Charlie Munger – The Man Who Built Berkshire Hathaway | A Documentary

[Music] america looked at capitalism as a failed experiment this is the example of the time when capitalism broke there was a terrible deflation a shortage of money so little money that people made their own monopoly money their own script it was so extreme that people like you have just no idea what the hell it was like having lived through the hardest time in american history charles thomas monger determined to never be poor again i wanted my own money not because i loved ease or social prison i wanted the independence but he never imagined that a half a century later he would have built the greatest business empire in history berkshire hathaway after joining a small value investment fund by warren buffett charlie munger made it scalable eventually becoming one of the biggest and most admired companies in history charlie's the shy reticent one one of the pair but uh charlie is the best partner anybody could possibly have we've been partners now for 60 years he is the only one among our candidates for directors that we see no negative votes this year [Applause] charlie munger is a very elusive man warren buff is a nice guy but that's not enough in business charlie munger is a guy who takes no bs and has that ruthlessness to get things done like warren buffett charlie munger was born in a middle-class family in omaha nebraska if you think about the pioneers who settled the west they had kind of this wanderlust adventuresome spirit these were the kinds of traits that were passed down through the generations the south and the midwest the researchers found are very high in extroversion agreeableness and conscientiousness charlie munger was born in a roaring twenties his grandfather was a federal judge and his father was a lawyer fraternal grandfather was the only federal judge in lincoln nebraska the capital city of nebraska and he was a brilliant man he'd risen from nothing from a young age monger understood in order to make money there must be a value exchange he started raising and trading hamsters not enough kids are willing to work for free or very little to learn getting your hands dirty under your fingernails it's the game but his happy childhood was interrupted by the great depression to make ends meet everyone in the hunger household had to work including the young charlie charlie manga got a job at buffa's family grocery store where he labored 12 hours a day to make two dollars it is during this period of his life manga developed a strong work ethic an appreciation for money most of my schooling was in the great depression but that means i'm one of the very few people that's still alive who deeply remembers the great depression that's been very helpful to me in those days there were all kinds of people most of my family they believed in hard money based on gold and not much welfare and so on and so on so that i was raised among fairly backward people by modern standards but they were backward in kind of a self-reliant way that i think was helpful monger enrolled in university of michigan to study math when i was young i could get an a in any mathematics course without doing any work at all i was choosing what for me was the easiest way to think about what i wanted to instead of what somebody else wanted me to do sunday december shortly after monger started college world war ii broke out a state of war has existed between the united states and the japanese empire the surprise attack at pearl harbor forced many young men out of college and into the military service and charlie monger was no exception the military found out that munger possessed an extraordinary iq he was then assigned to serve as a meteorologist working on analyzing weather patterns for the war it was a very empirical science in those days we just made weather maps which laid out the weather on the map and then we stacked up those maps and by looking as one followed another you could see whether weather systems were moving and that's the way we were predicting the weather while taking physics course to prepare for his deployment he learned to think like a physicist physicists like to think in terms of fundamentals they're very cautious about their assumptions surprisingly this is very similar to buffett and munger's way of thinking they seem to stick to business fundamentals and logic during the military service charlie munger got married and right after the service he enrolled in harvard law school father had gone to the harvard law school so that was a natural course of activity for me after graduating he was admitted to california bar in 1949 i had an army of children almost immediately i painted myself in quite a corner charlie started at a salary of 275 a month which was above average at the time charlie munger felt well off things seemed to have worked out for him but little did he know he was entering into the darkest period of his life many young men in those days charlie munger married early divorce in 1950s was still frowned upon as a marriage ended with his first wife margaret wanted to minimize the damage it had caused to their children just as monger was healing for his divorce tragedy struck again his son teddy monger was diagnosed with leukemia in those days it was a death sentence [Music] after teddy's passing monger came to realize that he has spent all his savings on teddy's medical bills in those days medical insurance was not as widely covered as it is today once again monger was at the crossroads of life he wondered what could have happened if he was wealthy enough to have the best treatment for his son never feel sorry for yourself if your child is dying of cancer don't feel sorry for yourself never ever feel serve yourself charlie munger was more determined than ever to have true wealth for the sake of his family he was about to become the sharpest sword that was ever built [Music] unlike lawyers today practicing law in the 1950s is not the best way to become wealthy