Remembering Charlie Munger: A Life of Wit and Wisdom Part 2 5/2/25

0:02Charlie Munger may be best known as Berkshire Hathaway's vice chairman, Warren Buffett's best friend, confidant and business partner for six and a half decades. But Munger was also a giant in his own right. He was a scold of corporate excess and greed. He preached to a large flock of devout followers about how to get along in investing and in life. A renaissance man, Munger modeled himself after none other than Benjamin Franklin. He studied mathematics, physics, meteorology, and engineering. And that was all before he attended Harvard Law School. He trained himself in subjects like psychology and architecture.

0:37Charlie passed away at the age of 99. That was just one month shy of his 100th birthday, and it was two weeks after our last interview with him. I'm Becky Quick of CNBC, co-host of Squawk Box. This is Charlie Munger, a life of wit and wisdom.

0:55All the great records are partly work, partly talent, and partly luck. That's what you'd expect to win. With this many people in the game of investment, of course the big winners are going to be people who get luck and who get work and talent and luck. That's what we've had. What was interesting about Berkshire's history is what turned the first$300 million of Berkshire net worth into the first$3 billion of Berkshire net worth. Now, some people have now gone back and checked all our figures, but some people figured it out. But the way we, the results we got in turning$300 billion into$3 billion really quickly helped us a lot.

1:54What was it? It was blue chips, stamps, and seized candy, and the Buffalo News newspaper. and the early insurance operations under Ajit Jain when he came to us. It just, everything worked at once. And we made these unholy profits out of these fiddling businesses that weren't that good. Warren has said that his worst trade ever was buying Berkshire Hathaway itself, the mills. Yeah, sure. What was your worst trade? Well, I think my worst trade was buying a block for the Bunger family and Alibaba, which is a pretty good company. But I think it got overhyped. And Jack Ma made mistakes in dealing with the Chinese government.

2:44Everybody has some bad ones. You have an off day. The greatest tennis player goes out there someday to the center court and has a bad day. It happens. I think people learn more from their mistakes sometimes than their successes. Yeah, in their bad days even, yes. But really, it's knowing you can have a very bad day. Do not live your life in such a fashion that a bad day can kill you. Which means what when it comes to investing? Making sure you don't use leverage? Well, they aim for the fences. It's like a hitter at baseball who tries to hit a home run on every pitch. The great home hitters do not remotely swing at every pitch.

3:23That's happily good. They wait for one that they can really handle.

3:30Warren Buffett and Charlie Munger were friends and business partners going all the way back to the 1950s. When I first met Warren Buffett, he kept talking about this guy, his partner, Charlie Munger. And it wasn't until later that I realized it was his business partner. You know, this is something that he spoke so endearingly about Charlie Munger. He talked about their friendship. Back in May of 2021, I sat down with the two of them in Los Angeles and talked about how the two of them first met. Well, you want to tell them a strike? Go ahead. There was a doctor couple, very prominent in Omaha, and his name was Eddie Davis.

4:18Her name was Dorothy Davis. And it was Mrs. Davis that called me naturally. She did everything. She said, we've heard that you manage money and we'd be kind of interested in listening to your story about how you do it and what we might do with you. So I went over and I talked to them. and I was all full of myself. I couldn't talk fast enough about stocks in those days. And Dorothy Davis, very smart, and she would listen to every word. And the doctor was kind of over in the corner submitting a yo-yo or something. I would not pay much attention. And the wife looked over at the doctor and he said, I'm going to give him$100 ,000.

5:00And I was managing about$500 ,000 at the time, so it was a big deal. And in a very nice way, I said, Dr. Davis, I said, you know, you really haven't paid much attention to what I've been saying. I'd kind of like to know why you're giving me this hundred dollars. I was much more modest than that in the way I edged into it. And Dr. Davis looked at me and he said, well, he says you remind me of Charlie Munger. And I said, well, I don't know who Charlie Munger is, but I like him. So Charlie, in 1959, his dad died and he came back. Alma's mother lived there and the Davises really got us together and so they arranged a dinner about five minutes into it Charlie was sort of rolling on the floor laughing his own jokes which is exactly the same thing I did so I'm not going to find anything like this and we just hit it off Charlie what did they first tell you about Warren how did they describe him to you well the Davises were like a second set of parents to me there were two sets of three children My father's best friend was Eddie Davis.

6:05My mother's best friend was Mrs. Davis. I lived in that house back and forth as old, or an alternate house of the mongers. And Mrs. Davis gave me the honor of switching my legs when I misbehaved, just as if I were one of her own.

6:22You probably gave her plenty of calls. So anything that Davis has asked me to do, I was going to do. What did you think of Warren when you first met him? We got along fine. Oh, well. Both of our wives thought, my God, another one.

