Charlie Munger is a highly respected American investor, businessman, and philanthropist, best known as the Vice Chairman of Berkshire Hathaway, the conglomerate led by Warren Buffett. Munger’s sharp analytical skills and unconventional thinking have made him a key figure in finance and investing. He is renowned for his profound insights into market behavior, investment strategies, and economic principles.
As a close partner to Buffett, Munger has played a pivotal role in shaping the success of Berkshire Hathaway through his unique approach to business and investment decisions.
Business Reputation and Management
If a business with a thoroughly tarnished reputation has an excellent manager with a good reputation, the business’s reputation will remain unchanged. You can’t fix truly bad businesses.
Quote from Ben Franklin
So, Charlie, when I was flying this morning, I was thinking and preparing for our evening conversation. Looking through my notes, I realized that we share an admiration for one historical figure—Ben Franklin. Absolutely. And I want to quote Ben: he said that in life, you can do two things: write something worth reading or do something worth writing about. And you’ve done both. Yes, but not quite like Franklin. And a couple of hours ago, I went on Amazon Books, just typing “Charlie Munger” into the search bar, and saw that there are over a hundred books about Charlie. My favorite title was “Yes, Charlie Munger.” It’s quite interesting, and so I thought that we might, this evening during our conversation, explore your life, many moments of your life that have shaped your thinking and what you have been able to achieve. I’ll ask you a few questions, and at some point, I hope we’ll have time to open up topics and address some questions that interest both you and the audience. At the moment, we have 2 out of 2 about Bitcoin, so that gives you an idea of what’s on people’s minds. But I’d like to return to your early childhood.
Childhood Memories Charlie Munger in Omaha
You grew up in Omaha. What moments from your experience in Omaha do you consider the most memorable that shaped you into who you are today, that is, how you think? Could you tell us a bit about growing up in Omaha?
The Great Depression and Its Impact
Yes, I really liked Omaha. It was a size where I knew many people regardless of what they did. I wasn’t lost in a big metropolis. I was very lucky with the character of my parents, my parents’ friends, and the public schools I attended. They were quite remarkable by the standards of the time. Of course, most of my schooling took place during the Great Depression, but that means I am one of the few people still alive who remembers the Great Depression. It was very helpful. It was so extreme that people like you simply can’t imagine what it was like. It was really that way. Just no one had money, not even rich people. People would come to our door asking for food, and we had hobo jungles near my grandfather’s house. I was forbidden from walking through them, so I always walked through them. And I was safer in those hobo jungles during the depths of the thirties, when people were practically starving, than I am now walking around my neighborhood in Los Angeles at night. The world has changed in that respect. You might think crime has decreased now, but crime was quite low back then. Anyway, I saw that I had a unique set of experiences going through civilization in different phases, including the Great Recession. I would say it was one of the greatest recessions in 600 years in the English-speaking world. It was really interesting to observe all this, and then how it changed and how it was fixed. Random Keynesianism, for example, during World War II, Hitler eliminated the Great Depression in Germany with intentional Keynesianism. But he didn’t do it to stimulate the economy; he wanted to settle scores with all the people he hated. But he took all that money and created all those weapons. By 1939, Nazi Germany was the strongest economic power in Europe, and no one else was even close. You can’t understand it as well as if you haven’t lived through it. You could see how this place picked up speed more and more, and soon everything was decided.
Family Influence and Educational Path
Of course, in those days there were all sorts of people. Most of my family believed in paper money backed by gold, not too much wealth, and so on. So I grew up among fairly backward people by modern standards, but they were backward and in a somewhat self-sufficient way, which I think was beneficial. I never regretted not growing up in a more liberal environment. I had a liberal aunt, in fact, she was my mother’s younger sister, and she was the second female dean at the University of Chicago. She wrote a dissertation on labor conditions in coal mines, and of course, she was ultra-leftist. I would be extremely leftist if I observed how miners were treated in the past. You couldn’t be a person with even a drop of decency without feeling that it was deeply improper—to have such great misfortune and manipulate it in the interest of the mine owners and so on. But she used to send me all these leftist books, one each Christmas, and I always thought she was a bit crazy. This shows that sometimes an extremely bright extreme position acts as proof and leads you astray. You have to be on guard your entire life. In fact, the whole trick of life is to make sure your own brain doesn’t mislead you. I found it to be just a fun game for life, and I can’t remember a time when I wasn’t engaged in it. I wasn’t a wunderkind, but I was a wunderkind in that I had adult interests. I was curious about what worked and what didn’t, and why. I could see that very outstanding people I admired and respected were somewhat crazy. I would say I liked Dr. Davis, of course, but he was a bit capricious in some way, and I didn’t intend to be like him. So I was very judicious, and I think that helped me. Also, what helped was that I constantly changed my judgments as I learned more and more facts. It created lifelong habits that turned out to be very useful.
