Munger FT Interview July 12, 2009

Interview: Charles Munger: Man on the money with Buffett
By Justin Baer in New York

July 12 2009
Wesco Financial’s Pasadena headquarters are a blur of earth tones and cloudless sky. Bathed in southern California sun, the offices hold a glow befitting the gilded career of the company’s chairman, Charlie Munger.

Mr Munger, best known as business partner to Warren Buffett, head of Berkshire Hathaway, is settled deep into his chair. His lips stretched to a thin smile, the 85-year-old billionaire peers through thick glasses.

Over the years, generations of investors, chief executives and journalists have wondered why Mr Munger has stayed happily in the background for almost half a century as Mr Buffett forged a reputation as the world’s greatest stock-picker.

“Warren is peculiar, and I’m peculiar,” says Mr Munger, who is also Berkshire’s vice-chairman. “We’ve got our own peculiar operating model. Nobody else operates the same way or stays in the game in a major corporation as long as we have, so we’ve got a different model. And we like it that way.”

Working 1,500 miles apart – Mr Buffett remains in his hometown of Omaha, Nebraska – the two “intellectual pals” have built up a stellar record by sticking to the basic principles of value investing: they buy companies in industries they understand, with managers they trust, at cut-rate prices. “We think all intelligent investing is value investing,” he says. “What the hell could it be if it wasn’t value?”

While Mr Buffett’s mentor, the economist Benjamin Graham, is considered the father of value investing, it is Mr Munger who is credited with helping Mr Buffett evolve beyond buying stocks for no other reason than that they were cheap.

“That worked fine in the period after the 1930s,” Mr Munger says. “I don’t think it works nearly as well now. Too many people are doing it.”

Many of Berkshire’s holdings, from longtime investments such as Coca-Cola and Wells Fargo to last year’s purchase of General Electric’s preferred shares, are blue-chip companies considered the best at what they do.

There are no regular meetings at Berkshire, no corporate-speak or standard management memorandums that help define the cultures of so many companies.

“The legally required meetings for corporate governance, we do those,” Mr Munger says. “Everything else is ad hoc.”

Mr Munger has been known to seize hold of a conversation and not let go until his views on a given subject – and possibly the interviewer – are exhausted. But on this afternoon, he is practically beaming.

“When Warren talks about tap dancing to work, he’s not kidding,” he says. “His spirits lift as he goes through the office door. And I’m the same way.”

In keeping a stake in the hands of public shareholders and a portfolio of its own investments, Wesco maintains an unusual place within the Berkshire empire. Mr Buffett initially agreed to keep the company as a standalone entity to honour the request by the Casper family, the previous owners who had sided with Berkshire in a takeover battle for the former savings and loan company.

“Wesco is a historical accident,” Mr Munger says of the holding company whose assets include an insurer, a steel manufacturer and a furniture-rental business. “It should’ve been folded into Berkshire long ago.”

It is unlikely Berkshire, which owns 80 per cent of Wesco, will acquire the remaining stake unless the stock price falls relative to Berkshire’s. “Warren’s never going to issue stock that isn’t fair to Berkshire shareholders, so we’re hooked by reason of our popularity,” Mr Munger explains. “But it is a ridiculous outcome and it costs $2m (€1.4m, £1.2m) a year in extra administration costs. We hate it, but we can’t fix it.”

Like Berkshire, Wesco’s annual meetings, held each spring in Pasadena, have inspired a devoted following among its investors. But while the carnival atmosphere of Berkshire’s event in Omaha has earned it the moniker “a Woodstock for capitalists”, Wesco’s gathering is an intimate performance in a small club. And Mr Munger’s terse soundbites, his trademark at the Omaha meetings, give way in Pasadena to extended monologues on the economy, government policy and his favourite target this year, the financial services industry.

“The public is furious with Wall Street,” he says. “Everyone who is in a position to observe this says they’ve never seen this much fury to one particular industry.”

Is it justified?


A voracious reader, Mr Munger’s conversations and writings are peppered with references to philosophers, psychologists and inventors whose works and life stories he has studied. He speaks directly, in a tone that can, at times, both alienate and educate.

Like Mr Buffett, Mr Munger was raised in Omaha. He attended the University of Michigan, enlisted in the Army Air Corps and, after the second world war, earned a degree from his father’s alma mater, Harvard Law School. He considered joining his father’s practice in Omaha before setting his sights on southern California, where he had studied meteorology during the war.

Mr Munger was back in Omaha in 1959 when a family friend arranged a lunch with Mr Buffett, then a young local investment manager. The pair hit it off immediately and thus began a lifelong friendship.

By the early 1960s, Mr Munger had opened a law practice with four others and found success as a part-time investor in both businesses and commercial real estate. As his relationship with Mr Buffett flourished, he eventually stopped practising law to focus on deals.

While they no longer speak daily, rarely will more than a week pass between conversations. They still frequently send one another documents and books to read. And while they often disagree, Mr Buffett once told the Financial Times that they had “never had an argument”.

“We are having a huge amount of fun understanding how the world works,” Mr Munger says.

Mr Munger has amassed a great fortune in part because of his association with Mr Buffett, but as his annual meetings attest, he has also built a loyal following of his own.

“He’s got a real fan club, but for good reason,” Mr Buffett has said. “I’m a member, too.”

Mr Munger is in turn quick to praise Mr Buffett, who is looking to rebound from Berkshire’s worst year. As an investor, Mr Munger insists, his partner has continued to improve.

“He never would have bought into BYD [the Chinese electric car battery maker],” Mr Munger said. “He’s changed. He learns.”

Longtime Berkshire disciples and friends alike might say Mr Munger has had something to do with that.

“There’s no successor to Charlie,” Mr Buffett says. “You’re not going to find anyone like him.”