6:41What I like about Warren is the irreverence. We don't have automatic reverence for the pompous heads of all civilization. Is that something that came with age or you guys were born with that? We were kind of always the way. We were a little more extreme. I've learned to behave a little bit better. Charlie, we hadn't learned to behave much better.

7:05Charlie was a teacher. He thought the best way to learn things was through the use of storytelling. And boy, did he know how to tell a story. Part of the advice that you give people in life is pretty basic stuff. But if you follow it, it's really excellent advice. I think your first one is, is have low expectations. The second one is have a good sense of humor. And the third one is surround yourself with love of friends and family, obviously. Yeah, sure. It's simple. I have a hard time thinking of a time when you set your expectations low, though. Yeah, well, I did. How so? Well, let me give you an example.

7:42It's perfect. Here I am, a little boy growing up in Omaha. And my father, one of my daughter's best friends is living two blocks away. And he has two sons, and I'm right in the middle of the age of his two sons. And I'm a little older than one and a little younger than the other. And Eddie Duribus, Jr., is sort of a mechanical genius. He can take anything apart quickly and put it right together and perfectly. And he also reads books all the time. And that's probably all he ever does is sit around reading books. He's a very bookish little genius with vast mechanical ability. And Eddie Davis, Sr., his father, was the son of the leading mathematics professor at the University of Nebraska.

8:27And he didn't have any money. In those days, he had a huge family. It was very difficult supporting the amount of professors' income. And he went to all kinds of stratagems. He'd make his own raincoat out of a piece of oilcloth to save the money of buying a raincoat and so on. And nobody else did that, even by the standards of the 30s. But that's the way he did it. But he was a very talented man who wrote math textbooks and so on. And Dr. Davis had enormous mechanical ability, as well as enormous mental ability and being physically dexterous. He could do anything. He saw things in three dimensions.

9:14And it was quite obvious that anything required mechanical ability, I would not be as good as the two Davises. And so I decided to stay the hell out of businesses where I would compete with people like Eddie Davis Jr. and Eddie Davis Sr. in their strong suit. Knowing your competencies. Knowing your circle of competency, right. And that kept me away from those businesses, totally. But part of your advice in life, I think, is to understand that change comes with life and adapt to it. And it's something I think about a lot in my own struggles with life. Not everybody knows that. Yeah, but I think about that a lot in struggles with life.

9:54They just don't take it into account. Think about how your life would have worked out if you hadn't been a good looking woman with a good head. There turned out to be a hell of a market for that when we had modern TV broadcasting. And if you just went up a little earlier, nobody would have given a damn that you were good-looking or have a good head. We'll take fortune when we can get it, right? We'll take fortune and luck when we can get it. You dealt the hand you were dealt, and you lived in the era in which you were born, and nobody gave you any option to do anything else. It worked well for you, and it worked well for me, and we ought to be pretty damn pleased with ourselves.

10:39But I'm not all that pleased. I could have done a lot better if I had been a little smarter, a little quicker. What are you talking about? You've had success in everything you've done in life. What would you like to do differently? I might have had multiple trillions instead of multiple billions. Do you sit around thinking about this? What would you have done differently? Yes, I do think about it. Yes, I think a lot about what I nearly missed by being just not quite smart enough or hardworking enough. What would you have changed if you could go back? Well, I'd go back and make some, of course, it would be a cinch to go back and do it, knowing what was going to happen now.

11:20I would be the richest man on earth. Well, what did you miss? What was there, something where you zigzagged where you could have started? Well, I would have started earlier, for one thing. And I would have compounded longer, and I would have compounded better. So saved even more. And of course, I would have ended up richer. I was going to live to be 100 years old. and I constantly am aware of the facts that I basically screwed up. Given the hand I dealt, I could have done a lot better, quite easily done a lot better. But you are not somebody who spends a lot of money on yourself. We're sitting here in a beautiful house, but this is a house that you lived in for 70 years.

11:54I know. You could have moved and spent more. Warren's lived in his house for about 60 years. We're similar. But you see, we're both smart enough to have watched our friends who got rich built these really fancy houses. And I would say in practically every case, they make the person less happy, not happier. How so? Having a basic house really helps you. Having a really fancy house that's good for entertaining a hundred people at once is a very expensive thing to do and doesn't do you that much good. I think one of the things you've said along the years, at least this is what I've been told, is that it's not staying rich that's difficult, it's staying sane.

12:33Yeah, of course. What happens? Well, most people go a little crazy in some way or another.

