You are about to embark on an extraordinary journey towards better investment and decision-making. You may also gain a deeper understanding of life, all thanks to the wit, wisdom, speeches, and works of Charlie Munger—contemporary Benjamin Franklin. Charlie's worldview is unique; he has cultivated a clear and simple way of thinking through an "interdisciplinary" approach—yet his views and thoughts are anything but simple. Note how Charlie's ideas have stood the test of time: the earliest speeches in this book were published 20 years ago, yet today, their relevance remains unchanged. As you will soon discover, Charlie's observations and conclusions are grounded in fundamental human nature, basic truths, and core principles from many disciplines.
From 1733 to 1758, Benjamin Franklin disseminated many useful and timeless pieces of advice through Poor Richard's Almanack. The virtues he praised included frugality, responsibility, diligence, and simplicity.
For the next two centuries, people have consistently regarded Benjamin's thoughts on these virtues as ultimate truths. Then Charlie Munger stepped in.
Initially, Charlie was merely a follower of Benjamin, but he quickly opened up new horizons. What Benjamin suggested doing became a must-do for Charlie. If Benjamin suggested saving a few cents, Charlie would demand saving a few dollars. If Benjamin said to be timely, Charlie would say to be early. Compared to Munger's stringent demands, living by Benjamin's advice seems too easy.
Charlie has always practiced what he preaches (and oh, how passionately he preaches it). In Benjamin's will, he established two small charitable funds aimed at teaching people the magic of compound interest. Charlie decided early on that this was such an important subject that it could not wait until after his death to be taught. So he chose to be a living example of compound interest, avoiding any extravagant spending that might undermine his role as a model. As a result, Charlie's family members experienced the joy of long bus trips, while their wealthy friends, confined to private jets, missed out on these rich experiences.
Of course, in some areas, Charlie had no intention of improving Benjamin's views. For example, Benjamin's essay "Advice on Choosing a Mistress" would elicit Charlie's frequent refrain at Berkshire's annual meetings: "I have nothing to add."
There is only one person who meets all my special requirements, and that is Charlie.
A partner who never follows the crowd and possesses strong logical reasoning skills is one of the best mechanisms you can have.
— Buffett
As for myself, I would like to offer a few "tips on choosing partners." Please pay attention.
First, look for someone smarter and wiser than you. Once you find them, ask them not to flaunt their superiority, so you can receive praise for many accomplishments stemming from their ideas and advice. You want a partner who, when you make a costly mistake, will neither say "I told you so" nor get angry. They should also be generous, willing to invest their own money and work hard for you without expecting compensation. Finally, this partner will bring you joy as you travel together along the long road.
All of this is very wise advice (I have never scored below an A in self-assessment tests). In fact, this advice is so wise that I decided to follow it completely back in 1959. And there is only one person who meets all my special requirements, and that is Charlie.
- In Benjamin's famous essay, he stated that men should choose older mistresses, providing eight very good reasons. His most critical reason was: "…in the end, they will be immensely grateful."
Charlie and I have been partners for 45 years. I don't know if he chose me for the other seven criteria. But I certainly meet Benjamin's eighth criterion: my gratitude towards him is beyond words.
From these talks and speeches, it is clear that Charlie believes that life decisions are more important than investment decisions. His thinking models from various disciplines appear repeatedly, yet he never focuses on "portfolio investment strategies," "beta coefficients," or "asset pricing models," but rather centers on basic axioms, human achievements, human weaknesses, and the rugged path to wisdom. Charlie once said, "Like John Maynard Keynes, I want to become independent by getting rich." For Charlie, independence is the goal of making money, not the other way around.
"Over the years, reading has brought me many benefits."
Waiting for lunch by the Thames, 1996.
Behind the brilliant story of Berkshire Hathaway are two financial geniuses: the widely acclaimed Warren Buffett and his "silent partner," the low-key Charlie Munger.
Charlie is Warren's friend, lawyer, advisor, "arch-nemesis" (Warren once called him the despicable "master of saying no"), and one of the largest shareholders of the most successful publicly traded company in American business history. Warren took over Berkshire in 1964, and a few years later, Charlie joined the management team. Since then, the company's market value has astonishingly increased by 13,500 times, from $10 million to $135 billion, and the number of shares outstanding has not increased much. Such extraordinary growth is an outstanding achievement by these two Midwestern Americans, who worked together to discover and seize many opportunities that other businessmen continually missed.