Influence of Grandfather
Another thing that really helped me, especially on my father’s side, was that my paternal grandfather was the only federal judge in Lincoln, Nebraska. He was there forever, and he stayed there forever. I think when he left, he was the longest-serving federal judge in the country. He was a brilliant man and rose from nothing. He was the child of two impoverished schoolteachers, and when he grew up in a small town in Nebraska, they would give him five cents to buy meat. And he would go to the butcher shop and buy the parts of the animal that no one else ate. That’s what two schoolteachers lived on in those days. The humiliation of it so bothered him that he simply decided to get out of poverty and never return. And he did. He moved up as a Lincoln lawyer and got educated in law offices. He had to leave college because he could no longer pay for tuition, but because he taught himself and because he was extremely brilliant, it wasn’t too hard. He had an extremely extreme position, and I would say his position was this: you have a moral duty to make yourself as enlightened and smart as you can. And that was practically the highest moral duty. Maybe the first place was caring for family, he was traditionally religious, so maybe that was his religious duty. But he really believed that rationality was a moral duty, and he worked on that. And he despised people who didn’t. On the other hand, as a judge, he started with the idea: why would someone rob a train or something else if it’s just not worth it? And he worked a lot in his life, doing everything he could to show that the path he chose was the right one. So it had a profound impact on me. When I was little, his urging was that you have a moral duty to understand what reality is and to develop your mind, and on this basis, your further behavior would be based.
Education and Career Path
So when I went to the University of Michigan, I didn’t have much of a choice. It was a choice made by my father, and it seemed justified to me, as it was a good university. And as a result, I did what I did. I wasn’t immediately a genius mathematician, but I was always extremely interested in mathematics and calculations, and that turned into my capable field.
Mathematics is such a wonderful area where you can not only be satisfied but also find it quite simple in its ideal form. You can easily learn the basics, and if you go further, it can become quite difficult. And I mean, you’ll see a lot of mathematics that seemed easy but was actually much more complex than it was supposed to be. And many people give up on mathematics too soon. I think it’s much more useful to have knowledge of mathematics than to be burdened with the complexities of other kinds of science. I also became interested in legal things. I saw that it was really a wonderful thing where you could achieve quite deep results, but it’s much less useful than mathematics. The legal profession is indeed important for society, but it doesn’t provide the mental stimulus that mathematics does. I entered law school but realized that if you want to become a billionaire, it’s better to get into business. So, I left the legal practice, and I didn’t make a mistake. It was the right decision. It’s all about capital creation and business decisions.
Partnership with Warren Buffett
I remember how Warren and I, in the beginning, acquired many businesses. It was a task to manage these businesses, and still, their quality remained within acceptable limits. Now, looking back, we can see that we were buying businesses that seemed quite acceptable to us, but that wasn’t always the case. We could also say we wanted to acquire assets and so on, but if we had bought poor-quality assets, it wouldn’t have been so good. We really started to realize that buying bad assets doesn’t lead to a good result, and you need to be careful to buy a good business. We don’t buy businesses that you couldn’t pass on if you went on vacation for 10 years, and on your return, everything would be in the same place. You don’t want such a business. We aim to acquire businesses with excellent management and such quality that we can do what we want.
So what we did was carefully selected and contributed to our success. We made some big investment mistakes, but overall our approach was based on reasonable decisions. We avoided buying bad assets and aimed to acquire quality businesses.
Business Advice
And here’s something else I want to share: the most important thing in business is to think like an owner, not like a careerist. Business is not as good if you approach it only from a career perspective. It might not be as good and won’t bring you long-term success. I’ve observed many large companies, and if you think of them as a careerist, you may have problems. For example, General Motors started with a wonderful entrepreneurial spirit, but they gradually began to change approaches that destroyed them. Thus, if you want to succeed in business, you should think like an owner and be cautious in your decisions.
Conclusion
So my favorite moments in life are related to how I managed to adapt and learn from my mistakes. I believe that each of us has unique opportunities in life to do something meaningful, and it really depends on our personal approach and moral principles.
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