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Warren Buffett and Charlie Munger: billion-dollar partnership

Warren Buffett and Charlie Munger: billion-dollar partnership

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Two old friends will get together once again today for Berkshire Hathaway Inc.’s annual shareholders meeting.

If Charlie Munger and Warren Buffett were only friends, their 56 years together would be only admirable. But because the two Omaha natives also formed one of the world’s most enduring and successful business partnerships, their journey to the stage of the CenturyLink Center Omaha has been remarkable as well.

Their partnership predates Buffett becoming chairman of Berkshire. Its roots stretch to the Great Depression, when Charlie Munger worked for $1.98 a week for Buffett’s grandfather Ernest Buffett. Over the decades, the men have influenced each other’s decisions and philosophies, perhaps as deeply as any two partners in history.

Today, Munger marvels at Buffett: “Warren’s a lot more able than I am, and very disciplined.”

Buffett, in turn, praises Munger as “both smarter and wiser.”

Not that they are alike in all ways. Buffett’s hobbies include playing the ukulele and appearing on cable TV. Munger is an architect on the side, designing some of the buildings he supports with multimillion-dollar donations to universities.

The two get along personally, saying they may disagree about investments or politics, but they’ve never had an argument. When they were younger, Buffett said that in an emergency Munger would serve as interim CEO while Berkshire searched for a long-term successor. Age has overtaken that plan; Buffett is 84 and Munger 91.

How they met

It all began with a series of intense discussions when they met in Omaha in 1959.

Dr. Edwin Davis, a prominent Omaha urologist, had called Buffett in 1957 about investing in the partnerships Buffett had started in Omaha. One of Davis’ patients, Arthur Wiesenberger, had known Buffett in New York City and suggested the contact, according to biographer Roger Lowenstein.

Davis and his wife, Dorothy, gathered their family to meet with Buffett, who was 27 and looked a decade younger. But he laid out the terms of his partnership, and the Davises soon invested $100,000 with Buffett.

Buffett asked Dr. Davis how he agreed to a large investment so quickly. Davis said: “Because you remind me of Charlie Munger.”

Two years later, Dorothy Davis and her son-in-law, Lee Seemann, still struck by the similarities between Buffett and Munger, invited them to lunch at the Omaha Club, where the city’s businessmen met for meals and special events.

Munger had long since moved to California and was practicing law in Pasadena. His father, Alfred, had died, and it fell to him to return to Omaha and wrap up his father’s law practice.

Soon after the Omaha Club lunch, businessman Richard Holland was mowing his lawn when Munger walked by — his father’s house was just up the street — and Holland invited him to dinner that night. Buffett also was invited.

A few days later, Buffett and Munger took their wives to Johnny’s Cafe. At one point, Munger slipped out of the booth and rolled on the floor with laughter, according to Buffett biographer Alice Schroeder.

On all three occasions, Munger and Buffett talked with each other to the exclusion of everyone else. After the session at Johnny’s, Nancy Munger asked her husband, “Why are you paying so much attention to him?”

“You don’t understand,” Charlie replied. “That is no ordinary human being.”

Despite their geographic separation, the two have been talking ever since, averaging more than once a day for decades.

“Warren and I got along from the start and have been friends and business associates ever since, although with various investments on both sides which do not overlap,” Munger once wrote.

“Charlie, even though he had no particular training in it, instinctively understood investment about as well as anybody I’ve ever met, Buffett said years later. “He is one very smart guy. ... I know lots of people with high IQs. But in the investment world and in certain other respects, they would not be remotely in Charlie’s class.”

What follows is a description of the partners’ interactions, based on interviews, books, their own writings and other sources.

Common backgrounds

“We think so much alike that it’s spooky,” Buffett told World-Herald reporter Bob Dorr in 1977, the year before Munger became vice chairman of Berkshire. “He’s as smart and as high-grade a guy as I’ve ever run into.”

Munger said that isn’t always a plus: “If a mistake goes through one filter, it is likely to go through both.”

Even before they met, Buffett and Munger had common influences. Both worked at the Buffett & Son grocery, 5015 Underwood Ave. in Omaha, run by Warren’s Grandpa Ernest and Uncle Fred, although they didn’t meet at the time because Munger is seven years older.

“The Buffett family store provided a very desirable introduction of business. It required hard, accurate work over long hours, which caused many of the young workers, including me (and later Ernest’s grandson Warren), to look for an easier career and to be cheerful upon finding disadvantages therein,” Munger told Dorr.

Even today Buffett jokes about the lack of physical effort required for his chosen profession of “pushing money around.” But despite the difficult work — or because of it — the store carries fond memories.

During a 2006 visit to the grocery, now restored and occupied by a bank branch, Buffett and Munger discussed the hours of physical labor. One winter day, Buffett and a friend showed up at 5 a.m. to shovel show from the driveway, sidewalk and loading area, finishing the job at 10 a.m.