12:42Charlie? Yeah? One of my favorite lines from you is you want to hire the guy with the IQ of 130 that thinks it's 120, and the guy with an IQ of 150 who thinks it's 170 will just kill you. You must be thinking about Elon Musk. Henry Ford and John D. Rockefeller were the richest people in the world when you were born in 1924. Today it's Elon Musk. I don't regard Elon Musk as truly that rich because I don't think it's sure that everything he's working on can work. I think he can get his ass handled to him and all those. I would not invest in Elon Musk's all those myself. But you've been impressed by what he's built.

13:20Yes. Well, who cannot? Again, that's another lesson. What is the lesson of Elon Musk? Somebody who has a fairly ridiculous amount of money almost always has an element of luck in him. He's been quite lucky in what he's picked to double down, double down, double down. And then he's used leverage so much that he's doubled down right to the edge of extinction, maybe two or three times. How many people can go to the edge of extinction without stepping into it? He's down three times. Maybe he's got six more in him. I don't know. I put Elon Musk in a pile. I never bet against him and I never bet with him.

13:59I mean, that's a lot of your life. A lot of your life and advice is... Avoiding traps. Invert, invert, and try and figure out where you don't want to be. Yes, and then avoid it. Yes, of course. That's what everybody's life is with any sense. All the people I know and my friends now, they never would have become alcoholics. It was too dangerous. They don't get near it if it takes that many fine people into deep trouble. I bumped into a lot of different people. And I noticed as I got older and older that all the people that had very early heart trouble, the males that had very early heart trouble, had one thing in common.

14:40They all smoked a lot of cigarettes. So I could see that coming fairly early. each other. I tried to learn to smoke so I could be a cool kid like the other kids in high school. I tried to ruin my life, but it nauseated me. And so I did the hell with this. People have lured me into a goddamn thing. You've got to get nauseated by learning to do it. And I said, I'm not interested enough in being going through a lot of nausea that I want to smoke. So I just didn't smoke. And you did drink from time to time, right? Yeah, sure. But I didn't, again, And I was, and I even drank to exodus a few times. But I was always, there were enough alcoholics and near alcoholics in my own family to make me worry about liquor.

15:27Yeah. I was always very cautious about drinking liquor. Now, I did occasionally get drunk and throw up. That gave me the nausea, which enabled me to give up liquor. Do you still drink? I mean, living to 100, everybody wants to know what's the secret. What is the secret for you? What did you consciously go about? Well, I don't know the secret. I avoided the standard ways of failing because my game in life was always to avoid all standard ways of failing. You teach me the wrong way to play poker and I will avoid it. You teach me the wrong way to do something else, I will avoid it. And of course, I have avoided a lot because I'm so cautious.

16:07But you do things you like, like you'll eat peanut brittle. Yes, it doesn't matter that much. Okay. I drink that Coke. I'm sure that Coke shortens my life a little. But I don't give a damn if the last week of lying there unconscious goes away. It's only the good part of life I want anyway. You know, there are all of these billionaires now, Silicon Valley types, who are trying to do anything they can to extend life. Like crazy things. Yeah, they find they've got a family full of Parkinson's. And of course, I watched my mother and my sister die of Parkinson's disease. And so I'm familiar with that one.

16:47That's a very unpleasant thing. I do not like the last month of Parkinson's disease. I've seen it up close. It's no fun for the people in it. It's no fun for the people around them. It's no fun at all. And that Coke may be helping me skip. Who knows? It's helping me skip the last month, not the first month. There are some new ways that people think that they can extend life, though. And one of the crazier things I've heard is this idea of doing a blood transfusion with younger people. So you get younger blood. I mean, there's like some Silicon Valley. But that was crazy. You got to remember the practice of medicine in my father's boyhood was a charlatan's profession.

17:26People learned to make a living at it. And they gradually learned a few things they could do to help the patients. But basically, they did a lot of nonsensical things. When I was a lot younger, there were ads in the newspaper for the high colonic. What the hell is a high colonic? It's an enema. And the people, my ads were full of people who are better than, we give the best damn high colonic in our city. I didn't want a goddamn high colonic, but a lot of people did. it would make them live longer. So you made it to 100 without one? Yes. No hyalonic. I had a few enemas in my life. But I never had it.

18:14I never raised one dignity by causing it a hyalonic instead of an animal.

18:24But if other people want to know what the best way to live is, you would just tell them, avoid the crazy things, avoid the things that take you down. Yes. But avoid crazy at all costs. Crazy is way more common than you think. It's easy to slip into crazy. Just avoid it, avoid it, avoid it. Of course, of course, of course. Stay tuned for more of my final interview with Charlie Munger. He spent decades as the right-hand man and confidant of Berkshire Hathaway's Warren Buffett. We were given as much longer time to run than most people because something kept us alive in our 90s. And some of his favorite stocks.

