DANIEL VAUGHAN: Charlie Munger (1924 - 2023) - Paragon Of American Investing

November 29, 2023

Charlie Munger was, without question, one of the wisest and greatest investors of both the 20th and 21st Centuries. Few can claim that title across two centuries, but Munger can. His life will forever be intertwined with his business partner, Warren Buffett. In a statement, Buffett said, "Berkshire Hathaway could not have been built to its present status without Charlie's inspiration, wisdom and participation." That's true of Buffett and the American business sector - Charlie Munger was the best, not because he had the most zeros on his bottom line, but because he was the wisest. And his wisdom makes him a paragon in American history. 

Like Buffett, Munger was from America's heartland, in Omaha. As he explained it, "I'm proud of being an Omaha boy. I sometimes use the old saying, 'They got the boy out of Omaha but they never got Omaha out of the boy.' All those old-fashioned values — family comes first; be in a position so that you can help others when troubles come; prudent, sensible; moral duty to be reasonable [is] more important than anything else — more important than being rich, more important than being important — an absolute moral duty."

Buffett said of his friend, "Charlie has given me the ultimate gift that a person can give to somebody else. He's made me a better person than I would have otherwise been. ... He's given me a lot of good advice over time. ... I've lived a better life because of Charlie." In terms of iron sharpening iron, neither of them could ask for much better from the other. That's the kind of thing you look for in any close friend.

Munger and Buffett were disciples of Benjamin Graham, who penned The Intelligent Investor (1949) and Security Analysis (1934). These books are still taught in business schools across the country. The crux of Graham's thesis was "value investing," where hard work is done to identify undervalued companies and invest in them because a payoff will come later.

Munger summed it up this way, "All intelligent investing is value investing — acquiring more than you are paying for ... You must value the business in order to value the stock." Buffett phrased it more simply, "Price is what you pay. Value is what you get." What was the goal after that? Benjamin Graham's advice kicked in, "The intelligent investor is a realist who sells to optimists and buys from pessimists."

Why is this important? If you look around the markets or watch CNBC on a given day, you'll see many people chasing stock symbols and the next hot thing. There's more speculation than analysis. And for some, it's nothing more than a get-quick scheme where you're gambling on charts and digits flying around on the screen. And they're always trying to claim a method to the madness.

Munger watched this and observed, "I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, 'My God, they're purple and green. Do fish really take these lures?' And he said, 'Mister, I don't sell to fish.'" So what did Munger do instead? He followed more fishing advice: "I have a friend who's a fisherman. He says, 'I have a simple rule for success in fishing. Fish where the fish are.' You want to fish where the bargains are. That simple. If the fishing is really lousy where you are you should probably look for another place to fish."

That's the simplistic beauty of Munger and Buffett. At the end of the day, the goal is to come away with fish, not the fanciest fishing lure in the store or on television. The goal in investing is to walk away with more value than you started. Then, allow growth and compound interest to take over and further balloon that value.

One of Munger's early investment advisements to Buffett was buying See's Candies for $25 million in 1972 ($184 million adjusted for inflation). At the time, See's Candies had only made $4 million in pretax earnings. Munger saw a value that others did not. Since then, See's Candies has produced more than $2 billion in profits for Berkshire Hathaway.

There were countless other examples where Munger and Buffett found value where others did not and rode that success like a rocket into the stratosphere. Their success transformed American investing, encouraging others to do the same. It's part of the story in how America has become such a dominant world power. You cannot get there without the success stories of men like Charlie Munger.

Success isn't earned alone, however. The friendship he shared with Warren Buffett is crucial because they sharpened each other, gave sage advice, and stayed true to heartland morals and principles.

Most importantly, though, Munger understood the importance of failure. He once said, "Capitalism without failure is like religion without hell." Munger was wise, not because he never failed, but because he did and learned from that. He and Buffett learned from each other's failures. And they used that to outperform everyone else.

That's the true eye of a value investor. If you can find value in failure, you can find it anywhere.

Rest in peace to one of America's greatest investors. Hopefully, we can build on his wisdom instead of forgetting it.

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