“Simplicity has a way of improving performance by enabling us to better understand what we are doing”
Charles Thomas Munger was born on January 1st, 1924 (96 years old) in Omaha, Nebraska and achieved financial independence from scratch.
Charlie Munger started his studies in Mathematics at the University of Michigan but gave up after his 19th birthday to join the US Army Corps, where he studied to be a meteorologist during World War II.
Later, through a program created to assist U.S. military veterans, Munger took several different advanced courses. In 1948, after a first rejection by the admissions’ Dean because he did not have an undergraduate degree, he graduated as magna cum laude with a Juris Doctor in Harvard Law School.
Munger does not have formal training in business and finance so he had to learn a lot by himself about professional investing.
Current Wealth and current portfolio
Munger does not like diversification and he says he will never do it, so he manages two key portfolios with only seven different stocks.
The first one is his personal/family portfolio that only manages three main stocks: Costco, that Munger considers “one of the most admirable capitalistic institutions in the world”; Berkshire Hathaway, where he is the vice-president and Himalaya Capital, an investment fund focused on Chinese stocks.
The other is the investment portfolio at Daily Journal Corporation where he manages four stocks, three of them in the banking industry, such as Wells Fargo & Company (51,6%), Bank of America Corporation (43,1%) and US Bancorp (5,0%). The fourth and last stock is Posco (0,3%), a Korean steel company. Through his management, this portfolio went from $20.4 million in March 2009 to $131 million in December 2015.
Munger inherited no wealth and built his fortune with willpower and negotiating experience. Now he is part of the Forbes’ Billionaires List of 2020 with a current net worth of around $1.9 billion (16-11-2020).
During Law School, Charlie became a member of the Harvard Legal Aid Bureau, the oldest student-run legal services office in the United States. He was able to provide important community services as a student attorney and develop a lot of skills to use during his life.
In 1949, Munger moved with his family to California, where he joined the law firm “Wright & Garrett”, starting with a 275$/month wage. After 13 years, he founded and worked as a real estate attorney at “Munger, Tolles & Olson”.
As a teenager, Munger worked at “Buffett & Son”, Warren Buffett’s grandfather’s grocery store in Omaha, earning 2$ for twelve hours of uninterrupted labor. In 1959, after his father passed away, Munger met Buffett, who encouraged him to leave the legal area to start his own investment partnership.
Between 1962 and 1975, he partnered with Jack Wheeler, a former client, and they founded “Wheeler, Munger & Co.”, an investment counseling firm with a seat on the Pacific Coast Stock Exchange. Since 1965, Munger found great interest in real estate, which also enabled him to satisfy his passion for architecture. He decided to stop practicing law to focus only on investment management, where he also partnered with Otis Booth in real estate development.
Munger served as Chairman in Wesco Financial Corporation for 27 years, until 2011.
Since 1978, he is the Vice-Chairman of the famous Berkshire Hathaway. Under Munger and Buffett’s leadership, Berkshire Hathaway grew 2,000,000% from its initial value.
Lastly, Charlie purchased the Daily Journal Corporation, in 1977, that he transformed into a big and well-recognized group of newspapers and websites, where he is the Chairman.
Munger invests for the long term (buy and hold) in undervalued companies with good prospects. The secret to his success is that he acts infrequently and with conviction when opportunities arise, so he can find places where it is safe and wise to avoid over-diversification.
– Berkshire Hathaway has possibly 250 subsidiaries and around 50 holdings in listed companies. With this in mind, it is easy to consider this company as “one single investment” but with an extremely diversified portfolio, not only in different sectors and industries but also in operations around the world.
– Himalaya Capital, as said before, is an investment fund focused on chinese stocks that is run by Li Lu. He assumes himself as a Munger fan, so it is obvious to conclude that, as the manager of Himalaya Capital, he will aim everything to maximize the value of the company’s stocks and, consequently, Munger’s investment in the fund.
“Those of us who have been very fortunate have a duty to give back” and, since 2004, Charlie has donated more than 500 shares of Berkshire Hathaway, whose value together, with other cash donations, exceeds $450 million.
In the list of benefactor entities, it is possible to highlight the University of Michigan, where Charlie studied; Harvard-Westlake School in Los Angeles; Stanford University; and the University of California, with the largest donation in the history of the school:
2004 – 500 Berkshire Hathaway Class A stock (then valued at $43.5 million, to Stanford University to build a graduate student housing complex.
2007 – 3$ million to University of Michigan Law School – Lighting improvements in Hutchins Hall and the William W. Cook Legal Research Building, including the noted Reading Room.
2006/2009 – Donated Berkshire Hathaway Class A stock, worth nearly $10 million, to the Harvard-Westlake School in Los Angeles.
2011 – 20$ million to University of Michigan Law School – Renovations to the Lawyers Club (covered the majority of the $39 million total cost) – The renovated portion was renamed the “Charles T. Munger Residences” in his honor.
2011 – 10 Berkshire Hathaway Class A stock to University of Michigan.
2011 – $110 million to University of Michigan to fund a new “state of the art” residence designed to foster a community of scholars, where graduate students from multiple disciplines can live and exchange ideas.
2014 – $65 million to the Kavli Institute for Theoretical Physics at the University of California, Santa Barbara. This is the largest gift in the history of the school. The donation went towards the construction of a residence building designed by Munger for visitors of the Kavli Institute to bring together physicists to exchange ideas.
2016 – $200 million to UC Santa Barbara for “state of the art” student housing, tripling the record gift he gave for the Kavli Institute for Theoretical Physics.
Rita Amorim, MSc in Finance
Margarida Rodrigues, BSc in Gestão