Charlie Munger's Secret to Life & Other Lessons

“The nature of capitalism is that all things die — but death is part of the creative process.”

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When Charlie Munger speaks, I listen.

So imagine my delight when the excellent

Value Investing World

dug up a relatively unknown recording of Munger from a Singleton Foundation event in 2022.

The Berkshire Hathaway vice chairman sat down with Todd Combs for a wide-ranging conversation on investing, management, and life lessons.

Here are a few of the highlights from this Munger masterclass…

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More coverage of Warren Buffett, Charlie Munger, and Berkshire Hathaway. More investing lessons from the likes of Henry Singleton, Li Lu, and Walter Schloss. More transcripts of notable interviews and events.

Just more of everything.

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THE SECRET TO LIFE: Many people spend decades in a desperate — and often fruitless — search for the secret to life. Charlie Munger, on the other hand, had it all figured out at the age of seven.

If only we could all be that lucky…

So what did Munger realize at such a young age?

“Everyone’s a little bonkers — and there’s so much irrationality in the world.”

This simple acknowledgement — that irrationality constantly surrounds us — has guided him ever since. But, instead of succumbing to the siren song of irrational behavior, Munger committed himself to a life of relentless rationality. (More on that in a minute.)

More than ninety years later, Munger still remembers the very moment that imprinted this lesson on his seven-year-old self. One of his father’s friends, the chief mathematician at the University of Nebraska, had risen out of poverty on the strength of his prodigious intelligence.

Needless to say, the man’s mental acumen wowed young Charlie. Then, one day, the man discovered a leak in his house — which would require costly repairs.

He practically went berserk. I thought, God Almighty, here’s this genius going berserk. A world where even geniuses are nuts, I have a chance…

A lightbulb went off in Munger’s head. If even smart, academically-minded people like his father’s friend could fall prey to irrational outbursts, then anyone who kept a cool head and even keel would be way ahead of the game. And would enjoy countless opportunities to prosper.

It’s good to have the extra mental horsepower that Henry Singleton had. That is helpful, but it’s perfectly possible to do splendidly well if you have the right temperament.

Todd Combs echoed Munger’s point with a similar story that he heard from Warren Buffett. On a trip out to Las Vegas many moons ago, Buffett observed the immense amount of foolishness and irrationality that seeped out of every corner of Sin City.

Instead of feeling discouraged, Buffett brimmed with excitement. “Boy, I’m going to do okay in this world,” he said.

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RELENTLESS RATIONALITY: It seems fitting that these remarks came at a Singleton Foundation event. Few, if any, business leaders devoted their careers to rational thinking more than the late Henry Singleton.

“Singleton was just so remorselessly logical,” Munger said. “You could say that a life like Singleton’s, what it demonstrates is the vast power in being remorselessly rational.”

When Singleton started to buy back Teledyne stock in the 1970s, this strategy was not exactly en vogue on Wall Street. His corporate rivals were consumed with growing the size of their companies at all costs — and turned up their noses at Singleton actually shrinking Teledyne’s capital structure.

Singleton, though, couldn’t care less. He allocated capital in whatever way made the most sense for his shareholders. In the 1960s, that meant using overpriced stock to acquire smaller companies. When conglomerates crashed in the 1970s, he pivoted on a dime and started repurchasing shares hand over fist.

Munger on Singleton:

Who else is like Henry Singleton? It’s not like we don’t have a lot of smart people in the United States, but it’s hard to believe there’s [not] somebody else you’d say is another Henry Singleton.

I almost worship reason. You can argue that Henry Singleton did, too — and, certainly, Warren Buffett does, too. The people I know that are good, they feel you have a duty to become as wise as you can be by constantly studying things and thinking about it.

This principle still lives on at Berkshire Hathaway. Every decision — whether it’s an acquisition, share repurchase, or common stock investment — is carefully weighed and considered according to what makes the most economic sense.

That might sound obvious, but it’s all too uncommon on Wall Street.

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THE WOODEN RULE: John Wooden’s UCLA basketball team won ten NCAA national championships in a twelve-year span between 1964 and 1975.

One of the secrets to his mind-boggling success is that he leaned very heavily on his best players. Wooden didn’t want a huge roster of players that would force him to juggle playing time and different rotations. Especially if that meant handing important minutes to less talented players.

Wooden’s approach was simple: Play his best players as much as possible.

This works in the stock market, too.

Just look at Berkshire Hathaway. At the end of Q1 2023, Warren Buffett’s Apple position is now worth $150.9 billion and makes up 44.3% of the overall portfolio. So much for diversification.

As Munger points out, you’ll probably only unearth a few gems during a lifetime of investing. But, really, that’s all you need — as long as you let those winners run once you’ve found ‘em.

I think the people who tend to get the best results are these fanatics who just keep searching for the great businesses. And the best of them don’t expect to find ten or twenty or thirty. They find one or two. And that’s the right way to do it. All you need are one or two.

That isn’t what they teach in our educational institutions. They need some mystery they can teach that will make you good at investing. It’s total bullshit. There is no way to know enough about a thousand different stocks to be very good at it. If you want to be good, you have to pick a few.

The problem, Munger says, is that everything (and everyone) on Wall Street seems to be geared around seducing investors into hyperactivity.

Don’t be fooled — dipping in and out of the market and trying to get in on every flavor of the week that catches Mr. Market’s fancy will assuredly lead to ruin.

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ODDS & ENDS

• Charlie Munger marveled at how many of the powerhouse companies of his youth have fallen by the wayside and disappeared over the years. “Just think of what I’ve seen wane,” he said. “All the big department stores. All the big newspapers and monopolies. U.S. Steel. Alcoa.”

  • Munger: “The nature of capitalism is that all things die — but death is part of the creative process.”

• He also recommended a new book for all of our reading lists — Lights Out: Pride, Delusion, and the Fall of General Electric. “I think [this book] ought to be required reading in every business school in the country. It won’t be — because they don’t want to offend anyone — but it should be.”

• Munger on inflation: “Most people are going to suffer. The idea is to suffer as little as you have to from it. But I think it’s the nature of things that a bunch of democratically-elected politicians will eventually print too much money.”

• In the 1990s, Henry Singleton asked Munger if Berkshire would want to acquire Teledyne in exchange for company stock. Unsurprisingly, the answer was no. “Henry, we’re not going to issue stock or give away all our business that we know and like and understand to get into another business we don’t know and don’t understand,” Munger said. “It can’t happen.”

• Try to discern which problems can be solved and which cannot. “I don’t like unlimited failure,” Munger said. “I don’t want to fish forever and never catch a fish. I have to have some reinforcement, so I pick some things that can be done and do them.”

• Great minds think alike —

  Neckar Substack.
  recently published a great article on this same event.