Charlie Munger

NEW YORK, Nov 28 (Reuters) - Charles Munger, who died on Tuesday, went from working for Warren Buffett's grandfather for 20 cents an hour during the Great Depression to spending more than four decades as Buffett's second-in-command and foil atop Berkshire Hathaway Inc.

Munger's family had advised that he died peacefully on Tuesday morning at a California hospital, said Berkshire.

The union of Munger with Buffett is among the most successful in the history of business; they transformed Omaha, Nebraska-based Berkshire into a multi-billion dollar conglomerate with dozens of business units.

Yet the partnership that formally began when they teamed up in 1975 at Berkshire, where Buffett was chairman and Munger became vice chairman in 1978, thrived despite pronounced differences in style, and even investing.

Known almost universally as Charlie, Munger displayed a blunter form of musings, often in laconic one-liners, on investing, the economy, and the foibles of human nature.

He likened bankers to uncontrollable "heroin addicts," called the virtual currency Bitcoin "rat poison," and told CNBC that "gold is a great thing to sew into your garments if you're a Jewish family in Vienna in 1939 but I think civilized people don't buy gold. They invest in productive businesses."

Munger was no less pithy in talking about Berkshire, which made both he and Buffett billionaires and many early shareholders rich as well.

"I think part of the popularity of Berkshire Hathaway is that we look like people who have found a trick," Munger said in 2010. "It's not brilliance. It's just avoiding stupidity."

EXPANDING BUFFETT'S HORIZONS

Munger and Buffett did differ politically, with Munger being a Republican and Buffett a Democrat.

They also differed in personal interests.

For example Munger had a passion for architecture, designing buildings such as a huge proposed residence for the University of California, Santa Barbara known as "Dormzilla," while Buffett claimed not to know the color of his bedroom wallpaper.

Yet at Berkshire, the men became inseparable, finishing each other's ideas and according to Buffett never having an argument.

Indeed, when Munger and Buffett would field shareholder questions for five hours at Berkshire's annual meetings, Munger routinely deadpanned after Buffett finished an answer: "I have nothing to add."

More often, he did, prompting applause, laughter or both.

"I'm slightly less optimistic than Warren is," Munger said at the 2023 annual meeting, prompting laughter after Buffett expressed his familiar optimism for America's future. "I think the best road ahead to human happiness is to expect less."

Like Buffett, Munger was a fan of the famed economist Benjamin Graham.

Yet Buffett has credited Munger with pushing him to focus at Berkshire on buying wonderful companies at fair prices, rather than fair companies at wonderful prices.

"Charlie shoved me in the direction of not just buying bargains, as Ben Graham had taught me," Buffett has said. "It was the power of Charlie's mind. He expanded my horizons."

ORACLE OF PASADENA

Fans dubbed Buffett the "Oracle of Omaha," but Munger was held in equal esteem by his own followers, who branded him the "Oracle of Pasadena" after his adopted hometown in California.

Munger reserved many of his public comments for annual meetings of Berkshire; his investment vehicle Wesco Financial Corp, which Berkshire bought out in 2011; and Daily Journal Corp, a publishing company he chaired for 45 years.

To fans, Munger was as much the world-weary psychiatrist as a famed investor. Many of his observations were collected in a book, "Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger," with a foreword by Buffett.

"I was raised by people who thought it was a moral duty to be as rational as you could possibly make yourself," Munger told Daily Journal shareholders in 2020.

"That notion," he added, "has served me enormously well."

In 2009, during the worst U.S. recession since the Great Depression, he tried to put his followers at ease.

"If you wait until the economy is working properly to buy stocks, it's almost certainly too late," he said at Wesco's annual meeting.

After that gathering, Los Angeles Times columnist and Wesco investor Kathy Kristof wrote about Munger: "He gives us hope."

TETE-A-TETE

Born on Jan. 1, 1924, Munger as a boy once worked part-time at the Omaha grocery run by Buffett's grandfather Ernest.

Buffett also worked there though he and Munger, who was 6-1/2 years older, did not work together.

Munger later enrolled at the University of Michigan, but dropped out to work as a meteorologist in the U.S. Army Air Corps during World War II.

Despite never getting an undergraduate degree, Munger graduated from Harvard Law School in 1948.

He then practiced law in Los Angeles, co-founding the law firm now known as Munger, Tolles & Olson, before turning in the mid-1960s to managing investments in stocks and real estate.

Munger was a success, easily outperforming the broader market between 1962 and 1975 at his investment partnership Wheeler, Munger & Co.

According to Buffett biographer Alice Schroeder, Munger met Buffett in Omaha in 1959, where at a private room at the Omaha Club they "fell into a tete-a-tete" after being introduced.

More conversations followed, and they were soon talking by phone for hours on end.

"Why are you paying so much attention to him?" Munger's second wife Nancy reportedly asked her husband.

"You don't understand," Munger replied. "That is no ordinary human being."

KNOWING HIS MILIEU

The two shared the "value investing" philosophy espoused by Graham, looking for well-run companies with undervalued share prices.

Sometimes Munger and Buffett deemed those companies "cigar butts," meaning they were out of favor but had a few "puffs" of life left, but they often proved worth holding onto for decades.

Both generally shunned technology companies and other businesses they claimed not to understand, and they avoided getting burned after the late 1990s dot-com bubble went bust.

