Course 508: Great Investors: Others in the Hall of Fame
Charlie Munger
In this course
1 Introduction
2 Charlie Munger
3 Bill Miller
4 Marty Whitman
5 Bill Nygren
6 Ralph Wanger
7 Bill Ruane
8 The Bottom Line

Charlie Munger, vice chairman of Berkshire Hathaway, is often overshadowed by his colleague Warren Buffett. However, much of the investment philosophy employed by Buffett and Berkshire can be attributed to Munger's influence.

Like Buffett, Munger is from Nebraska. He started his career as a lawyer, but through his friendship with Buffett, Munger eventually left his successful law career to join Buffett in running Berkshire HathawayBRK.B. Over the years, the two have developed a great rapport, often highlighted during Berkshire Hathaway's annual meetings. When shareholders pepper the two with queries during question-and-answer sessions, Buffett will give his usual insightful thoughts, while Munger answers with his dry witty remarks, often leaving listeners in stitches.

Here's one gem from the 2005 shareholder meeting, where Buffett and Munger discussed the compensation committees of many boards of directors:

Buffett: I've been on 19 boards, and I've never seen a director to whom fees were important object to an acquisition or a CEO's compensation--members of compensation committees act like Chihuahuas, not Great Danes or Dobermans. [Pause] I hope I'm not insulting any of my friends who are on compensation committees.

Munger: You're insulting the dogs.

Munger helped Buffett develop his knack for not only finding undervalued stocks, but for investing in strong businesses with strong competitive advantages. In other words, business quality truly matters to Munger, not just how cheap a stock is.

Munger also urges investors to gain worldly wisdom to become successful at stock-picking. This means that investors should not just focus on a few narrow topics but expand their horizons to understand many different subjects. For example, an engineer should learn accounting to understand how a business can make a profit. Likewise, a good financial analyst shouldn't just crunch numbers but also learn how the machines in a factory work. This worldly wisdom helps investors gain knowledge about the way things work in a broad sense, which in turn helps them to better understand the economics of a certain business. With worldly wisdom, investors can stay focused on what matters while others are running for the doors due to a short-term blip. In other words, the worldly wisdom Munger preaches can help savvy investors profit from others' shortsightedness.

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