Warren Buffett and Charlie Munger had the most successful investing partnership of all time, spanning over six decades and beating the market 39 years out of a possible 58.
Munger, who passed away on 28 November 2023, significantly impacted Buffett’s investment philosophy as his long-time business partner.
Munger, vice chairman of Berkshire Hathaway, started his career as a real estate attorney. He later left to concentrate on managing investments.
Munger met Buffett through mutual friends in Omaha, and he gradually took over the role of Buffett’s business partner and investment advisor from Benjamin Graham.
Their friendship and the business relationship grew, and he became Buffett’s right-hand man and vice-chairman of Berkshire Hathaway.
Buffett admitted in 1988, after working together for a decade, that he had been “shaped tremendously by Charlie”.
Buffett credits Munger with a crucial shift in his investing approach. Before Munger, Buffett chased “cigar-butt” stocks – cheap, undervalued companies nearing their end.
Munger instilled in him the philosophy of buying “wonderful businesses at fair prices” – a philosophy reflected in Berkshire’s diverse portfolio.
Buffet said in his 1989 letter to Berkshire shareholders, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early. I was a slow learner.”
Following Munger’s advice, Berkshire was no longer afraid to pay a small premium for high-quality businesses like Apple and Coca-Cola.
At the centre of Munger’s business philosophy is ethics. “Good businesses are ethical businesses. A business model that relies on trickery is doomed to fail,” he said.
He also advised only investing in businesses you understand and those with a durable competitive advantage.
Other important factors include that a company’s management must have integrity and talent, and you must be able to get it at a fair price.
“A great business at a fair price is superior to a fair business at a great price,” Munger said.
This shift proved strategic. While the S&P 500 plummeted by over 19% in 2022, Berkshire’s Class B shares held their ground, nudging up 3.3%.
Since the turn of the century, Berkshire has consistently outperformed the market, delivering an annualised 10% return compared to the S&P 500’s 6.8%.
$100 invested in Berkshire when Munger joined in 1978 would have ballooned to a staggering $400,000 today. The same amount invested in the S&P 500 would return $16,527.
“Charlie thinks about business economics and investment matters better than anyone I know, and I’ve learned a lot over the years by listening to him,” Buffett said in his 2000 annual letter to shareholders.