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  "One of the good things about working with Charlie," said Marshall, "was that there was no doubt about who should be boss."

  When Marshall agreed to run the sales and marketing operation of Alhambra Village Green, he warned Charlie that he didn't know much about sales. Marshall said he didn't ever want to tell prospective buyers something that wasn't true. When customers inquired about the ground lease, and what might happen after the 49-year-expiration date, Marshall told them that he didn't know what would happen. It would be up to the homeowners and the city to work something out. About two-thirds of the potential customers hacked away at that point, but the units sold out quickly, despite the fact that Los Angeles was going through one of the worst real estate recessions that it had ever experienced.

  Part of the attraction was the one-story units, but another advantage was a location just 20 minutes from downtown. In time, the city changed its policy and sold the underlying land to the homeowners' association.

  Although Munger's venture into real estate came with its own set of problems, they were relatively mild. There were never any lawsuits or follow-on problems from the own-your-own apartments. Once they were sold, and later when the financing was repaid, the projects were done and behind them.

  Furthermore, in the process of development, Charlie discovered that he had the soul of an architect. He had vision and a passion that translated itself into durable and liveable spaces. Munger enjoyed development and construction, but it worried him that a successful builder was dependent on debt financing on an ever-increasing scale. Charlie and Al Marshall developed one more project, but decided it would be their last.

  On the final project, the Huntington Granada, Munger put up a comparatively small number of units on Huntington Drive. The land actually was in Alhambra, but it was so close to upscale San Marino that it seemed to be part of the more desirable address. Again, the project sold off in a flash. The hard work at last paid off. Munger walked away from the real estate phase of his career with enough money to finance his foray into the world of independent investing.

  "When it was over, I had $1.4 million as the result of my real estate involvement," said Munger. That was a lot of money at that time. Some was in seconds (trust deeds), and so forth, from people who bought apartments. Later the seconds were paid. It was a substantial backlog of economic security. I did a total of five projects, then stopped. I didn't like constantly borrowing more money. Also, it was an activity with many details, each crucial, difficult to handle as a full-time activity and extremely difficult as a part-time activity."

  CHARLIE WASN'T TOTALLY NEW TO CONSTRUCTION when he took on the projects. He had built his own home on Edgewood Drive shortly after he arrived in Los Angeles, then in 1960 he acquired a mansion on two large lots in Hancock Park. He demolished the large house and sold one lot at a substantial profit. On the remaining lot he built a house for his new family. The Mungers still live in the home, albeit after several extensive remodeling projects.

  Emilie Munger, the youngest of the daughters, was born when the Mungers lived on Roscomare Road in the house Nancy brought to the marriage. The family moved to June Street in Hancock Park on her first birthday. The new home made life much easier for the Mongers, since Charlie would no longer have to drive across Los Angeles in rush hour traffic to and from his law office.

  "We rode our bikes to school and rode around the neighborhood," said Emilie. "Now it's in the middle of the city. Then it was like a little town. I had eight girlfriends in the houses around us. I was lucky. There were always kids my age. We had a happy, stable family, good friends."

  Emilie attended the Third Street school near her home until the sixth grade. She then went to the private Marlborough School for grades seven through twelve. "Where my mom went. I loved that school. I still have a group of girlfriends who get together all the time. Though occasionally a movie star's child would attend, Marlborough wasn't really a Hollywood school. It is more traditional. I had a great biology teacher. I loved that class."

  Charlie and Nancy Munger still consider the June Street house their primary residence.

  "It's pretty amazing to be 40 and to go back and have the same house. My friends are still there-most of my friends. Many families would have fallen apart, or at least moved. It is a gift to kids to be in the same neighborhood," said Emilie Munger.

  Coincidentally, Buffett too has stayed in the relatively modest house in Omaha where his children were raised, and the Buffett children express similar feelings to those articulated by Emilie.

  To SEE SOME TANGIBLE RESULT FROM his work pleases Munger, and he still likes to be involved in construction projects. Munger often tells people, "I don't believe in doing everything with lily white hands, nor would I care to be like [early financier] Russell Sage, remembered only for skill in buying and selling little pieces of paper."

