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  The timing was propitious for the two to meet. Charlie's beloved father had died, and Buffett's mentor, Benjamin Graham, had retired from investing and moved from New York to Los Angeles. As Graham became less interested in investment problems, Warren felt the loss. He needed a new sounding board. It may be precisely because Munger was so similar to Graham in his thought processes-honest, realistic, profoundly curious, and unfettered by conventional thinking-that he captured Buffett's attention in the first place.

  "I think Charlie is a lot more like Ben Graham than Charlie knows," explained Louis Simpson, co-chairman of GEICO and the man believed to stand second in line should Buffett or Munger become unable to run Berkshire Hathaway. "Charlie takes the academic approach, but also has interests in a lot of different things. In his reading, his tastes are eclectic."

  Buffett, who is known for his single-minded focus on investing, agreed that Munger is like Graham in his wide range of interests. "Charlie's mind has a greater span than I do. He has read more biographies, hundreds per year. He soaks them up and remembers [them]."

  By the time Fidel Castro seized power in Cuba and the youthful John F. Kennedy was elected U.S. president, Buffett and Munger had become "mental partners," a relationship that involved no contract or titles-at least in the beginning.

  It was more like a "brother act" than a business arrangement, Buffett said. Based on mutual trust and confidence, it grew discussion by discussion, meeting by meeting, deal by deal.'

  Though Charlie had lived only blocks from the Buffett home in Omaha and had worked in the Buffett family store as a teenager, the six years difference in their ages kept them in separate circles. Yet it was the common threads that allowed the two to make an immediate connection.

  "If you think of Charlie and Warren as boys, they were very similar," observed Munger's oldest daughter, Molly. "Similar parents, values, same town. One of those alone would make a friendship."

  Munger and Buffett had something else in common. "Like Warren, I had a considerable passion to get rich," said Charlie, who early on earned his living as a lawyer. "Not because I wanted Ferraris-I wanted the independence. I desperately wanted it. I thought it was undignified to have to send invoices to other people. I don't know where I got that notion from, but I had it."5

  CHARLES T. MUNGER IS VICE CHAIRMAN and the second-largest shareholder in one of the world's most renowned holding companies, Berkshire Hath away Inc. He also is head of the Daily Journal Corporation, the largestcirculation legal newspaper group in California and of Wesco Financial Corporation, an 80 percent-owned subsidiary of Berkshire. Additionally, Munger is an indefatigable participant in the philanthropic life of Los Angeles. When his image appeared on the cover of a 1996 issue of Forbes magazine, the general public began to realize Munger was more than Warren Buffett's straight man at the Berkshire Hathaway annual meetings.

  One of the most elusive, intriguing, and independent business leaders in America, the 76-year-old Munger said it was his goal to stay just below the wealth-level required to be named to the Forbes richest Americans list. It would help him stand just outside the limelight. The strategy didn't work.

  In 1998, Munger's fortune was calculated at more than $1.2 billion. On the richest Americans list, Munger ranked just below the family heirs to the Levi Strauss fortune. He ranked just above Michael Eisner, head of the Walt Disney Company; hotel heir William Barron Hilton, and most surprisingly, higher than Silicon Valley computer nabob Steven Jobs.'

  Like Warren Buffett, Munger inherited no wealth. He built his fortune on the sheer power of his will and his business acumen.

  "While no real money came down, my family gave me a good education and a marvelous example of how people should behave, and in the end that was more valuable than money," explained Munger. "Being surrounded by right values from the beginning is an immense treasure. Warren had that. It even has a financial advantage. People touted Warren partly because he was a Buffett and people trusted the Buffetts."

  According to the worldwide rumor mill powered by members of Buffett's cultish fan club, Munger may be the wizard behind the Berkshire Hathaway throne. Howard Buffett, Warren's eldest son, has said that his father is the second smartest man he knows. He says Charles Munger is the first.7 Certainly Warren Buffett, in his wry way, builds on Munger's mystique: "Charlie does the talking," Buffett claimed at one of Berkshire Hathaway's annual meetings. "I just move my lips."

  One year, Buffett fielded a question from a shareholder, then passed the query on to Munger, who gave the expected reply, "I've got nothing to add." Buffett, who teases Munger unmercifully, chuckled. "Sometimes he subtracts. "8

  Warren and Charlie put on an entertaining show at the Berkshire Hathaway annual meetings. They also do a conscientious job of portraying the business and investment philosophy of one of America's most talked about but least understood corporations. Yet Buffett is indisputably the star of the event and his personality takes the spotlight. Charlie Munger has perfected his role as the curmudgeonly sidekick, and in fact seems to enjoy the straight-man role.

  "But that guy you see sitting next to Warren, that isn't Charlie. That's just the image he's cultivated," explained Munger's stepson, Los Angeles attorney Hal Borthwick. "It's true, probably, he doesn't have a lot to add and he wants to get on with it. I think he works better in small groups than he does in large crowds, but at the end of the day, that isn't the real Charlie Munger that's sitting up there."

