For almost 45 years, Charlie Munger sat beside Warren Buffett at Berkshire Hathaway's annual meetings, often answering long questions with "I have nothing to add." But when he did speak, people listened. Buffett credited Munger with moving him from buying cheap, mediocre companies to buying great ones. In Part 4 of Legendary Investors, we look at the man behind the one-liners.
Lawyer turned investor
Munger was born in Omaha in 1924, served in the US Army Air Corps during World War II and earned a law degree from Harvard without first finishing an undergraduate degree. He built a successful legal career in Los Angeles and helped found the law firm Munger, Tolles & Olson.
He met Buffett in 1959 at a dinner in Omaha, and the two hit it off immediately. Munger ran his own investment partnership from 1962 to 1975 with strong results, then became vice chairman of Berkshire Hathaway in 1978. He held that role until his death in November 2023, just weeks before his 100th birthday.
Quality over cheapness
Munger's biggest influence on Berkshire was a shift in philosophy. He argued that a truly great business, one that can earn high returns on capital for many years, is worth paying up for. Over the long term, he said, a stock's return will roughly match the return the business earns on its capital. Buy a business earning 6% on capital and you will struggle; buy one earning 18% and you can do well even if you overpay a little.
The purchase of See's Candies in 1972 was an early example of this thinking, and it shaped Berkshire for decades.
The latticework of mental models
Munger's most famous idea is that good thinkers carry a "latticework" of models from many fields: psychology, economics, mathematics, physics, biology and history. If you only have one tool, every problem looks like a nail. With many, you can look at a decision from several angles.
Some models he often mentioned:
- Incentives: "Show me the incentive and I will show you the outcome." People behave according to how they are rewarded.
- Compound interest: Small advantages, held for a long time, grow enormous.
- Margin of safety: Borrowed from engineering and from Graham, it means building room for error.
- Opportunity cost: Always compare an investment to your best alternative.
- Psychology of misjudgement: Biases such as social proof, envy, overconfidence and commitment cause predictable mistakes.
Inversion
Munger loved to quote the mathematician Carl Jacobi: "Invert, always invert." Instead of asking "How do I succeed?", ask "What would guarantee failure?" and then avoid those things. For investors, that might mean avoiding heavy debt, businesses you do not understand, dishonest management and panic selling.
Sit on your hands
Munger was a champion of doing very little. He believed big money is made by finding a few excellent opportunities and holding them, not by constant trading. "The big money is not in the buying and selling, but in the waiting." He was comfortable owning only a handful of stocks when he had strong conviction.
Notable investments
- Costco: He admired its low-cost, customer-first model and sat on its board for many years.
- BYD: He backed Berkshire's 2008 investment in the Chinese carmaker and battery maker, introduced by investor Li Lu.
- Daily Journal: He chaired this small publishing and software company and used its meetings to share his views.
Munger's rules for a good life
Munger's advice went beyond money. He urged people to:
- Spend less than you earn and avoid debt that can wipe you out.
- Keep learning every day; he was a famously voracious reader.
- Deal with trustworthy people and be one yourself.
- Avoid envy, resentment and self-pity, which he saw as wasted energy.
- Be patient: he often said the first $100,000 is the hardest to save, and that compounding gets easier after that.
The takeaway
Munger showed that investing is really about thinking well. Learn widely, understand incentives, look at problems backwards, demand quality and then wait. These habits help with careers and relationships as much as with stocks.
In Part 5, we travel the world with John Templeton, the investor who bought when others were most afraid.
Legendary Investors: the full series
- Part 1: Benjamin Graham
- Part 2: Philip Fisher
- Part 3: Warren Buffett
- Part 4: Charlie Munger (you are here)
- Part 5: John Templeton
- Part 6: Peter Lynch
- Part 7: John Bogle
- Part 8: George Soros
- Part 9: Ray Dalio
- Part 10: Jim Simons
This series is for education only and is not investment advice. Returns, dates and figures are commonly cited historical values and may vary slightly between sources. Past performance does not guarantee future results.
