Warren Buffett is certainly one of the most renowned investors of our era, and it was Charlie Munger who was instrumental in guiding him in the path to earning that title. Munger, the vice chairman of Berkshire Hathaway who passed away on Tuesday at the age of 99, encouraged Buffett to invest in strong branded-quality firms instead of settling for cheap, failing ones that Buffett famously called "cigar butts". Munger's plan was straightforward: acquire a great enterprise at a fair cost, not a mediocre one at an advantageous cost. This scheme enabled Berkshire to become a massive conglomerate with successful ventures in insurance, railway, retail, energy, and manufacturing.
In 2014, Buffett wrote in the 50-year anniversary report of Berkshire that it was Charlie Munger who had helped him break away from his "cigar-butt" habit and set a direction for creating an empire. Buffett likened choosing cheap troubled firms to picking up a discarded cigar butt with only one puff left in it. He added, "...once that fleeting pleasure was enjoyed, nothing more could be expected."
It seems that Buffet acquired the techniques of value investing from Benjamin Graham during his tenure at Columbia University post World War II. Nevertheless, it was Munger who emphasized that picking inadequate companies at discounted prices would be of little help if he wanted to build a sizable business. In an interview, Buffett credited Munger for using a 'two-by-four' to open his eyes to the benefits of purchasing superior businesses at sensible prices. Munger once described this concept at a Berkshire shareholder meeting in 1998: "It's not that much fun to buy a business where you truly trust it will liquidate before it goes bankrupt."
In 1972, Buffett allowed for Berkshire's purchase of See's Candies for $25 million, even though the California candy maker had annual pretax earnings of only around $4 million. This purchase has generated over $2 billion in sales for Berkshire. More generally, Buffett said that Berkshire had continued to move towards procuring better and better entities. Now Berkshire holds a portfolio of excellent businesses.
Learn about the legacy of Charlie Munger, the investing genius and long-time partner of Warren Buffett, who passed away at 99 years old. Charlie Munger's insight into life and investing can be seen through his "basic rules"—explore how these rules led to his success, and what they meant for Warren Buffett's success as well. Plus, read 3 of Charlie Munger's quotes that will help you become a better investor, including his idea of "diworsification" and lifelong learning.
Charlie Munger, the investing whiz and close associate of Warren Buffett, passed away at the age of 99. Munger had a set of basic principles that aided him in his success - and with Buffett's help, he was able to use all three of them. Without Munger, it is unlikely that Buffett would have gained his title as the most serious investor of all time. Munger's advice in regards to diversification and continual learning are key in helping investors become the best they can be. Three quotes from him will help reinforce these lessons.
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