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Rupert Hargreaves
Rupert Hargreaves
Articles (1407)  | Author's Website |

A Look at How Charlie Munger Made His First Million

Munger started his business career in real estate

January 25, 2021 | About:

Most investors know the names of Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio). Today, they are considered to be some of the best investors of all time. Their lectures, videos and letter are all over the internet, and many investors grow up learning from these investment oracles.

However, what many investors often forget is that both Munger and Buffett didn't start out life as billionaires. They both grew up with relatively well-off families, but they didn't inherit large amounts of money or prestige. They had to work hard to build their reputations and fortunes.

Small beginnings

The investment decisions both of these individuals made in the early parts of their careers are, in my opinion, highly informative and much more relevant to investing than their choices later on in life.

For example, Buffett's decision to acquire BNSF to use as permanent capital for Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) insurance business was incredibly shrewd, but how many individuals are ever going to have to make this decision? I'd be willing to bet that not a single reader of this article will ever come close to having that much capital to deploy. So, in some respects, studying the ins and outs of this deal is a bit of a waste of time.

It would be more sensible for individual investors to spend time analyzing how Buffett and Munger made their first million.

Munger's late start

Buffett's early investments have been well documented, but Munger's start is a little less well-known.

The Oracle of Omaha's right-hand man got his start in the real estate business. Janet Lowe's book, "Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger," has a whole chapter on how he went about building his first million.

Munger starting out investing a lot later than his future partner. In 1948, he graduated from Harvard Law School and moved to California to practice law. Over the next few years, he worked hard saving money, but almost lost everything when he and his first wife divorced.

Then, in the late 1950s, when Munger was in his mid-30s, he got to know a gentleman named Otis Booth, who came to him with a proposition in 1961. Booth wanted Munger to help him deal with a probate settlement property. Munger advised him to keep the property and develop it.

Booth agreed on the condition that the lawyer would join him in the project. The 50/50 partnership was formed, and by 1967 the duo had earned a 400% return on their $200,000 investment.

This was a wake-up call for the young lawyer. He discovered that investing and developing property could be a great way to build wealth quickly. The partnership moved onto the next property, which, according to the book, they adjusted to take advantage of the higher demand for ground floor apartments.

Munger and Booth decided to focus on ground floor apartments, which sold faster for more money. They completed five projects around this framework. Munger later stated that he acquired a $1.4 million fortune as a result of this activity.

There are lots of different ways to get rich. Munger's story shows that one does not have to follow a single playbook to build wealth. Buffett made money investing in stocks and shares and individual businesses. Munger developed properties, leveraging the skills he learned as a lawyer and his business partner's experience. He was then able to transition into fund management. The rest, as they say, is history.

Both of these strategies worked because the investors had the desire to continue to grow, push forward and develop their businesses.

Disclosure: The author owns no share mentioned.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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