Friday, May 23, 2008

Warren Buffett is the face of the company and Charlie Munger stays mainly in the shadows.

That works well for the two billionaires, who together have developed one of the most successful investment records ever.

But while Mr. Munger downplays his own contributions - he is known for repeating “I have nothing to add” after Mr. Buffett’s expansive comments at the Berkshire shareholder meetings - his role is key to much of the company’s success.

Mr. Buffett himself credits Mr. Munger with pushing him beyond his early investing strategies and says the two men have never had an argument - even though they occasionally disagree.

Mr. Munger’s influence as vice chairman of Berkshire is considerable, but mostly private.

“He strikes me as somebody who is just a very good sounding board for Warren,” said Morningstar analyst Justin Fuller.

Berkshire’s board has a plan in place to select a new management team for the time when Mr. Buffett and Mr. Munger are gone, but whoever takes over the company will have a hard time matching their success and synchronicity.

Mr. Munger answers questions alongside Mr. Buffett for hours each May at the Berkshire shareholders meeting in Omaha, Neb., and again on his own at the annual meeting in California of Wesco Financial Corp., a Berkshire subsidiary that he leads.

Mr. Buffett sometimes relies on Mr. Munger to repeat questions because his hearing is better. After one shareholder asked a lengthy question this year about how Mr. Buffett got started investing and what mindset an investor should have, Mr. Buffett turned to Mr. Munger for help.

So Mr. Munger summed it up: “He wants you to instruct him how to become less like a lemming.”

When Mr. Munger does weigh in, he often cuts through Mr. Buffett’s longer answer to its heart. And sometimes he critiques Mr. Buffett’s response.

“Well, that was real useful advice,” Mr. Munger said this year after Mr. Buffett answered a question about choosing good managers by saying Berkshire buys businesses with strong management teams in place. Then he compared that to saying the best way to get through lean times is to keep a couple million dollars lying around.

He can get away with rebuking the world’s richest man because they’ve been friends for nearly 50 years.

Mr. Munger, who at 84 is seven years older than Mr. Buffett, grew up in Omaha about five blocks from Mr. Buffett’s current home. Both men worked at the grocery store Mr. Buffett’s grandfather and uncle ran.

By the time they met at an Omaha dinner party in 1959, Mr. Munger was practicing law in Southern California and Mr. Buffett was running an investment partnership in Omaha.

“We hit it off,” Mr. Buffett said. “We were soon rolling on the floor laughing at our own jokes.”

After that initial meeting, Mr. Buffett and Mr. Munger kept in touch through frequent phone calls and lengthy letters, according to the biography in Munger’s book “Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger.”

The two men shared investment ideas and occasionally bought into the same companies during the 1960s and ‘70s. They became the two biggest shareholders in one of their common investments, trading-stamp-maker Blue Chip Stamp Co., and through that acquired See’s Candy, the Buffalo News and Wesco. Mr. Munger became Berkshire’s vice chairman in 1978, and chairman and president of Wesco Financial in 1984.

Most of Mr. Munger’s roughly $2 billion fortune comes from his 15,181 Class A Berkshire shares, which represent about 1.4 percent of the outstanding shares. The $100,000 salaries Mr. Munger and Mr. Buffett both receive from Berkshire haven’t changed in more than 25 years.

Berkshire’s book value - assets minus liabilities - per share has grown from $19 some 43 years ago to $78,008 now under their leadership - despite Mr. Munger and Mr. Buffett living more than 1,500 miles apart during the entire time they’ve worked together.

They organized Berkshire Hathaway so they wouldn’t ever have much to do besides sit around and think. And that’s still how they run the company today, even though it has grown to include roughly 250,000 employees and more than 70 subsidiaries.

“Neither Warren nor I is smart enough to make the decisions with no time to think,” Mr. Munger said. “We make actual decisions very rapidly, but that’s because we’ve spent so much time preparing ourselves by quietly sitting and reading and thinking.”

The real key to Berkshire’s success, Mr. Munger said, is that he and Mr. Buffett like learning and have improved over time. But Mr. Munger gives Mr. Buffett most of the credit.

“Mr. Buffett is by far the most important person,” Mr. Munger said in an interview. “And to a huge degree why Berkshire Hathaway is the length and shadow of Warren Buffett.”

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