Buffett's alter ego
It's time for Berkshire Hathaway's Charlie Munger to get his due.
(FORTUNE Magazine) - Ask folks about Berkshire Hathaway, and most will tell you that it's Warren Buffett's company, which is true as far as it goes. But those in the know recognize that Berkshire's success is actually the product of a tag-team effort by Buffett and his long-standing partner, Charlie Munger.
Sure, Buffett is the top banana - he's the chairman and CEO as well as the very public face of the company, while Munger is merely vice chairman and more of a behind-the-scenes type - but Munger has long been the co-thinker at Berkshire, which is no small thing.
In early May I made the pilgrimage to Omaha to attend Berkshire's now world-famous annual meeting and to get a taste of what Munger calls "festival capitalism." I had another agenda, however, which was to do some close-up Munger-watching and also to sit down with him and pick his brain.
You've probably read plenty about Berkshire's (Research) annual meetings, and I have too. But it was still a surreal experience to stroll into the filled-to-capacity Qwest Center in Omaha and find 17,000 shareholders, plus another 7,000 spread throughout the facility in overflow rooms. And almost every single one of them (many of whom are multimillionaires) was sitting in rapt attention as a couple of geezers - Buffett is 75 and Munger is 82 - waxed on for some five hours.
It's the kind of scene where you'd expect to see a couple of high-powered motivational speakers - which, in a sense, is what Buffett and Munger are.
Over the years the Buffett-and-Munger show has taken on a somewhat formulaic choreography. The two men sit center stage, facing a dark sea of shareholders. Questions are usually fielded first by Buffett, who will answer and then ramble a bit in his inimitable way - often with a one-liner or two mixed in - for five minutes or so.
At that point he will look over to his partner and inquire, "Charlie?" Then one of two things occurs: Munger will either lean in and make a pointed, pithy, often scathing comment (which sometimes elicits gasps or loud guffaws from the crowd). Or Munger will simply remark, "I have nothing to say." (Which, after a particularly long-winded Buffett digression, can be amusing as well.)
After that Buffett likes to come back for a two-minute coda. This goes on for 2½ hours in the morning. Then there's a break for lunch. And then another couple of hours in the afternoon.
"We stumbled into this two-person format," Munger told me the day after this year's marathon. "It would not work if it was just one person. You could have the wittiest, wisest person on earth up there, and people would find it very tiresome. It takes a little interplay of personalities to handle the extreme length of the festival."
Berkshire watchers say that Munger, who can be prickly and does not suffer fools particularly well, has been coming into his own lately.
Unlike Buffett, who intends to engage in postmortem philanthropy, Munger has been actively doling out big bucks, mostly to educational and health-care causes in his adopted state of California. And then there's the lavish coffee-table book, " Charlie's Almanack: The Wit and Wisdom of Charles T. Munger," the second edition of which came out just in time for this year's annual meeting.
The book's title and conceit is, of course, a nod to Benjamin Franklin, a man whom Munger greatly admires.
"There is the sheer amount of Franklin's wisdom," says Munger who just for a second flashes a cherubic grin. "And the talent. Franklin played four instruments. He was the nation's leading scientist and inventor, plus a leading author, statesman, and philanthropist. There has never been anyone like him."
To Berkshire shareholders, Munger's pretty singular himself.
"Warren is obviously so brilliant," one stockholder told me, "but I just love what Charlie says."
In a way, Buffett and Munger remind me of the Rolling Stones. Buffett, like Mick Jagger, is certainly the main dude. But many believe that Munger, like Keith Richards, is just as cool, if not more so. (Let's just hope that Munger stays out of coconut trees.)
So what were some of Charlie's zingers this year? Well, at one point Buffett was talking about his shareholders investing on their own, which, he said, would work out just fine for many of them.
To which Charlie followed up, "Many of you won't do fine."
Munger blasted auditors, saying they are "contemptible. They've totally sold out." Corrupt foreign governments are "kleptocracies." A well-regarded author of business books is "demented."
As for executive comp, America is "exporting poison to Europe," he says. The hedge fund and private equity businesses are due for a comeuppance at some point, and Wall Street is filled with "racetrack touts."
And so on. But Munger isn't just about calling out charlatans. Many Mungerisms are exercises in humility and simple wisdom.
"Warren and I avoid doing anything that someone else at Berkshire can do better," he tells me. "You don't really have a competency if you don't know the edge of it."
On the eve of the meeting, Berkshire announced that, for $4 billion, it had purchased an 80 percent stake in Iscar, an Israeli metal-cutting tool manufacturer (and Berkshire's first acquisition overseas). In Iscar, Munger says he and his partner have found management with "super talent and super integrity."
I hear that Munger, who's usually more skeptical of deals than Buffett, was highly enthusiastic about Iscar from the get-go and even more eager to do the deal than Buffett. "Who the hell wouldn't be excited by this deal?" Munger says.
What's always been maddening to me about Berkshire and Buffett and Munger is how they make both their business and the art of investing, which I find to be so complicated and bewildering, seem so simple.
"Berkshire is in the business of making easy predictions," Munger explains. If a deal looks too hard, the partners simply shelve it.
But the line of Munger's that I really remember best from this year's meeting is this: "We have a high moral responsibility to be rational," he says. Think about that for a minute. Have you ever heard any business leader describe their charge thusly?
From the May 29, 2006 issue