he realized to truly become wealthy one has to be a business owner this is oldest trick in the book by and large most of the wealthy people own businesses sometimes more than just one business while doing legal work for a smart transformer manufacturing company and pasadena monger realized that he could take ownership of that company as well and so one day i said well i'm being too damn shy i just about down to the freeway and pasadena i made a u-turn i went back and i walked in and i said well i really like working for you guys just the kind of people i like to be associated with i like to work for and sure enough they had another big problem that i can solve munger put all his savings and even borrowed money to invest in the company but the business struggled early on in order for it to survive monger had to step in and downsized the company that is very much like how private equities operate today they will buy a business turn around and sell it for profit manga consider this company a bad business but he still managed to make a respectable return in the end this experience has taught him a lesson that became the foundation for how he invests he realized that it's so much easier to buy good businesses than trying to fix broken ones i have a habit in life which is i look at it and i observe what works and what doesn't and i've seen so many idiots get rich in easy business naturally i wanted to be an easier business armed with this valuable lesson he was ready to invest in wonderful businesses but what monger didn't know was that he would soon make his first million in real estate [Music] los angeles was on his way to become the second largest city in america [Music] people were moving to l.a at a rate of 3 000 a month it became clear to monger he must not miss this million-dollar opportunity real estate is just a highly leveraged investment but unlike stocks with real estate you have active control that allows you to reduce the risk while advising his client on a real estate project at caltech charlie munger put his own money on the line by owning half of the operation the caltech property sold out quickly generating 400 return for their hundred thousand dollars investment manga didn't stop there he immediately reinvested his money for more projects five real estate projects i did both side by side for a few years and a very few years i had three or four million dollars even to this day charlie munger was very involved in real estate he built monger science center at harvard surprisingly all this time munger was still holding a steady job as a lawyer it goes to show how risk-averse manga really was at that time although the real estate had made monger millions he stopped after just five projects monger now wanted to make money without having to involve too much debt debt is not always bad if you have the education the self-control and the persistence to make smart educated risks then borrowing money could be like playing a very good game of offense manga seized a great opportunity and make millions we see that a lot with millionaires and billionaires they start out by speculating and taking a lot of risks but once they make their first million they start to play a safe by investing instead of speculating using his connections he started an investment company with his friend and a legal client after they bought a seat at a pacific exchange wheeler monger and company's main business was brokerage and market making market making by its name is just about creating a market for buyers and sellers to trade when there are small number of buyers and sellers it may not be possible to buy and sell the product hence the market is illiquid the market maker simply tried to make money for the bid ask spread by providing transactions which creates more liquidity monger realized he could use a profit for the business to invest in other companies he was acting like a true hedge fund manager at that time they bought small companies such as a cart wash machine manufacturer even invested in some cart loans unlike other investors at that time monger's strategy was so concentrated in small growth companies his portfolio was very concentrated in small cap companies as a result his performance was very volatile but over the long term it has much better performance than most people by 1974 when the partnership dissolved it has turned an average annual return of twenty four point three percent making mongers five million dollars remember this is the seventies be a millionaire in the 70s is very different from today [Music] well monger started his investment company in 1962 he also invested in a struggling company run by his friend warren buffett warren buffett followed the investment approach of ben graham which allowed him to build a successful investment partnership but there was a problem and he'd been taught it by ben graham it was hard for him to quit when he was just coining money but he saw the point you couldn't scale that business and it was kind of scrunchy and unpleasant and you're firing people who in the hell wants to do that could i ever tell you about the horrible experience i had at the blue chip redemption center here in california blue chip stamps was a coupon company at the time i happened to be there because i'd saved up ten and two six books to get a blender so when i walked in i had a lot of confidence you you can imagine the peace of mind that comes with having ten and two six books in your purse because it takes time to accumulate stamps and many customers just forget about the stamps this company has struck gold generating 100 million dollars of sales a year by 1970s this is exactly the type of business warren buffett likes the cash flow business like an insurance company they collect a lot of cash upfront warren buffett realized that he could use those cash to invest in other companies december 1963 the department of justice filed an anti-trust action against blue chip stamp and forced the company to offer more shares to the