Kelly Evans: Saying goodbye to Charlie Munger
You knew it was coming, of course--the man was 99--but the loss of Charlie Munger is still massive. The hardest part about losing a genius like him is that from now on, we'll never know for sure "what would Charlie have said?" about some newfangled thing, like Bitcoin, or ridiculous market mania. We can guess...we can surmise...but he was so unique, that from now on, we'll never know.
After all, the same man who loved hating on Bitcoin over the years--"rat poison," "massively stupid," and "disgusting" were a few choice words--was also one of the earliest investors in Chinese electric vehicle maker BYD. He had Berkshire take about an 8% share back in September 2008--as Lehman was collapsing--that is worth $8 or $9 billion today. "I have never helped do anything at Berkshire that was as good as BYD," he said at the Daily Journal's annual meeting this year.
So he wasn't a Luddite, in other words. That's partly what made him so unpredictable. The entire fun of posing questions to him at the Daily Journal or Berkshire annual meetings was to see exactly in what pithy way he would answer on everything from geopolitics to corporate earnings. Munger never wrote a book, but he did give a couple of classic speeches that convey the depth and originality of his thinking. "The Psychology of Human Misjudgment" is essential reading, and the most updated version can be found here.
As that title suggests, many of Charlie's key insights--like "inverting" problems, or observing that it takes "lollapaloozas," not single causes, to form major catastrophes--show that his intellectual contributions extend almost more to human psychology than to investing, per se. But as anyone who has ever traded stocks knows, the two fields are essentially intertwined. He and Warren Buffett often talked about how much of their success has come as much from not acting as from acting. "Doing nothing" is incredibly difficult, psychologically speaking.
They didn't do much during Covid, for instance. They haven't done much lately, although granted, that reflects their age and their newer deputies' growing roles at Berkshire. They famously stood pat during the dotcom boom. "Being a true contrarian takes supreme courage and implacable calm," wrote Jason Zweig in Tren Griffin's excellent book, "Charlie Munger: The Complete Investor." Munger often said that "most investors, no matter how smart, won't succeed because they have 'the wrong temperament'."
And of course, the flip side of that is taking bold action in the singular moments of opportunity that present themselves. It wasn't just BYD. Munger also bought Wells Fargo "the day before the bottom tick in March 2009," as Zweig notes. People today like to dismiss Munger and Buffett as anachronisms that represent the past of investing more than the future, not least because of their ownership of companies like Coke, See's Candies, and Dairy Queen. But that misses the nature of their success.
For Munger, successful investors are simply "learning machines," or, to borrow the phrase his children have famously used, "a book with legs." You have to have flexible thinking. Munger and Buffett began as classic value investors along the lines of their mentor, Ben Graham; but they also evolved especially on the question of what to pay for good companies over the years.
See's Candies actually played a key role in that. "See's was acquired at a premium over book and it worked," Charlie once explained, whereas other investments bought at deeper discounts did not. It also threw off tons of cash that Berkshire could reinvest (the primary thing that Berkshire does is actually capital allocation), and prompted them to look for more high-quality companies going forward. All because Charlie listened to his friend who said good businesses and good people were worth paying up for.
So yes, Munger was an incredibly successful investor. But he was also just an exceptional thinker, the rare person who didn't actually mind that task. He had the best quips because he usually had the best grasp on things. Who else could say, "every time you see the word EBITDA, you should substitute the words 'bulls**t earnings'." There are so many more--"Poor Charlie's Almanack" is packed with them. I hope that his wisdom is passed into as many other hands as possible. The best legacy he could possibly leave would be a world filled with more Charlies.
See you at 1 p.m!
Kelly