimes not even the most diligent, but they are learning machines. They go every evening to bed a little wiser than when they got up.” – Charles T. Munger
At least they have had decades to learn from the grandmasters, but whether they can match the unique insight of Buffett and Munger remains to be seen. However, it will be virtually impossible to get such a good capital allocator as Buffett at the helm. “Too bad then,” Munger succinctly stated. Munger himself posited the view that Berkshire investors will continue to earn fine returns after Buffett.
The thought process remains
In his latest interview with CNBC, Munger stated on this, when asked about the large cash mountain ($160 billion), “Who better to put the money to work than the individuals who have experienced Berkshire up close over the past few decades, who have seen how the company was shaped and how successfully that method has worked?” Charlie Munger will no longer provide us with sharp commentaries, comedic observations or wise anecdotes. However, his thought leadership will remain. Munger’s legacy is a wealth of investment wisdom and life insights, a legacy that will continue to enrich the minds of investors around the world for decades to come. His lessons, founded on a blend of intelligence and common sense, will help many investors navigate the complex financial world and life in general.
“Munger emphasized that success in investing does not depend on your IQ, but on your behavior and temperament.”
