Charlie Munger: The Other Guy Behind Warren Buffett's Success

Charlie Munger Warren Buffett
AP, Nati HarnikBerkshire Hathaway CEO and Chairman Warren Buffett (right) and Vice Chairman Charlie Munger.

Investors around the world respect and admire the success that Warren Buffett has had in growing Berkshire Hathaway (BRK.A, BRK.B) into the investing colossus it has become. But while it's Buffett who has become a household name, his lesser-known vice-chairman at Berkshire has an equally impressive record of performance.

Charlie Munger has worked alongside Buffett for decades, but he's also a successful investor in his own right. Most recently, as the chairman of Daily Journal Corp. (DJCO), Munger helped it avoid the financial difficulties that so many of its print media peers have faced: Taking the Daily Journal's available cash, he made a series of shrewd investments back in February 2009, when the stock market was near its cyclical bottom. As a recent Bloomberg article revealed, the company's equity portfolio had climbed in value by more than $67 million as of March 31 from an original value of just $45 million -- a nearly 150 percent gain.

Munger's investing success has led not only to Daily Journal stock tripling but also to an influx of interest. As longtime investor Richard Cook told Bloomberg, "Everyone wanted to know what he was buying, because they wanted to follow his steps." But Daily Journal hasn't revealed its exact holdings, which Cook believes is in an effort to keep others from copying Munger's moves and potentially draining some of the profit potential from his picks.

Who Is Charlie Munger?

The 89-year-old Munger has been Buffett's right-hand man at Berkshire since 1978, but he has a long history of other investing pursuits. Before joining Berkshire, Munger ran an investment partnership that according to Buffett earned average annual returns of almost 20 percent from 1962 to 1975, almost quadrupling the performance of the Dow Jones Industrials (^DJI) during that period. As chairman of Wesco Financial (now wholly owned by Berkshire) from 1984 to 2011, Munger oversaw a concentrated stock portfolio, and also took control of several companies.

Munger is well-known for his colorful and sometimes controversial comments not just about Buffett and Berkshire but about all things economic and financial. In a 2011 CNNMoney interview, he argued that the financial industry should be downsized by at least 80 percent. "[W]hy should we want to encourage our brightest minds to do what amounts to code-breaking and electronic trading?" he asked. "I don't see any social contribution."

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He raised controversy among precious-metals investors by saying, "I don't see how you become rational hoarding gold. Even if it works, you're a jerk." And just a few months ago, he argued that big banks are too complex and pose risks that require heavier regulation and prohibitions on risky assets like derivatives.

Yet on more basic investing issues, Munger's message complements Buffett's well. Advocating the power of combining patience with readiness to jump on opportunities when they arise, Munger espouses conservative investing principles rather than market-timing or get-rich-quick schemes. "Spend less than you make; always be saving something," he advises. "Over time, it will begin to amount to something." At the same time, Munger has noted that when things go badly, you have to "recognize reality even when you don't like it -- especially when you don't like it."

What's Next for Munger?

With both Buffett and Munger in their 80s, Berkshire investors have long been concerned about the future. Some fear that once Buffett and Munger have moved on, the opportunities that they found will evaporate, and returns for Berkshire stock will decline.

But Munger is far more optimistic, having said at the 2009 Berkshire annual meeting, "As I move close to the edge of death, I find myself getting more cheerful about the economic future." Those words should reassure both Berkshire shareholders as well as investors in other companies that as a man of long-term vision, Munger will have a legacy that will endure long after his days at Berkshire end.


Motley Fool contributor Dan Caplinger owns shares of Berkshire Hathaway. You can follow him on Twitter @DanCaplinger or on Google+. The Motley Fool recommends and owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days.