  Remodeling, a room addition or a new dock, is almost always underway at Star Island. When David Borthwick and his wife, who like her stepsister-in-law is named Molly, bought a country home in England, they consulted extensively with Charlie before making an offer on the property. Munger financed the remodeling of Molly Munger's home in Pasadena from a trust fund set up for her, and he grumbles that Wendy won't agree to do the same with her big old house in South Pasadena. She likes her home the way it is and thinks it is suitable for the neighborhood.

  The Munger Science Center at Harvard Westlake School had substantial design input from Charlie. He met with the architects, went through several iterations until they worked out the proper design for the site. Munger seems to be able to get his wishes fulfilled without alienating the architects and builders.

  "No, he doesn't offend people," said Otis Booth, who also serves on the Harvard Westlake School Board. "He has a great ability to turn a phrase and make things amusing."

  Munger employed this technique in planning the Munger Science Center, when he saw boys and girls bathrooms of the same size. "You're going to do this in a building where you teach biology?" he asked.

  There was another building on campus, said Booth, a combined gymnasium and arts complex. It was difficult and time-consuming to continuously convert back and forth from a gym into a theater, and there was discussion about whether to spend the money to make it one or the other. Charlie told the board, "Look, man has only one instrument that serves two functions and it always gets him into trouble."

  Munger agrees that humor helps-as does being plainly right-when reversing expert's ideas in their own territory, but he thinks that he sometimes causes resentment. It requires constant vigilance to keep from going too far.

  Not long ago he did another commercial development, this one in Santa Barbara on property owned by Wesco Financial. Wesco's former thrift association, Mutual Savings, got the 22-acres of pristine oceanfront property in a 1966 foreclosure.

  The development's official name is Sea Meadow, but Buffett calls it "Mungerville" after "Pottersville" in the movie, It's a Wonde,ful Life. "He's constantly trying to sell me things in Mungerville," groused Buffett.

  Mungerville is in a pricey waterfront neighborhood on the south edge of Santa Barbara-tucked between the Pacific ocean and the coastal range of mountains. The area is studded with citrus groves, eucalyptus and olive trees, oleanders, acacia, fuchsia, all gracing the gated walls of early California-style estates.

  It took years of haggling with local building authorities and the California Coastal Commission to reach an agreement on the plans for the Sea Meadow project. Only about half of the houses have a significant ocean view. Munger said that due to the high cost of private streets, sewage, utilities, and various other charges, including heavy archaeological obligations, the houses would be costly and the profit from the development would be limited. "We have 'given' a very large fraction of the value of our land to the County of Santa Barbara in exchange for permission to use it at all," he said.'

  "I developed it because I didn't want to let the zoning authorities rob me the way they wanted to. And
now I know that if I had let them rob me, we would have had better financial results."

  In 1989 Munger reported to shareholders. "Reasonable, communitysensitive development of this property has been delayed over 14 years in the course of administration of land-use laws. But, miraculous to report, eight houses, plus recreation facilities, are in various stages of completion on the property as part of an authorized development into 32 houses interspersed with large open areas. Mutual Savings plans to make the development first-rate in every respect, and unique in the quality of its landscaping."'

  By today's standards, the land, which was carried on the books for $2 million, was bargain priced. In fact, Charlie and Nancy paid $2.1 million for just two lots on which they built a house where they now spend many of their weekends.

  Otis Booth believes that Munger responded to governmental requirements creatively. "Sea Meadow in Santa Barbara is beautifully done. The piece of land was so constrained by rules, he really had to be imaginative. He made a beautiful enclave."

  Despite the attractiveness of Mungerville, the units sold poorly, and many of the buyers are Munger's own friends and colleagues. The residence list looks like the directory of Munger's former law firm. Roy Tulles, Chuck Rickershauser, and Ron Olson each own homes there.

  Booth also bought a home in Mungerville, but under some duress. "I bought it because Charlie gave me a hard time. I didn't need another house."