Warren is one of the most respected and well-known business leaders in America, while Charlie deliberately avoids the spotlight, choosing a relatively low-profile life. To better understand this complex and extremely low-key businessman, we must start from the beginning. Charlie Thomas Munger was born on January 1, 1924, in Omaha, Nebraska, in the American Midwest. Many notable figures are his Midwestern compatriots: Will Rogers, Henry Fonda, John Pershing, Harry Truman, Walt Disney, Ann Landers, Gerald Ford—and of course, Warren Buffett.
Charlie's initial intersection with the Buffett family occurred during his formative years when he worked at the Buffett family grocery store. It was an upscale grocery store in Omaha, just six blocks from the Munger family. The owner was Warren's grandfather, Ernest, who had partial ownership of the store. Ernest was a strict disciplinarian who required his young workers to work 12-hour shifts without food or breaks. According to Charlie, his boss's anti-socialist attitude was evident in the rules he set: the boss required the children to turn in two cents at the end of their shifts, a fee mandated by the new Social Security Act. They received a $2 daily wage and a piece of advice: socialism is problematic.
The hard work at the Buffett grocery store benefited Charlie and Warren for a lifetime. A few years after his future business partner left, the six-year-younger Warren also worked hard under Grandpa Ernest.
Charlie's formal education began at Dundee Elementary School, where his two sisters, Mary and Carol, were also students, receiving a traditional moral education. Teachers remembered Charlie as a bright child who sometimes acted a bit superior. He enjoyed questioning the worldly wisdom of teachers and classmates using the increasing knowledge he gained from reading various books (especially biographies). Today, he cannot recall when he first encountered the maxims of Benjamin Franklin, but they left an indelible admiration for this eclectic and quirky politician and inventor. Charlie's parents, Al Munger and Florence Munger, encouraged reading, giving each child a few books as Christmas gifts; those books were usually devoured that very night.
This scene was destined to be repeated countless times in Charlie's later years: successfully catching big fish at Cass Lake in Minnesota.
Charlie and his wife Nancy aboard the Channel Cat yacht, leaving the coast of Santa Barbara.
The Davis family was a family friend of the Mungers, living very close by, and Charlie often visited their home to browse through Dr. Ed Davis's various medical journals. Ed was his father's best friend and their family doctor. Due to early exposure to Dr. Davis's medical library, Charlie developed a lifelong interest in science. By the age of 14, this precocious and studious boy had also become a good friend of the doctor. Charlie was particularly interested in medicine at that time; he had watched videos of Dr. Davis performing urological surgeries and was fascinated by the statistics of similar surgeries.
Charlie had a hobby of raising hamsters at home and occasionally traded them with other children. His keen negotiating skills were evident even at a young age, as he usually managed to trade for larger or more uniquely colored hamsters. When the number of hamsters he owned reached 35, his mother ordered him to stop this hobby because the nests he built for them in the basement were too smelly. Years later, his sister still remembered that before Charlie came home from school to feed the hamsters, the family had to endure their endless squeaking due to hunger.
Charlie attended Central High School, a very large public school known as a good college preparatory school. Most teachers were women, and they were very serious and responsible about their work and students. Central High offered a traditional classical education, and Charlie excelled in it due to his strong logical thinking skills and eagerness to learn.
After his mother taught him to read letters, Charlie started school, so he was the smallest student in his class during elementary and middle school. Due to his small stature, Charlie was not competitive in regular high school sports, so he joined the shooting team; he excelled and received the Outstanding Representative Award, eventually becoming the team captain. His team sweater (which Charlie recalled had large letters embroidered on a very small chest area) attracted the attention of many alumni, who were puzzled by how this frail little guy could earn such an award. Charlie was lucky; his father loved outdoor activities and enjoyed hunting ducks, and he was thrilled that his son was such a good shot.
"All the smart people I've met (smart people from all walks of life) read every day—none of them don't. You might be surprised at how much Warren reads and how much I read. My kids tease me. They think I'm a book with two legs."
Omaha in the 1920s was a melting pot; people of different races and religions coexisted peacefully, doing business with each other, and crime was almost unheard of. Residents neither locked their doors nor their cars, and people trusted one another. Children played "kick the can" on warm summer nights and went to see the latest "talkies" on Saturday afternoons, such as King Kong, which was Charlie's favorite when he was eight.
