The Poem That Changed Charlie Munger's Life

Okay, I might be overstating that a bit. But, in 2013, Charlie explained how a few lines from Rudyard Kipling's "If" made him a better investor.

February still feels rather empty to me without a new Charlie Munger Q&A at the Daily Journal annual shareholders meeting to look forward to.

It was the one time each year when Charlie was decidedly not in “nothing to add” mode and would happily dive deep into whatever questions his “groupies” (as he called them) dared to ask.

Charlie always peppered his remarks with intriguing historical, scientific, and business references that usually flew right over my head. Nevertheless, I tried to jot down new names and ideas that I could research later on my own. Even a short response from Charlie at one of these Daily Journal AGMs would leave the attentive student with plenty of homework.

At the 2013 meeting, though, he reached deep into his bag of tricks and pulled out a reference that no one could have seen coming. The man who famously preferred non-fiction reading above all else used the famous Rudyard Kipling poem If to describe how he approached — and overcame — two common mental hurdles for investors.

In retrospect, though, it’s not hard to see why If might appeal to Charlie. The poem takes the form of a father’s advice to his son — an explanation for the next generation about the ideal way to structure and live one’s life.

Let’s hear from Charlie about how a few lines by Kipling made him a better investor…

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“If you can meet with triumph and disaster / And treat those two impostors just the same…”

A mistake — especially one that costs you money — can be pretty hard to shake off.

It can leave even strong-minded individuals feeling timid and afraid to take chances, lest disaster swings back for a return engagement.

At the 2013 Daily Journal annual meeting, Charlie Munger was asked to talk about some of his biggest investment successes. But, in true Charlie fashion, he flipped the script and told the story of his biggest failure.

He always believed in rubbing his nose in his own mistakes — so that he would never get deluded about the extent of his own abilities and intelligence. And, when it came time for said rubbing, Charlie looked back at Belridge Oil as the one that got away.

“A guy called me offering 300 shares of Belridge Oil,” he told the crowd. “I had the cash and I said, ‘Sure, I’ll take the listing.’ It was selling [at] maybe a fifth of what the oil companies were.” Opportunity knocked — and Charlie answered.

But, then, opportunity called back. Charlie now had the chance to buy 1,500 more shares of this dramatically undervalued company. The only problem was that he did not have the necessary cash on hand to pay for the extra shares. After thinking it over, he decided against raising the capital (by selling something else or borrowing money) and told the seller that he was standing pat at 300 shares.

“Well,” he lamented, “Belridge Oil sold for about 35x the price I was going to pay within a year and a half. If I had made the different decision, the Mungers would be ahead by way more than a billion dollars as I sit here now [in 2013]. It was a real bonehead decision. There was no risk. I could have borrowed [the money]. There wasn’t the slightest [risk] in borrowing money to buy Belridge Oil. The worst that would happen was I would get out with a small profit. It was a really dumb decision.”

“You don’t get that many great opportunities in a lifetime,” he continued. “When life finally gave me one, I blew it. So I tell you that story to say you’re no different from me. You’re not going to get that many really good ones — [so] don’t blow [it].”

Another Daily Journal shareholder asked Charlie how he managed to mentally recover from — literally — a billion dollar mistake.

“You know what Kipling said?” answered Charlie. “Treat those two impostors just the same — success and failure.”

“Of course there’s going to be some failure in making the correct decisions,” he said. “Nobody bats a thousand. I think it’s important to review your past stupidities so you are less likely to repeat them — but I’m not gnashing my teeth over it or suffering. I regard it as perfectly normal to fail and make bad decisions. I think the tragedy in life is to be so timid that you don’t play hard enough so you have some reverses.”

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“If you can keep your head when all about you / Are losing theirs … You’ll be a Man, my son!”

Charlie Munger was not what anyone would call an active trader.

He preferred to take a patient approach to investing — letting pitch after pitch go by while only swinging at the very best. This left Charlie with a very concentrated group of investments. “What do the Mungers own?” he said in 2013. “They own Berkshire, they own Costco, and they own a bunch of Asian securities with a guy who’s like Charlie Munger born again — except he’s younger.” (Li Lu, of course.)

“In my personal accounts,” he asked the crowd, “guess how many securities transactions I had last year?”

“Zero.”

“We are not normal,” he laughed. “Can you imagine trying to run an investment management operation with transactions of zero?”

(The Daily Journal stock portfolio, which Charlie ran, was also extremely concentrated with little to no activity on a year-to-year basis. The man practiced what he preached in all things.)

“If you went to the average [business] school and said, ‘Is this a suitable investment decision?’, they would say the man who made that decision is crazy. That [that’s] not the way to intelligently invest money. I guess I [should] just give all the money back. I didn’t do it in the right way.”

“They teach that you [should] have reverse rotation, sector rotation, God knows what in the hell they were teaching,” he scoffed. “I never paid any attention. Zero.”

Charlie swam against the current of popular investing opinion — and not only lived to tell the tale, but thrived where others had failed. “It is the right way,” he said. “It’s the other people who are wrong.” 🤣

So where does If come in? Every investor must deal with market fluctuations — we’ve covered that before — and that goes double (or triple) for someone running a concentrated portfolio like Charlie. The volatility and stress can be overwhelming.

“If you want to get rich,” he said, “you’ll need a few decent ideas where you really know what you’re doing. And then you’ve got to have the courage to stick with them and take the ups and downs. [It’s] not very complicated and it’s very old-fashioned.”

“Haven’t I described Kipling’s poem If? ‘If you can keep your head when all about you are losing theirs…” and so on and so on, ‘You’ll be a Man, my son.’”

Market fluctuations — exemplified by Mr. Market in The Intelligent Investor — can carry even the best investors away on a wave of speculation and madness. Charlie Munger (and Warren Buffett) built their careers on keeping their heads when everyone around them had seemingly taken leave of their senses.

Rather than succumb to the latest market mania, both men remained laser-focused on what really mattered — the actual operating performance of a business.

“I’m saying,” he concluded, “what still works is If.”