  W1111,1; MUUNGER WAS BEGINNING TO EARN his first million in the risky business of real estate development, back in Omaha Warren Buffett, whom he had yet to meet, was laboring in his own trenches, building assets in the Buffett Partnership. During this time, Dr. Carol Angle took Buffett's evening class on investing, and she and her husband Dr. William Angle invested in the Buffett partnership. Both Bill Angle and his brother John, by now an executive at Guardian Life Insurance in Lincoln, had been Charlie's chums and fraternity brothers at the University of Michigan. The number of mutual friends they shared was growing, but still Munger and Buffett had not crossed paths.

  C H A P T E R S E V E N

  A COMBINATION

  OF BIG IDEAS

  I can see, he can hear. We make a great combination.

  Warren Buffett, speaking of his partner and friend, Charles Munger.

  ,MAxA, NEBRASKA, Bu TSINESSMAN LEE SEEMANN often went duck hunting with Charlie Munger's father Al along the marshes, lakes, and rivers surrounding Omaha. Lee also hunted with another member of the family, Bob Munger. Bob was a big wine-colored mixed-breed, along the lines of a Chesapeake or a setter. Al Munger had many friends, but Bob was his very best. Al called Bob a college-educated dog, said Seemann, and along with his other talents, Bob held an advanced degree in retrieving ducks. If the dog missed a bird, Al would say, "Bob, there's another duck out there." Bob would look around, then scurry back out, and when he returned with the duck, Munger would scold him gently. "To think a college-educated dog like you would miss a duck."

  Bob had lots of tricks. When guests were visiting the Mungers, Al would say, "Bob, what would you do if I told you to go to the basement?" Bob would zip off to the basement. After a while, Bob would amble back and lie down beside his master's chair. Then Al would repeat the statement, making it shorter. "Bob, what would you do if I told you ..." and Bob would jump up and head for the basement. Finally, Al would simply say "Bob, what ..." and off the dog would trot.

  One day Lee, Al, and several friends went to a lake near Omaha to hunt. "It was bitterly cold in the valley," said Lee. "Bob picked up a lot of ducks, although he was extremely old for a dog. The water was deep, and we had to hold the decoys with ropes. It was too windy for weights. Bob got the final duck, then he became stuck in the ropes. Al went crazy. He climbed in the boat to go get him-by then Al was no longer young. He'd already had one heart attack. He started rowing out to get Bob, but he was not very strong or agile, so when he leaned over to pull Bob into the boat, it tipped over. There were ice sheets on him in a matter of seconds. I went out, worried more about Al than Bob. They were hanging on to the boat. I flipped the boat up and Bob climbed in. He was working with us, just looking around like it was fun. We pulled Al in. He said, 'Don't you ever tell this to Toody.' "

  Other members of the hunting party rushed up the embankment to the railroad tracks where the car was parked and got the motor running and the heater going, and none of them told Munger's wife what happened. Al Munger survived the accident with no ill effects.

  "Grampa Al died in 1959-he was like a Norman Rockwell grandfather," recalled Wendy Munger. "Rimless glasses. He had it little treasure chest where each child could pick out a candy."

  His FATHER'S DEATH LEFT AN ACHING VOID, yet the end of Al's life launched it new phase of Charlie's. When Munger went home to take care of his father's estate, he was introduced to young Warren Buffett, a meeting that would change the lives of many people. It also is a perfect example of the sort of success matrix Munger often talks about, the converging of several great ideas to produce outstanding results. In this case, it was the coming together of two people with superior intellects and shared objectives.

  "Warren and I got along from the start and have been friends and business associates ever since, although with various investments on both sides which do not overlap," said Munger. "With my background, how could I fail to take to a man who preferred reading and thinking to delivering groceries and who had learned something from everything he ever read, including the manuscript his grandfather left behind entitled, "How to Run a Grocery Store and a Few Things I Have Learned About Fishing."'

