"A lot of people think if you just had more process and more compliance – checks and double-checks and so forth – you could create a better result in the world. Well, Berkshire has had practically no process. We had hardly any internal auditing until they forced it on us. We just try to operate in a seamless web of deserved trust and be careful whom we trust." – Charlie Munger (Trades, Portfolio)
It is often said that opposites attract. That piece of conventional wisdom usually applies to romantic relationships, but it can apply to professional relationships, too. Take Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio), for example. Buffett calls Munger his “partner,” and, while they aren’t exactly opposites, there are ways in which they differ.
They don’t see eye to eye on politics, for one thing. Buffett is known to favor Democrats, Munger Republicans. Buffett immerses himself in his business while Munger has a variety of interests and prefers not to be overly involved in the day-to-day operations of Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial).
Otherwise, they do seem to be of the same mind on many things, and they do have several things in common. They both hail from Omaha, Nebraska. They like, respect and trust each other. The two have been best friends for decades. However, even though Munger is Buffett’s right-hand man, it would be a mistake to dismiss him as Buffett’s “Mini-Me.”
Unlike the Mini-Me of Austin Powers fame, Munger has his own thoughts on things and doesn’t hesitate to express them. He isn’t a Buffett clone, but “we both think the other one is worth listening to,” he has said.
That doesn’t mean that he is injudicious in his use of the spoken word. “I'm not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition,” he has said. “I think that I am qualified to speak only when I've reached that state.”
Munger has operated independently of Buffett. There was a time, in the 1960s and 1970s, when Munger ran an investment partnership. The vice chairman of Berkshire Hathaway, Munger (who also has served as chairman of Wesco Financial – now a subsidiary of Berkshire Hathaway – and has been the chairman of Daily Journal Corporation since 1977) embraces the role of Buffett’s (sometimes silent) partner.
“A partner ideally is capable of working alone,” he said. “You can be a dominant partner, subordinate partner or an always collaborative equal partner. I’ve done all three. People couldn’t believe that I suddenly made myself a subordinate partner to Warren. But there are people that it’s OK to be subordinate partner to. I didn’t have the kind of ego that prevented it. There always are people who will be better at something than you are. You have to learn to be a follower before you become a leader. People should learn to play all roles. You can divide up in different ways with different people.”
Trust – a word that may seem foreign in an often-cutthroat field like investing – is the approach that seems to work for Munger and Buffett.
“By the standards of the rest of the world, we overtrust,” Munger told Berkshire Hathaway’s annual meeting. “So far it has worked very well for us. Some would see it as weakness.”
It isn’t an approach that would necessarily work for everyone, but it clearly works for Buffett and Munger (who is worth $1.3 billion).
“As Pollyannaish as Mr. Munger may sound,” wrote Andrew Ross Sorkin in the New York Times last spring, “his view has a profound counterintuitive truth to it: Behavioral scientists and psychologists have long contended that ‘trust’ is, to some degree, one of the most powerful forces within organizations.”
It goes a long way toward explaining how, as the Wall Street Journal’s Jason Zweig wrote, “two men could take a jumble of dying textile mills, stagnant department stores and a trading-stamp company and turn it into the fifth-biggest firm in America, with a stock-market value of $337 billion.”
That exceeds General Electric (GE, Financial), prompting Munger to ask, “How the hell does this thing end up blowing past GE?” which is valued at $260 billion.
Munger’s portfolio of holdings through the Daily Journal Corporation consists of four stocks – three U.S. banks, Bank of America Corp. (BAC, Financial), Wells Fargo & Co. (WFC, Financial) and U.S. Bancorp (USB, Financial) and a South Korea-based steelmaking company, POSCO (PKX, Financial).
Berkshire Hathaway has significant holdings in American Express (AXP, Financial), Coca-Cola (KO, Financial), Wells Fargo, and IBM (IBM, Financial).
If trust is the reason for Munger’s business success, it may also explain his reputation for contributing to higher education. Perhaps it is his way of showing his trust in the future.
Munger has supported the University of Michigan, where he studied mathematics, and Stanford University, from which one of his daughters and his second wife graduated.
Both schools have been recipients of shares of Berkshire Hathaway’s Class A stock. Shares were priced at nearly $116,000 when Munger gave 10 shares to Michigan in 2011. Seven years earlier, he gave 500 shares (worth $43.5 million at the time) to Stanford.
Since August, a single share of Berkshire Hathaway’s Class A stock has been selling for more than $200,000.
Earlier this month, Munger donated $65 million to the University of California-Santa Barbara’s Kavli Institute for Theoretical Physics. It is the largest individual donation in UCSB’s history.
“Physicists gain enormously from knowing one another and talking to one another and trusting one another,” Munger said in announcing the gift. “That’s been recognized for a great many decades, but for a long time it just wasn’t feasible. Now we can get people together from all over the world, and these people can cross-fertilize each other.”
