Charlie Munger (born 1924) is the Vice Chair and second-in-command to Warren Buffett, the celebrated investor who chairs Berkshire Hathaway, a $354.6-billion diversified conglomerate based in Omaha, Neb.
As Buffett’s closest business partner and “right-hand man” for over four decades, Munger has been instrumental in the growth of Berkshire into a giant diversified holding company with a market capitalization of over $700 billion (as of February 2022) and subsidiaries operating in insurance, freight rail transportation, energy generation/distribution, manufacturing, and retail.
In addition to serving as Independent Director of Costco Wholesale Corporation, Munger is Chair of the Board of Daily Journal Corporation, a Los Angeles-based legal publisher with a software business in the automated court reporting market. From 1984 through 2011, he served as Chair and CEO of Wesco Financial Corporation, a subsidiary of Berkshire Hathaway.
- As Vice Chair of the $355-billion conglomerate, Berkshire Hathaway, Charlie Munger has been second-in-command to renowned investor Warren Buffett since 1978.
- As Buffett’s “right-hand man,” Munger has been instrumental in the growth of Berkshire into a giant holding company with a market capitalization of $700 billion.
- He dropped out of the University of Michigan in 1943 to serve in the U.S. Army Air Corps, where he was trained as a meteorologist.
- Although he never earned an undergraduate degree, he graduated magna cum laude from Harvard Law School with a J.D. in 1948.
- As of 2022, Munger has a net worth of $2.5 billion, according to Forbes.
Education and Early Career
Born in Omaha in 1924, as a teenager, Munger worked at Buffett & Son, a grocery store owned by Warren Buffett's grandfather.
During World War II, he enrolled in the University of Michigan to study mathematics but dropped out a few days after his 19th birthday in 1943 to serve in the U.S. Army Air Corps, where he was trained as a meteorologist and promoted to second lieutenant. He later continued his studies in meteorology at Caltech in Pasadena, Calif., the town that became his lifelong home.
After entering Harvard Law School—without an undergraduate degree—he graduated magna cum laude with a J.D. in 1948. As a real estate attorney in those early years, he founded Munger, Tolles & Olson, a renowned California law firm.
Transition From Law to Finance
After meeting at a dinner in Omaha in 1959, Munger and Buffet stayed in touch over the years as Buffett continued building his investment firm and Munger continued working as a real estate attorney.
On Buffett’s advice, Munger gave up on the practice of law in the 1960s to concentrate on managing investments, including a partnership with the billionaire newspaper executive, Franklin Otis Booth, on real estate development.
Prior to joining Berkshire, Munger ran his own investment firm, which—as his friend Buffett pointed out in his 1984 essay, "The Superinvestors of Graham-and-Doddsville"—generated compound annual returns of 19.8% between 1962 and 1975, far better than the 5% annual appreciation rate for the Dow during that time frame.
In 1962, Buffett began to buy shares of Berkshire Hathaway; by 1965, he had taken control of the company as Chair and CEO; in 1978, Munger became Vice Chair of Berkshire Hathaway.
From “Cigar-Butt” to Buffet-Munger Value Investing
However, in his 1989 letter to shareholders, Buffett credited Munger with setting him straight on the fact that Berkshire should not pursue the "cigar-butt" version of value investing—a term to describe investors who buy a dying business currently worth $1 for $0.75 just “to get the $0.25 of free puff” that’s left in the business.
As Buffett explains it, he began his own career as that kind of cigar-butt investor—and it was Munger who understood the foolishness of that approach long before he did: “Charlie understood this early; I was a slow learner.”
Working with Munger, what he finally learned was that the bargain price for a troubled business with multiple flaws too often turned out to be a false discount in the end, and any immediate gain would soon be eroded by low returns. Instead, Munger and Buffett would rather buy “a great business for $1.25, when it is currently worth $1 but is definitely going to be worth $15 in 10 years.”
In other words, the Berkshire version of value investing became phenomenally successful by following Munger’s mantra: “Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.”
Munger Investment Philosophy
- A core driver of their spectacularly successful business partnership has been that Munger and Buffett are completely aligned on maintaining industry-leading standards for ethical business practices.
- Munger has often stated that high ethical standards are integral to his philosophy—and to his success.
- One of his most frequently quoted maxims is: "Good businesses are ethical businesses. A business model that relies on trickery is doomed to fail."
