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.

5 Things to Do Now That Warren Buffett Is on Twitter
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Charlie Munger: The Other Guy Behind Warren Buffett's Success
One critical question is what sort of celebrity Twitter user Buffett will turn out to be: the laissez-faire famous person who rolls with the hoi polloi's punches, or the hypersensitive control freak who cannot brook the slightest mischief or criticism? There's only one way to find out which alternative Buffett favors, and that's to test him through vigorous trolling.

There are lots of options. Many conservatives dislike Buffett -- whom they might be expected to admire, given his enormous investing success and cheerful advocacy for the U.S. economy -- because of his support for Barack Obama. Particularly galling has been his endorsement of the president's proposal for higher taxes on upper income earners, encapsulated in the so-called Buffett Rule. Buffett's invocation of his secretary, who he has said pays more in federal taxes as a proportion of income than he does, has become a source of mockery; why not ask Buffett why the secretary of the richest investor on Earth isn't a member of the one percent herself? Seems only "fair," to use a word the president favors in this connection.

For those on the left, Buffett's status as arch-capitalist dealmaker offers a few openings. There have, for instance, been questions about what he knew, and when he knew it, before making a $5 billion investment in Bank of America (preferred shares, of course) in August 2011. Shortly after Buffett's purchase, word got out of extensive job cuts (40,000 employees) and the firings of two executives -- restructuring moves likely to raise the bank's stock price. "Did [Buffett] have inside information that other investors were not aware of?" asked bank analyst Richard Bove. "Did he know that there were going to be these two major announcements at the time he made his investment? If he did know, I think it is illegal." These questions are under 140 characters, so have at it.
Bagging the scalp of a verified Twitter user for your followers list can seem like a daunting task. You can do it, though, take it from me: for some reason, I'm being followed by POLITICO's chief economics reporter.

Buffett -- who currently follows zero accounts, despite having received tweets of welcome from such luminaries as @BillClinton, @BillGates, and @BarackObama -- seems like a hard nut to crack. You might have a slight advantage if you're female, since, in the words of a recent essay written for Fortune (and promulgated as his second tweet), "Buffett is bullish... on women." It might also help if your avatar is a picture of a Cherry Coke Can. Buffett failed to identify his favorite soda in a blind taste test conducted by Bloomberg, so we're guessing it's the #branding he likes.
Once you've gotten Buffett to follow you, you'll be able to send him a DM, Twitter's private and confidential telegram. This is an ideal step toward actually hanging with Buffett, which is generally a possibility only for those rich enough to partake in charity auctions. (Last year's winning bid for lunch with Buffett was $3.46 million.)

Some activities that might pique our subject's interest, and which you might consider suggesting: playing bridge, which Buffett once said "is such a sensational game that I wouldn't mind being in jail if I had three cellmates who were decent players and who were willing to keep the game going twenty-four hours a day"; flying around in his private plane, which he once identified as one material thing that makes his life more enjoyable; or reading the newspaper. Buffett owns more than 70 of them, reads five a day, and recently admitted, "It's almost unnatural how much I love newspapers."
Sometimes, those with large Twitter followings will lend their extensive reach to lesser entities looking to spread a worthy message. As a consequence, the retweeted account often gains additional followers. #WinWin.

Buffett has just surpassed 400,000 followers, an impressive rate of influence-accrual. And he has an intense affection for charity, having pledged to donate more than 99% of his wealth. So your best bet, if you want that @WarrenBuffett RT, is to ask nicely on behalf of a good cause.

 Buffett has given $50 million toward anti-nuclear proliferation efforts, calling the bomb "the great problem of mankind," and in 2006 auctioned his 2001 Lincoln Towncar (with "THRIFTY" vanity license plate) to benefit Girls Inc. So, something anti-nuclear and feminist? "Launch women-owned businesses, not thermonuclear warheads." Could work.
For companies, a stock purchase by Buffett is more than a welcome dose of capital; it's a vote of confidence from history's most storied value investor (i.e., one who seeks strong businesses whose shares are underpriced). An endorsement via Twitter could have similar significance.

The recent hack of the Associated Press account showed that even fraudulent tweets can have dramatic effects on trading. Crack Buffett's Twitter password, send a few market-moving tweets under the aegis of that coveted blue-and-white check mark, and you might be able to make off with a lot of money. Or you could just short Berkshire Hathaway and announce the famously long-serving Buffett's retirement, effective immediately. That would be simpler.

I should add that, although one legal expert told 9NEWS that "the prosecution and punishment for whoever hacked the Associated Press Twitter account ... is uncertain," the federal charges against former Reuters deputy social media editor Matthew Keys show that the government is willing to make aggressive use of the Computer Fraud and Abuse Act of 1984 in cases that catch its interest. So you mess with Buffett's Twitter business at your peril. We certainly don't condone such unscrupulous use of social media. #ItWasJustAThought.

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.
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