The 1930s were tough times, and Omaha was severely affected by the Great Depression. Charlie witnessed the plight of the poor, which left a lasting impression on him. He saw homeless people wandering the streets, begging for handouts; he also saw people willing to sweep sidewalks or hallways in exchange for a sandwich. With the help of family connections, Charlie found a boring job watching the street traffic, earning 40 cents an hour. Charlie preferred this job over hauling heavy boxes at the grocery store.
Central High School emblem
Charlie's grandfather was a respected federal judge, and his father also pursued a legal career, becoming a successful lawyer. Charlie's close relatives were not severely affected by the Great Depression, but some distant relatives suffered greatly. This era provided young Charlie with real learning experiences. His grandfather lent a helping hand, saving Charlie's uncle Tom's small bank in Stromsburg, Nebraska, from closing, allowing Charlie to witness his grandfather's generosity and keen business acumen. Due to the poor economic conditions and droughts that led to crop failures, the bank's farmer clients were unable to repay their loans. Tom accumulated $35,000 in uncollectible loan notes and came to plead for Munger grandfather's assistance. The judge risked half of his fortune, spending $35,000 on the first mortgage to exchange for the bank's bad loans, allowing Tom to reopen after Roosevelt's banking reforms. The judge eventually recouped most of his investment, but that was many years later.
The Great Depression did not spare Omaha. Charlie's close relatives were not greatly affected, but some of his distant relatives suffered greatly.
Judge Munger also sent his musician son-in-law to pharmacy school and financed him to buy a well-located drugstore that had gone bankrupt due to the Great Depression. The drugstore later became very profitable, allowing Charlie's aunt to live a secure life. Charlie learned that as long as the Munger family supported each other, they could weather the worst economic collapse in American history.
Fortunately, Al Munger's law firm thrived during the Great Depression, as the U.S. Supreme Court agreed to review a tax case involving a small soap manufacturing company he represented, bringing him a windfall. Coincidentally, the Supreme Court's ruling would also affect the industry giant Colgate-Palmolive. Colgate believed that this Midwestern lawyer lacked the necessary experience to win a case in the Supreme Court, so they paid Al to step aside for a famous New York lawyer to take his place. The big-city lawyer lost the case, and Al pocketed a substantial fee. He later joked that if he had taken the case, he might have lost it too, and earned even less. The exact amount was not disclosed, but combined with what Al earned from other clients, it was enough for the Munger family to continue living comfortably during the Great Depression. Charlie also helped ease the family's burden by earning his own pocket money through work, experiencing the value of financial independence.
In 1941, with the Atlantic ablaze with war, Charlie graduated from Central High School and left Omaha to attend the University of Michigan. Charlie chose mathematics as his major because he was fascinated by mathematical logic and reasoning. After taking a required science course, he also developed a liking for physics. Charlie was captivated by the charm of physics and the vast scope of research, especially impressed by how physicists like Albert Einstein studied the unknown. Charlie later became enthusiastic about solving problems using physics, believing it to be an effective technique for handling various life issues. He often said that anyone who wants to succeed should study physics because its concepts and formulas beautifully demonstrate the power of correct theories.
"Due to various factors during World War II, I briefly studied basic physics. This greatly enhanced my intelligence. As a result, I gained more thinking models, so I would be less likely to become the 'man with the hammer' in the fable."
At that time, the military urgently needed young people of college age to enlist. Shortly after his 19th birthday, Charlie, having completed his sophomore year at Michigan, joined an officer training program in the U.S. Army Air Corps, which would make him a second lieutenant upon completion. He was sent to the University of New Mexico's Albuquerque campus to study natural sciences and engineering, and later to the prestigious California Institute of Technology, where he specialized in thermodynamics and meteorology—two subjects very important for pilots at the time—training to become a meteorologist. After completing his studies at Caltech, Charlie was assigned to a permanent military base in Nome, Alaska.
"I only studied at Caltech for nine months during World War II, when the Air Force arranged for me to study meteorology there. Back then, and even now, predicting the weather is like using horse racing data to predict the outcome of a race. If it weren't for the pressure of war, I would have had zero interest in meteorology."
During his service, he married a young woman named Nancy Huggins. Nancy was originally from Pasadena and was a good friend of his sister Mary at Scripps College. They settled in Albuquerque and San Antonio until Charlie was discharged from the U.S. Army Air Corps in 1946. Shortly after their marriage, Charlie and Nancy had their first child, a boy they named Teddy.