- An avid reader of great thinkers and clear communicators like Ben Franklin and Samuel Johnson, Munger introduced the concept of "elementary, worldly wisdom" in the business and finance sector in multiple speeches and in his book Poor Charlie's Almanack.
Berkshire Hathaway’s “Four Giants”
As Vice Chair, Munger is also second-in-command of all assets, including what Buffett calls Berkshire's "Four Giants"—the four investments that account for the bulk of Berkshire’s value.
Insurance Float: Heading the list in 2021 is a cluster of wholly-owned subsidiary insurance companies that have made Berkshire the world leader in insurance float—an investment term for all the money from insurance premiums that Berkshire can hold for years and invest for their own benefit before paying it back on claims. During Munger’s tenure, Berkshire’s insurance float has grown from $19 million to $147 billion, as of 2022. Even with periodic underwriting losses from catastrophic events (for example, the terrorist attacks on September 11, 2001), enormous, long-term value creation is the reason insurance float heads the list of Berkshire’s four giants.
Apple, Inc: A close runner-up to insurance float is Berkshire’s investment in Apple, Inc. Unlike the company’s wholly-owned investments, Berkshire owns only 5.55% of Apple as of year-end 2021, which makes it an atypical holding for the company. However, Apple meets the very high Munger-Buffett investment bar for the simple reason that their 5.55% ownership stake increased from 5.39% the previous year due solely to Apple’s repurchase of their own stock. Given Apple’s massive value, each 0.1% of the increase from 5.39% to 5.55% ownership earned Berkshire $100 million—with no Berkshire funds spent.
BNSF (Burlington Northern Santa Fe Corporation): Berkshire’s third giant, BNSF, operates one of the largest freight railroad networks in North America, with 8,000 locomotives and 32,500 miles of rail across the western two-thirds of the U.S. This investment is a classic example of the Munger-Buffet preference for investing in companies with an economic moat—a built-in competitive advantage that protects long-term profits and market share from competitors. In the case of railroads, the enormous amount of start-up capital required to lay railroad tracks across the U.S. protects railroads from rivals, just like a moat around a medieval castle. In 2021, Berkshire had record earnings of $6 billion from BNSF.
BHE (Berkshire Hathaway Energy): The fourth giant, BHE, a portfolio of locally managed businesses in the utility sector, is another classic example of the Munger-Buffet preference for companies with an economic moat—the massive capital required to lay power lines across the U.S. protects BHE from competitors. Under Munger’s leadership, not only did BHE earn a record $4 billion in 2021 (up from $122 million in 2000, when Berkshire first purchased a stake), but it has also grown from zero renewable energy capacity into a leading player in wind, solar, and hydro transmission throughout the U.S. In 2021, Berkshire owned 91.1% of BHE.
What Is Charlie Munger’s Net Worth?
As 2022, Munger has a net worth of $2.5 billion, according to Forbes.
Why Does Charlie Munger Hate Bitcoin?
Munger is as famous for his directness as he is for his investment genius. When Buffett diplomatically dodged questions about cryptocurrency during a Q&A session at a 2021 shareholder meeting, Munger said bluntly that bitcoin was “created out of thin air” and is a “go-to payment method for criminals.” He was alarmed that billions of dollars were being sent to “somebody who just invented a new financial product out of thin air.” He has also praised China’s ban on cryptocurrency and criticized heavy U.S. heavy involvement in the currency.
What Are Charlie Munger’s Charitable Causes?
Munger’s philanthropy is focused on education, including large donations to the University of Michigan Law School ($3 million for lighting improvements in 2007 and $20 million for housing renovations in 2011). He has also donated to Stanford University ($43.5 million in Berkshire Hathaway stock to build a graduate student housing complex in 2004) and the University of California, Santa Barbara ($200 million for state-of-the-art student housing in 2016).
The Bottom Line
As Buffett’s “right-hand man,” Munger has been instrumental in the growth of Berkshire into a giant holding company with a market capitalization of $700 billion.
As Vice Chair, Munger is also second-in-command of all assets, including what Buffett calls Berkshire’s “four giants”—the four investments that account for the bulk of Berkshire’s value: 1) “insurance float” from subsidiary insurance companies; 2) Apple, Inc; 3) BNSF (Burlington Northern Santa Fe Corporation); 4) BHE (Berkshire Hathaway Energy).
Buffett has credited Munger with ensuring that Berkshire value investing adhered to Munger’s mantra: “Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.”
Munger has often stated that high ethical standards are integral to his philosophy—and to his success.