Instead, they oversaw purchases such as the BNSF railroad in 2010, and ketchup maker H.J. Heinz Co, which Berkshire and private equity firm 3G Capital bought in 2013. Berkshire and 3G later merged Heinz with Kraft Foods.

It was Munger who suggested that Buffett make one of Berkshire's few non-U.S. investments, in Chinese automobile and battery company BYD Co.

Munger was also responsible for introducing Buffett to Todd Combs, who along with Ted Weschler run parts of Berkshire's investment portfolio.

Unlike Buffett, who opened a Twitter account - seldom used - Munger resisted heading into social media.

"That's not my milieu. I don't like too many things going on at once," he once told Reuters.

But in many other ways, he was much like his business partner, especially in not chasing the latest trends.

"I am personally skeptical of some of the hype that has gone into artificial intelligence," Munger said at the 2023 annual meeting. "I think old-fashioned intelligence works pretty well."

Munger lived modestly and drove his own car, though he used a wheelchair in his final years.

He was also a generous philanthropist, pledging more than $100 million in 2013 to build housing at the University of Michigan.

Nancy Munger died in 2010. Charlie Munger had six children and two stepchildren from his marriages.

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Bob Farrell's 10 Rules

Who is Bob Farrell?

Twelve years after the conclusion of the Second World War, Bob Farrell started his career at Merrill Lynch as a technical analyst. Before kickstarting his illustrious career at Merrill Lynch, Farrell studied at the prestigious Columbia business school under Benjamin Graham and David Dodd. Graham and Dodd are widely hailed as the “godfathers of modern value investing” and are best known for their best-selling book “Security Analysis,” which was first published in 1934. In fact, Graham and Dodd are so synonymous with value investing that Warren Buffett (also a student of Graham at Columbia) attributes much of his success to the classic work and teachings of the two value investing legends.

A Wall Street Pioneer

While Mr. Farrell was educated under the value investing umbrella, he found his niche and success on Wall Street at the intersection of technical analysis, sentiment, and market psychology. Though this type of analysis was considered unconventional and even frowned upon at the onset of his career, by the end of Farrell’s nearly five-decade run on Wall Street, it had become mainstream. Farrell became so respected in market circles that his daily newsletter was read by several of the world’s sharpest money managers, including the likes of multi-billionaire George Soros. There is little Mr. Farrell hasn’t seen or experienced throughout his career. Below are Farrell’s 10 Rules:

1.   Markets tend to revert to the mean over time. Like a rubber band stretched in one direction, markets tend to snap back to the other direction eventually.

2.   Excesses in one direction will lead to an opposite excess in the other direction. Think about the internet boom and bust. At one point, stocks like Pets.com would rocket 200% in a single trading session just because they had “.com” in the name. During 2000-2003, the market unraveled just as violently in the opposite direction. The COVID-19 crash and subsequent rally afterward is another prime example:

3.   There are no new eras – excesses are never permanent. History is littered with boom-and-bust periods – nothing lasts forever. The great “Tulip Mania” of the 17th century, the dot com bust of 2000, and the 2008 housing debacle personify this rule.

4.   Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. The meme craze that occurred a few years ago is a good illustration of this rule. In 2020, GameStop (GME - Free Report) ran from $1 to $5.50 in five months. After more than a 500% move in such a short time, that wasn’t the end. The following month, shares soared 1600% to $120 a share before correcting to their current price of $18 per share.

5.   The public buys the most at the top and the least at the bottom. Most investors let their emotions get the best of them. Generally, if the public invested when they were most fearful and sold when they were most giddy, they would be much more profitable. In late 2022, most sentiment gauges showed fear. Over the next few months, the market went on a tear.

6.   Fear and greed are stronger than long-term resolve. The fast-moving pace of Wall Street can wreak havoc on investor emotions. When the opening bell rings and real money is on the line, it is akin to having a volume dial on emotions for most investors. The lack of discipline to create and stick to a well thought out investing plan can be detrimental to investors. Even if a well-thought-out plan is created, execution always supersedes intentions.

7.   Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names. A “blue chip” is a well-established mega-cap company such as Apple (AAPL - Free Report) . Breadth refers to the number of stocks participating in a rally. The participation gauge is an important measure to follow because it can provide clues to a market breakdown prior to it occurring. In early 2021, Apple and other mega-cap blue chip stocks continued higher as the market began to stall slightly – a subtle, early caution flag for savvy investors who were paying attention.

8.   Bear markets have three stages – sharp down, reflexive rebound, and a drawn-out fundamental downtrend. Because the public typically buys the dip at the wrong time or shorts “in the hole” when stocks have already moved down rapidly, equity markets usually have a violent “bear market rally” before trending lower.

9.   When all the experts and forecasts agree – something else is going to happen. Contrarian, independent thinking is the clearest path to success on Wall Street. Following the Global Financial Crisis, David Tepper bought Bank of America (BAC - Free Report) in 2009. Later when he recounted the trade, he said, “I felt like I was alone”. The trade ended up netting him $4 billion. To achieve outstanding results, you must think differently.

10.  Bull markets are more fun than bear markets! While making money in a down market can be done, bull markets are much more forgiving. Who can argue this?

Conclusion

Over Farrell’s 45-year career at Merrill Lynch, he saw bull markets, bear markets, and everything in between. While investors can educate themselves by reading books or attending seminars, nothing beats decades of seat time. Through his successful and deep experience, Farrell’s rules challenge investors to study history, the madness of crowds, and their inherent “humanness” and emotions.