Despite attending several universities, Charlie still did not have a bachelor's degree. Nevertheless, he applied to Harvard Law School under the G.I. Bill, from which his father had also graduated. He was at a disadvantage without an undergraduate degree, but the former dean of Harvard Law, Roscoe Pound, was a family friend who personally advocated for Charlie. He was admitted, but the admissions office decided he should first take undergraduate courses.
As a result, Charlie easily succeeded at Harvard, although he offended a few people during that time. Because of his exceptional intelligence (Air Force tests indicated he had a very high IQ), Charlie often acted unexpectedly, which was usually seen as impudent. In reality, Charlie was just a bit impatient and did not enjoy joking around with classmates in the classroom. Nevertheless, he was well-liked by most of his peers and thoroughly enjoyed the vibrant student life at Harvard.
- In 1948, Charlie graduated from Harvard Law School, one of 335 students, and was one of 12 distinguished graduates. He originally wanted to join his father's law firm, but after discussing it with his father, they both agreed that Charlie should develop in a larger city. So he set off for Southern California, a place he had liked since he was a student at Caltech. After passing the California bar exam, he worked at Wright & Garrett, which later became Musick, Peeler & Garrett. Charlie built a house in South Pasadena, designed by his architect uncle Frederick Stott; he, Nancy, and their three children—Teddy, Molly, and Wendy—lived in that house.
Harvard Law School Dean Roscoe Pound personally intervened to get Charlie admitted to Harvard.
Although outwardly successful, Charlie's world was not all sunshine. His marriage encountered problems, and he and his wife eventually divorced in 1953. Shortly thereafter, Charlie learned that his beloved son Teddy had been diagnosed with terminal leukemia. This was an unbearable blow for 29-year-old Charlie. At that time, bone marrow transplants had not yet been developed, and leukemia was an incurable disease. A friend recalled that Charlie would visit his dying son in the hospital and then walk the streets of Pasadena in tears.
During this heartbreaking time, his friend and law firm partner Roy Thors arranged for Charlie to meet Nancy Barry Boswick, who lived in Los Angeles, through mutual friends. She was a Stanford graduate, divorced with two sons, about the same age as Charlie's two daughters. Charlie and Nancy shared many common interests and enjoyed each other's company; after a few months of dating, they got engaged. They held a small family wedding in 1956, attended by four children aged four to seven (the two daughters of the groom and the two sons of the bride).
Charlie and Nancy lived in Nancy's house in the western hills of Los Angeles for several years. Later, to shorten Charlie's commute and for other reasons, they moved to Hancock Park, where they still reside. The house they built was large enough to accommodate their growing family: they later had three more sons and a daughter, totaling eight children. Fortunately, both of them loved children! They also enjoyed golf, the beach, and social clubs. Charlie and Nancy quickly joined the University Club, California Club, Los Angeles Country Club, and Beach Club.
Charlie has always been very interested in the architecture of London streets.
With many new responsibilities, Charlie worked tirelessly at his law firm. Even so, his income still did not satisfy him, as lawyers were paid by the hour and it was related to seniority. He wanted to earn more than senior lawyers. Charlie wanted to be someone like the wealthy capitalists among his law firm's clients, especially Harvey Mudd—who later founded a university named after him. With Nancy's support, he made investments outside of his legal practice, seeking other ways to make money. However, he did not forget the iron rule taught by his grandfather: focus on the task at hand and control expenses.
Friends say: "Charlie is smart, curious, focused... and a bit absent-minded."
Roy Thors, a friend and business partner since 1946, remarked, "Charlie has a desire to get to the bottom of things. He likes to dig deep into issues, whether they are closely related to him or not. Anything that captures his attention, he wants to know more about, to understand what is really going on."
Charlie has always had a strong desire to understand the world around him. He has a unique ability to connect ideas from different disciplines, which has contributed to his success as an investor and partner. His approach to life and business is characterized by a relentless pursuit of knowledge and a commitment to rational thinking.
In summary, Charlie Munger's life and career exemplify the importance of curiosity, interdisciplinary thinking, and a commitment to understanding the complexities of the world. His insights and experiences serve as valuable lessons for anyone seeking to navigate the challenges of life and investment.