#Fairness

Charlie Munger lived through an age of astonishing prosperity and died this week a wealthy man. But the one did not flow automatically from the other. There’s good reason tens of thousands have flocked to Omaha, Nebraska every year for decades, for Berkshire Hathaway’s annual shareholder meeting. They came for Warren Buffett’s headlines – and for Munger’s unfailingly blunt, witty and meticulously-researched analysis. Even in the current environment of high-borrowing costs, geopolitical upheaval and AI disruption, Munger’s advice for directors remains apt: Plan your succession. Munger inadvertently – or perhaps shrewdly – let slip in 2021 that Greg Abel, the current vice-chair of non-insurance operations, would “keep the culture” going after Buffett. The official plan, mapped out since 2006, envisages dividing the CEO role into three parts. Ajit Jain, who oversees Berkshire’s vast insurance business, and Todd Combs and Ted Weschler, who manage its $318 billion stock portfolio, will all hold key roles. None will be as suitable a foil to Buffett as Munger, whom he referred to as the “abominable no-man” for his skeptical approach. Be interested. As a lawyer, poker player, architect, military meteorologist, psychologist and publisher, Munger advocated a multidisciplinary approach to investing. “It’s much better to think you’re ignorant,” he told an audience in 2015. “If people weren’t so often wrong, we wouldn’t be so rich.” The “everything” approach was reflected in Berkshire’s portfolio, from See’s Candies’ peanut butter brittle to BYD’s electric vehicles. He also warned against diversification for diversification’s sake. Take the long-view. Buffett’s strategy before Munger arrived was to invest in “cigar butts” – cheap companies with a few puffs left. Munger advised him that building a sustainable company was about buying solid brand names that can weather storms. It was on his advice that Buffett bought a stake in American Express in 1962, despite its distressed share price following the Salad Oil Scandal. As of March 2023, it was Berkshire’s third biggest securities stake, valued at $26.4 billion. Avoid gimmicks. He once suggested any presentation that included EBITDA – short for earnings before interest, taxes, depreciation and amortization – would be better substituted with the phrase “bullshit earnings”. He also harbored a dislike for cryptocurrency, which he referred to as “turd trading”. As for the hype around artificial intelligence, which has driven chipmaker Nvidia’s share price up 200 per cent this year, Munger said: “I think old-fashioned intelligence works pretty well.” Munger, who began working in his grandfather’s Omaha grocery store before joining the US Army and graduating Harvard Law School, was well known for his “Mungerisms” – morsels of candid and off-the-cuff life advice, including on  Love: “How to find a good spouse? The best single way is to deserve a good spouse… To get what you want, you have to deserve what you want.” Learning: “I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself.” Longevity: “Somebody my age has lived through the best and easiest period that ever happened in the history of the world — the lowest death rates, the highest investment production, biggest increases in most people’s standards of living.” Despite an awareness of his own fortune, it’s also true that Munger was old enough to witness the hardships and inflation of the 1930s. Last year he described climbing prices as “the way democracies die” citing examples from Latin America, the Roman Empire and the Hitler’s Germany. Whether that risk has been contained by central banks is undecided. But here’s a hard fact: $1 million invested in Berkshire in 1978 would today be worth a staggering $3.7 billion. Much of that is due to Munger. Thanks for reading. If you want to get in touch, drop us a line at sensemaker@tortoisemedia.com.