Today, Charlie Munger (Trades, Portfolio) is well known in the investment community. He is Warren Buffett (Trades, Portfolio)'s right-hand man and the chairman of the Daily Journal (DJCO, Financial) corporation, as well as a board member of Costco (COST, Financial) and vice-chairman of Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial). He's also an accomplished investor in his own right.
We know a lot about the investments and businesses Munger owns and manages today, but his early companies are less well covered.
Munger the entrepreneur
Reading through Janet Lowe's book, "Damn Right, Behind the Scenes with Berkshire Hathaway billionaire Charlie Munger," we get the impression that this man was a bit of an entrepreneur in his early years. He set up a hedge fund, real estate development business, securities firm and law practice in the 1950s, 60s and 70s.
Munger, Tolles & Olson was founded by several lawyers who broke away from a prominent legal firm, including Munger. According to the book, Munger's reputation and contact list were essential in getting the legal firm off the ground. His business alone reportedly accounted for around 10% of its initial revenues.
Munger also pushed to have the firm strike up relationships with several companies, one of which was Berkshire Hathaway. At this point, Buffett had taken over the enterprise, but it was still in its early stages.
The book noted that this partnership had significant benefits for both parties. Berkshire brought in a steady stream of business for the law firm, but having a friendly law firm on board, which had a reputation for only hiring the best and brightest, helped Buffett transform his acquisitions. The book quoted a former employee who said:
"In the early days, they bought businesses that had troubles they thought they could fix. Blue Chip Stamps was a case in point where they took over control of a company that had, I don't know, 10 cases against it? Their calculated judgment was that they would win or cheaply settle all the cases. They did. It cost some money, took a long time, but they got a good deal."
This is one example of the sort of relationships that have helped Buffett, Munger and Berkshire get to where they are today. Without these relationships, and the ability to do deals other investors have not been able to touch, it seems unlikely Buffett would have achieved the success he has.
Munger's influence on Buffett
Lowe's book brings home how instrumental Munger has been in Buffett's career. By all accounts, in the years before he took over Berkshire, Buffett was a bit of a recluse. He spent all of his time reading annual reports and searching for the market's cheapest stocks, stuck in his office from dusk till dawn.
Munger had a completely different character. His early deals were completed with several partners, and when he founded his investment firm in the late 1960s, Lowe noted that he spent every morning having breakfast with friends at the Pacific stock exchange. His relationships helped cultivate ideas, opportunities and business partnerships. In comparison, Buffett has generally been more of a lone wolf.
Both of these approaches worked well for these two different investors. They are both highly successful individuals who've used different strategies to get where they are today.
Finding something that works well for you is far more important than anything else. In some respects, Buffett was lucky because he found something he loved and could make decent money relatively quickly from his home office.
Munger had to work a bit harder by all accounts, but he has achieved more in some ways. While he left the legal profession in 1965, Munger, Tolles & Olson is today one of the most respected law firms in the United States, built on the principles he laid out when it was founded.
Disclosure: The author owns no share mentioned.
Read more here:
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- A Look at How Charlie Munger Made His First Million
- David Einhorn's Value Strategy Yields Results While Shorts Drag
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