public this is the opportunity monger and buffett have been waiting for they accumulated a controlling position to the company with buffett being the largest shareholder and monger the second the 1970s was the start of many hostile takeovers but buffett and munger were the friendlier ones after making themselves board members buffett and monger quickly gained control in order to invest the excess cash of blue chip stamps we see a chain of takeovers here warren buffett owns about 36 of berkshire hathaway and he used berkshire hathaway as a vehicle to take over other companies and when he does he used the cash from those companies to take over other companies so it's not as simple as stock picking using blue chip stamps cash monger and buff invested in a small candy store in california called see's candies the business is extraordinarily good in a very small niche but we put 25 million dollars into it and it's given us over 2 billion dollars pre-tax income well over 2 billion and we've used it to buy other businesses but initially c's candy's plan of expansion faced a great challenge that buffett didn't quite anticipate the copycats in 1973 russell stovers candies decided to put on a campaign and tried to beat cs candies at his own marketplace they put in stores that looked exactly like seas called mrs stovers facing such a threat the ceo of c's candy's chuck huggins turned to the only person who's capable of handling such a matter charlie munger charlie munga deal with stovers candies with the iron fist my partner charlie margaret doubt that he's you know he says whenever we have a problem you attack it immediately he says announce the prevention is worth a ton of cure and we've seen that time after time he assembled a team of best lawyers and went after stover kennedys like mercenaries they were ready to go to war it worked stover candies got scared and immediately backed off even more no other candy stores dared to do the same after that berkshire hathaway thrived acquiring one company after another including the famous coca-cola deal but neither buffett or munger could anticipate the biggest threat to berkshire hathaway is about to come [Music] the business of berkshire hathaway extremely unique today owns a large number of separate businesses they also have their own subsidiaries if it weren't for mongoose model berkshire hathaway would have had trouble scaling up but it may have reached its limit i mentioned earlier that 1954 was my best year but but i was working with absolutely with peanuts unfortunately and and i think if you work with small sums of money i think there is some chances of people that really do bring something to the game but i think it's very very hard for anybody to identify them and i think that when they work with large funds it gets tougher it's certainly gotten tougher with for us with larger funds and i would make no promise to anybody that we will do better than the s p 500. warren buffett has talked about in the past that this is an advantage that individual investors have over berkshire hathaway that they can invest in things and it'll make a huge difference as opposed to berkshire hathaway so really they have to kind of look for these really big um these really big stocks or big companies to go after and um buffett's also been up been up front about the fact that he you know killed the s p back in the back in the 60s and 70s and she's been a lot tougher since then as a result in the past five years berkshire hathaway has slightly underperformed the market so it's very judgmental and i think that helped me and also helped me that i kept changing my judgments as i learned more and more facts came in both monger and buffet believe the circle of competence they stick to things that they could understand but what it really means is predictability they want to invest in companies where they can confidently predict what will happen in the future recently munger and buffett decided to expand their circle of competence by investing with apple and amazon i'm overjoyed i'm thrilled uh because uh warren is focused on the long term and and so there is we're in sync it's the way we run the company it's the way he invests and uh yeah so i could not be happier well i think they start to realize that these tech companies start to behave like the kind of company that they like with predictable cash flows and emote around them mongers concentrated small cap investment style is hard for the human psyche but it's the best investment style for retail investors if you invest in any large caps you're facing competitions from institutions who probably have done much better research than you did over the course of his long life monger perhaps has gathered more lessons and experiences than anyone like a theoretical physicist he thinks about business in terms of first principles he just analyzed what would work and what wouldn't and why it's so simple manga's life has been legendary he went through multiple economic recessions he went to war he suffered from the worst tragedy but he never yielded he deal with whatever life has to offer and by doing so becoming one of the most iconic figures in business well luckily i got at a very early age the idea that the safest way to try and get what you want is to try and deserve what you want it's such a simple idea it's the golden rule so to speak you you want to deliver to the world what you would buy if you were on the other end there is no ethos in my opinion that is better for any lawyer or any other person to i can have your soul i can promise forever [Music] [Music] again [Music] me

Channel: FINAiUS

Views: 535,516

Rating: 4.9118409 out of 5

Keywords: valueinvesting

Id: bx5ThG6HyZk

Length: 21min 34sec (1294 seconds)

Published: Thu Jan 21 2021

Reddit Comments

[u/100_PERCENT_BRKB]

Nice, thanks

Love him on the iron throne: https://youtu.be/bx5ThG6HyZk?t=20m50s

This is a really good little film

[u/melonhead2288]

Enjoyed that - the homemade photos of Charlie are brilliant!