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Charlie Munger: the world’s greatest investors
Charlie Munger was originally a value investor, buying companies that were trading below their book value.
Charlie Munger was born in Omaha in 1924 and worked in Warren Buffett's grandfather's grocery store. After a stint in the air force, Munger went to several universities without graduating, eventually emerging with a law degree from Harvard Law School in 1948. After working as a lawyer he founded the investment firm Wheeler, Munger & Company in 1962 and ran a successful fund for the next 13 years. Later on, Munger became Warren Buffett's right-hand man at Berkshire Hathaway, serving as CEO of Wesco Financial, one of Berkshire's main holdings.
What was his strategy?
Munger was originally a value investor, buying companies that were trading below their book value (net assets). He also believed in concentrating on a handful of stocks at times he held no more than three companies. He argued this allowed him to focus on a few great opportunities, rather than several ones that were merely good. Later, his emphasis was on buying "growth at a reasonable price". He took this philosophy to Berkshire, which had an influence on Buffett.
Did it work?
His concentrated portfolio made his fund very volatile. It fell by 31.9% in 1973 and then 31.5% a year later, but rose by 71.7% in 1962, 56.2% in 1967 and 73.2% in 1975. Overall, it would return just under 20% a year between 1962 and 1975, turning an initial investment of $100,000 into $1.2m by the end. Over the same period the S&P 500 rose by just 4.9% a year. According to Forbes, Munger is currently worth $1.42bn.
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Munger helped persuade Warren Buffett to buy the confectionery firm See's Candies in 1972 for $25m, even though it was trading at three times book value. Over the next 25 years, profits at the stores grew by 24 times, a compound average growth rate of 13.5%, even before accounting for the large dividend, which increased the return to around 20%. Munger's best private investment was buying a share of oil royalties in a well in 1962 at a time when the oil price was at an all-time low. Within a decade Munger was receiving $100,000 a year.
Concentrating on just a handful of investments (though perhaps not to the extent Munger did) can help the average investor focus their attention on the best opportunities. The See's Candies investment shows that occasionally breaking your own rules can be a good idea, if the investment case is sound.
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