19:20Welcome back. I'm Becky Quick, and this is Charlie Munger, a life of wit and wisdom. As a little boy, I carried more money than all the other little boys. When I used to shoot agates in the schoolyard to make money playing competitive agates. Marbles? I made sure. You're marbles. But agates were the most valuable marble. And I never wanted to lose my good, valuable collection. You know, some guy was more coordinated than I was at shooting marbles. So I would never play for stakes unless I could play better than the other boy. That's kind of been a habit you've made throughout life. You don't play poker with someone you're going to lose with.

19:57Exactly. Right. I didn't always arrange the circumstances. I just fell into them frequently. But I got to play with competitors who were dumb golfs. People who weren't assessing the odds quite the same way? No, no. A lot of what you do, though, also is picking your shots. I mean, I think you call it sit on your ass investing. Yeah, sure. Where you wait for the big fat pitches to come in. You don't do a lot over time. That's correct. You don't want taxes to whittle down or anything else along the way. No. And it's very obvious that every intelligent person ought to do that. And a lot of the intelligent people have figured it out.

20:36If you go into the decisions that the teaching profession makes with its IRA money and its pension money where it gets any choice, a lot of it is indexed and a lot of it is invested in shrewd investments held for a long time. So a lot of what I do is being done now and that wasn't true when I was young I couldn't just look at somebody else and see some I saw some people who've gotten rich by Holding a few good things. So you think it's harder to make money now? Well, that's a very interesting question And it's a very important question. And of course, it's harder. It's so much harder You can't believe it.

21:19The people that have found it harder are the people that made Warren so rich Ben Graham and his colleague Dodd in a damned adjunct course at Columbia. By the way, Graham was invited into three different economic departments at Columbia on the full tenure track and turned him down. He was that good at literature and math and so forth. Both, which is rare. What Ben Graham did that was so interesting is that he taught that you should find a few good things and stay with them for a very long time. But a long time to him was a few years. It wasn't a few decades. He did that for like 40 or 50 years in a little investment partnership with incentives and so on.

22:09And his investors, who were by and large not very rich, did very well with him. Well, after he became so famous, partly with the help of Warren Buffett and Warren Buffett's success, everybody tried to do the same thing. And of course, as everybody crowded in, trying to be a little Ben Graham, it got more and more competitive. Well, your upgrade on that was to just look for good businesses. I saw immediately the Graham was wrong. The real money was in the really great companies, which carried you up and up and up and up. But I did not really think that we'd ever have won so many hundreds of billions in Berkshire.

22:49I did not anticipate. Warren and I were starting with our little piddly start that we'd ever get to 100 billion. What led to that success? Well, we got a little less crazy than most people and a little less stupid than most people. And that really helped us. Then in addition, we were given this much longer time to run than most people because something kept us alive in our 90s and it gave us a long track from our little fiddling start all the way to the 90s. Those are the two things that really happened and of course we wised up over time. We got into better and better companies and we understood more and more of the bad things that could happen you know how easy they could creep in And we avoided them even more assiduously when we were older than we did when we were young.

23:42And it all worked. I think back in 2015, for the 50th anniversary of Berkshire, you wrote in the shareholder's letter that, among many other things, you had a$60 billion pile of cash at that point. You thought that that pile of cash would decline over time because you'd be able to buy more and more things. Now, you've got almost$160 billion in cash. Is there an opportunity for a really big purchase with that? And do you think you'll see one? BILL MOYERS Well, of course, there's an opportunity for a purchase a lot bigger that people can make who don't have 160. We have$160 billion in cash, plus a great credit rating we deserve.

24:25And who in the hell has that? Not very many. Yes, but what it's going to be, I can't tell you. It can't be anything too small, because it doesn't matter how good it is, we're of a size now, or too small just doesn't move the needle very much. So we need something big to come along and use up all our cash and some borrowing. But who's more likely to find something than a guy who has$160 billion in cash, plus a long history of buying bargains. I don't think it's hopeless. It may have to be done by some different people. Next time, we may not be able just to squeeze a little more lemon juice out of the old lemons.

25:12But who can make them better than somebody that has watched the early process all through all those years and seen how well it works and who starts with a little legacy $160 million of cash. So you're talking about Greg Abel, Jane, Ted and Todd. Or somebody not yet identified. The main trick that Berkshire shows is the power of what I call the Wooden effect. And Wooden was the most famous basketball coach of the whole era. And you figure out what the hell he really did which of course somebody like Warren and me, we just automatically do it. He concentrated about 90 % of the playing time in seven players and everybody else was just a sparring partner for the people.