Charlie Munger, an American billionaire

Charles Thomas Munger was born on January 1, 1924 in Omaha, Nebraska. He’s a magnate, a lawyer by profession, an investor and philanthropist.

He is also vice chairman of Berkshire Hathaway Corporation, the investment company headed by Warren Buffett. Munger served as chairman of Wesco Financial Corporation from 1984 to 2011 (Wesco was about 80% Berkshire – Hathaway owned during that time).

He is also the chairman of the Los Angeles-based Daily Journal Corporation, and director of Costco Wholesale Corporation.

He served as an inspiration for Rolf Dobelli in his book “The art of thinking clearly”. Like Buffett, Munger is a native of Omaha.

After completing his studies in mathematics at the University of Michigan and serving in the US Army as a meteorologist, formed at Caltech, he continued his studies at Harvard Law School, where he was member of the Harvard Legal Aid Bureau without a college degree.

He graduated in 1948 with a JD magna cum laude. He; his wife, Nancy; his son and two daughters moved to California, where he joined the law firm of Wright and Garrett (later Musick, Peeler & Garrett).

In 1962, he founded and worked as a real estate attorney at Munger, Tolles & Olson LLP, then gave up the practice of law to focus on investment management.

He teamed up with Otis Booth in real estate development and he also associated with Jack Wheeler to form Wheeler, Munger, and Company. He ended the partnership with Wheeler, in 1976 after heavy losses in investments of about 31 % between 1973 and 1974.

Though Munger is best known for its association with Warren Buffett, a company owned own investment during the period 1962-1975.

Buffett and Munger had investments together but also independently, sharing weekly time -via phone calls and letters- knowledge about life and investments, that joined the two of them in a friendship that is still alive today.

In the mid-seventies, Buffett named him Vice-Chairman of Berkshire Hathaway. In parallel, from 1983 to the early two thousands, he served as President of Wesco Financial Corp., a subsidiary of Berkshire Hathaway.

Undoubtedly, Berkshire Hathaway has inscribed in its institutional culture the hallmark of Charlie Munger, but the star will always be Warren Buffett, and rightly so.

That’s why the Letters to the Shareholders of Wesco Financial Corp., which have been written by Munger annually, for three decades, are the best way to understand his particular vision and methods of business investment.

Moreover, to understand his philosophy of life, in more general terms, it is necessary to resort to his lectures and interviews.

Charlie Munger_American businessman_patrick dwyer merrill lynch
Image courtesy of Nick Webb at Flickr.com

Munger’s five steps to be rich

  1. There are no secrets to becoming rich. It all starts with saving.

You must spend less than you earn, and whenever you save something, put it in an account that gives you interests (deposits, savings accounts). With time and constant saving, our money will grow. That’s a no-brainer.

  1. Even a bad investment beats not investing.

Due to the fact that investing our saved money (either fixed income or equity) keeps us from spending that money, even if we make a lousy investment that hardly generates interests, it is always better than not investing and spending our money instead. At least we’ll begin to educate ourselves financially.

  1. Debt is hell.

Once you acquire debt, you’ll have to go through hell to get rid of it. Especially in the case of credit cards. It is impossible for a person to achieve financial stability by paying interests of 13% or 21%.

Assuming we get annual returns for our investments of around 10% (which is not bad), we will not earn any money if we pay 15% on our credit cards. Therefore, before committing money to investments, your savings should be spent on getting rid of any debt with an abusive interest. It will be the most profitable option.

  1. Choose where to invest correctly.

Charlie Munger is an old school investor, the school that continues to surpass in profitability the current alleged “gurus”, so his investment advice is identical to that of Warren Buffett. Looking actions competitive advantage and undervalued prices. Set an investment horizon at a very long term and reinvest the profits and dividends.

Munger is aware of the fact that retailers or individuals don’t have access to many investment opportunities or discounts on the price of the shares, however, both he and Buffett do have access to these opportunities, so his advice is to analyze well some capital increases to take positions with a discount on the share price.

  1. Be patient as you continue to do the same.

The biggest problem with people, according to Munger, is their lack of patience. Everyone wants to make money in a quick way. Nobody wants to wait 10 years to see the results. Instead, many of these people, 10 years later, are even worse, and they then regret not having had a more “calm” strategy in the past decade.

The secret to getting rich is letting money mature. Our investments generate a return that we in turn add to the initial capital as we continue to save and invest our newly saved money. Compound interest is magical, but that magic is not seen on the first or second year. But five years from now, we will realize how much money we have. In 15 years, if you have saved and invested wisely without acquiring toxic debts, we could say that you already have a significant investment portfolio that will generate both financial stability and tranquility.

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