  Following their initial conversations in Omaha, Buffett and Munger continued their discussions by telephone, often talking for hours at it time. Though Munger and several friends were poised to launch a new firm, Buffett urged him to give up law and become a professional investor. In Buffett's famous speech "The Superinvestors of Graham and Doddsville," he said that when he met Munger, he told him, "law was fine as a hobby, but he could do better."' Munger's experiences with the industrial companies and in real estate development had whetted his appetite for business and the notion attracted him, though he wasn't quite ready to let go of his legal practice.

  Because Buffett's friend and former colleague Ben Graham had retired and moved to Beverly Hills, Warren and Susie had become acquainted with California and were captivated by the climate and people they met. They visited whenever possible.

  "Not long after [meeting Munger], I went out to California to see Ben and Estey Graham, and we went to see the Mungers. They still lived on Roscomare Road. Nancy was appalled by my eating habits."

  She was indeed.

  "I remember that Charlie came home and said he'd met this brilliant man," said Nancy Munger. "He was excited about meeting Warren. About a month later, he came to dinner. I planned a steak dinner. We had three vegetables. I noted that Warren didn't eat a single vegetable. We had ice cream for dessert, and he was happy about that."

  Emilie Munger was an infant when Buffett first visited the Munger home, and she was still quite young when she noticed that Warren Buffett was an important visitor. "I remember his coming and thinking how similar Dad and Warren were," said Emilie. "Their voices, their laughter. He was a picky eater. He loved Pepsi-for us kids, it was funny to have an adult who loved soft drinks so much."

  Molly, the oldest of Munger's daughters, says she can't recall exactly when Buffett entered their lives. "I do remember the symptoms. Daddy was on the phone now all the time to Warren."

  During the time the relationship between her father and Warren was blossoming, Molly was becoming increasingly involved in her own affairs. First, over her father's objection, she decided to enroll in a high school where none of her friends went, a school attended mostly by lowincome and minority students. As Charlie gave in to his willful daughter, he said, "Molly, you are insisting on raising yourself. Make sure you do a good job."

  After high school graduation, she faced the stress and uncertainty of going east to attend an Ivy League s
chool. She graduated from Radcliffe, then stayed in New England to go to Harvard Law School. When Molly returned to California, several important events had occurred. Her father had turned 50, he possessed several million dollars, and his business life had become entwined with Buffett's. It was an arrangement that seemed to fit the long-term plans of both men.

  "Daddy had always been buying small companies," said Molly. "With Warren, they had so much more capital."

  Though Munger had worked with several partners already, Buffett had been working mostly on his own. "We saw that we had odd personalties that happened to fit fairly well, and we've been partners in one way or another ever since," said Buffett. "We weren't formally business partners, but intellectually we've been partners ever since." Buffett sometimes calls Munger his "junior partner in good years and senior partner in bad years."

  Although they agreed to collaborate shortly after meeting, the partnership evolved gradually and naturally, based on trust and a solid respect for one another's intelligence.

  "We were certainly business partners at Blue Chip Stamps," recalls Munger. "We certainly were business partners when we formed Diversified Retailing to buy department stores, buying at less than the liquidating value of the company, a Ben Graham type of play."

  From the 1960s and through the turn of the century, the two analyzed business opportunities often on the telephone, talking many times a week. When the time came to close a deal, they got together in the same place. When one couldn't be reached, the other had the authority to act. "We know so much about how each other thinks that we may move pretty far along even if the other isn't available," Buffett said.

  Buffett was only 29 when he met Munger, but he already had strong investment credentials. He grew up listening to his stockbroker father talk and hanging out at the brokerage offices in Howard Buffett's building. Money fascinated Warren and investing was his obsession from boyhood on. As a student at the University of Nebraska, Buffett read a recently published book, The Intelligent Investor by Ben Graham, and his course was set. The year was 1949, and Graham, known as a sort of intellectual Dean of Wall Street, was one of the most successful and best known money managers in the country. Buffett enrolled in the graduate business school at Columbia University, where Graham taught, and later he briefly worked at Graham's New York investment firm. When Ben retired and closed the business, Buffett returned to Omaha to set up his own investment operation. His first clients were relatives, who already knew how bright he was, and some former Graham investors who were looking for the next Ben Graham and had reason to believe Buffett could pull the sword from the stone.