When it came time to be paid, Grandpa Ernest told them, “A dime’s too little and a dollar’s too much,” and gave each boy 50 cents.

Munger remembers mostly hours of stacking heavy crates of groceries on a truck, riding to customers’ houses or apartments, carrying the crates inside and unloading them on kitchen counters.

Besides the work experience, Buffett remembered a sign, posted near the meat department, which could have been an investment lesson: “Good meat priced right is better than poor meat priced cheap.”

Both men excelled in school, a priority in their families. Their fathers were professionals. Howard Buffett was a stockbroker and congressman; Alfred Munger was an attorney, and Charlie’s grandfather, Thomas Munger, was a federal district judge in Lincoln from 1907 to 1941.

Buffett earned the only A+ given by investor/professor Benjamin Graham at Columbia University. Munger was one of 12 in a class of 335 to graduate magna cum laude from Harvard Law School in 1948.

Warren influences Charlie

In the 1930s, Munger made money designing and building five apartment projects near Los Angeles, as well as the house where he still lives. (Recently, Munger designed dormitories at Stanford University and the University of Michigan and, according to Buffett, Munger is working on another major project.)

Munger’s law practice was doing well, too. The law firm he co-founded is still in operation.

But in 1962, he set up his own partnership, Wheeler Munger & Co., to invest money for his family and some law clients. It was a life-changing switch for Munger, who hadn’t studied investing in school. Buffett’s instruction in rational investment methods was enough to set him on the right path.

“He was willing to accept greater peaks and valleys of performance, and he happens to be a fellow whose whole psyche goes toward concentration,” Buffett wrote. Although Munger followed Buffett’s investing principles, his choices of investments were “almost completely different” from Buffett’s.

From 1962 to 1975, Munger’s partnership averaged a 19.8 percent return per year, compared with a 5 percent average for the Dow Jones industrial average. The firm’s investments were gradually combined with Berkshire’s. By 1986, Munger owned 22,710 shares of Berkshire stock, worth $63.8 million at the time.

At today’s price, those shares would be worth $4.9 billion, but Munger has donated four-fifths of them to nonprofits. He now owns slightly more than $1 billion in Berkshire stock.

Charlie influences Warren

Munger advises Buffett directly on investments and other ideas.

“Charlie can analyze and evaluate any kind of deal faster and more accurately than any man alive,” Buffett once said. “He sees any valid weakness in 60 seconds.”

Munger’s family invested in BYD for several years before he made the suggestion to Buffett. In 2009, Berkshire’s MidAmerican Energy division, now called Berkshire Energy, paid $230 million for 10 percent ownership of BYD. Since then, Buffett has referred questions about BYD to Munger as Berkshire’s “BYD expert.”

And it was Munger who recruited Todd Combs, a money manager from Greenwich, Connecticut, to be one of the two investment managers that Buffett hired to take over portions of Berkshire’s investment portfolio. Buffett has praised Combs’ performance, along with fellow money manager Ted Weschler.

When it comes to investment philosophy, Benjamin Graham’s investment method was to buy underpriced securities, hold them until their true value boosted their market price, and then sell them. Often they were “cigar butts,” out-of-favor businesses that didn’t have a long life ahead but still could emit a few “puffs” of profit.

Buffett and Munger followed the cigar butt practice early in their careers to build the first $200 million to $300 million in Berkshire’s value.

But Munger convinced Buffett that their strategy needed to change. “If we’d stayed with the classic Graham, the way Ben Graham did it, we would never have had the record we have,” Munger said. “And that’s because Graham wasn’t trying to do what we did.”

Buffett told The World-Herald’s Jim Rasmussen in 1999, “Charlie has always emphasized, ‘Let’s buy truly wonderful businesses.’ ”

Instead of a fair company at an excellent (low) price, Munger advocated buying or investing in excellent companies at fair prices. The 1972 purchase of See’s Candies was the first such case — a great company that Buffett, at first, believed was overpriced but eventually agreed to purchase for $25 million. It has earned more than $1 billion for Berkshire.

The change in philosophy widened the field of potential investments and led to some of Buffett’s biggest acquisitions, such as BNSF Corp.

“It took a powerful force to move me on from Graham’s limiting views,” Buffett once wrote. “It was the power of Charlie’s mind. He expanded my horizons.”

Munger later wrote, “If Warren Buffett had never learned anything new after graduating from the Columbia Business School, Berkshire would be a pale shadow of its present self. Warren would have gotten rich — because what he learned from Ben Graham at Columbia was enough to make anybody rich. But he wouldn’t have the kind of enterprise Berkshire Hathaway is if he hadn’t kept learning.”

Contact the writer: 402-444-1080,

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Inside, alongside the vending machines and a coffee maker, Warren Buffett called the annual meeting of Berkshire Hathaway Inc. shareholders to order. The fourth-floor lunchroom was the biggest space available at a Berkshire-owned Omaha business, plenty big enough for the score of people expected.

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