  Who is the real Charles T. Munger?

  To Borthwick he is a dedicated step-father, a mentor and someone who has made life a real adventure.

  To Forbes magazine, Munger is the foil that makes Buffett's downhome image believable. His "tough style approach makes possible Buffett's Mr. Nice Guy."9

  To the former top managers of Salomon Brothers Inc., he was a hardnosed board member who recognized a deception early and insisted that government regulators and the public be given a full and contrite explanation of an episode involving U.S. Treasury bond trading misdeeds, even if Salomon's lucrative bond trading business was put at risk.

  To the small but prestigious Los Angeles law firm, Munger, Tolles & Olson, Munger is a powerful client magnet who attracted oil companies, public utilities, and other corporations. Many decades ago, Munger brought in a small and loosely connected group of companies that in time became the Berkshire Hathaway of today.

  To those who support women's rights, Munger is a hero-the catalyst who years ago sparked the movement to legalize abortion in the United States.

  For those who oppose abortion rights, Munger is a powerful nemesis, one who deserves to be picketed now and then.

  To Roger M. Grace, Los Angeles gadfly publisher of The MetropolitanNews, Munger is a billionaire bully intent on using his Daily Journal Corporation to monopolize the California legal publishing market.10

  To his bridge partners, including Buffett, Fortune magazine editor Carol Loomis, Los Angeles billionaire Otis Booth, Microsoft founder Bill Gates, and the late comedian George Burns, he's a good bridge player who would be even better if he didn't occasionally verge into aberrant behavior. His partners sometimes have a little trouble understanding why he makes certain bids or plays certain cards, though usually he is following some simple logic of his own.

  To boat owners and builders, Munger is a guy who is intrigued by new and offbeat ideas for watercraft, and who just might be persuaded to back a project. "My dad is a pushover for anyone with a wild idea for a boat," said his eldest daughter Molly.

  To James Sinegal, chief executive officer of Costco, the warehouse retailing chain on whose board Munger sits, Munger is one of the bestconnected businessmen in the country. When he met Charlie to ask him to serve on Costco's board of directors, the two had lunch at the prestigious downtown Los Angeles business club, the California Club. "There was a big lunch crowd," recalled Sinegal. "I think all 400 of them knew Charlie."

  Later at Munger's first Costco board meeting in 1997, Sinegal started to introduce him to an
other director, prominent political activist Jill Ruckleshaus. It turned out that Munger and Ruckleshaus had met long ago. "You're never shocked by whom Charlie knows," said Sinegal.

  Among Munger's friends are Bill Gates, Nathan Mhyrvold (once the futuristic idea man at Microsoft), General Electric chairman Jack Welch, former U.S. Trade Representative Carla Anderson Hills, Los Angeles Mayor Richard Riordan, and many governors, senators, and presidents.

  As similar as they seem, Buffett and Munger also are quite differentopposites in some ways. Whereas Buffett specializes in simple language, folksy stories, and allegory, Munger grants nothing to small words. If he can use a big word when a small one will do, he spends the syllables. Munger thrives on complex ideas and detailed analysis. While Buffett is uninterested in clothes, Munger is a natty dresser. Buffett lives in the first house he ever bought and has done only limited remodeling over the years. Munger loves architecture and owns seven homes in all. And finally, Munger is a staunch Republican, while Buffett calls himself "mostly a Democrat."

  Munger's personal life has been difficult and at times even tragic, and money did not come to him as easily as it seemed to come to Buffett. Yet, as with other great partnerships, such as those involving Microsoft founders Bill Gates and Paul Allen; Sony Corporation's Akio Morita and Masaru Ibuka; or Buffett's early mentor Ben Graham and his partner Jerry Newman-there is a synergy, even a magic in the relationship. Each man is talented on his own, each would have attained great wealth and lived an interesting life separately. But both have gaps in their personalities or skills that are filled in by the other. The two fare much better as a duo than either could do independently. As Munger often says, you can get "lollapalooza" results when you bring together the right combination of factors.

  Buffett had formal training in business and finance, but not in law. Munger had been a corporate lawyer and, though he had experience in operating businesses, he still had a lot to learn about being a professional investor.

  "You know the cliche that opposites attract?" Munger said. "Well, opposites don't attract. Everybody engaged in complicated work needs colleagues. Just the discipline of having to put your thoughts in order with somebody else is a very useful thing.""

  In Munger, Buffett found someone who shared his values and goals and to whom he could talk on a sophisticated level.

  One of the greatest similarities between the two men is their sense of humor. Like many Midwesterners, they have learned to deal with discomfort, stress, surprise, and even grief by making jokes. Humor breaks the tension, provides psychological protection, and allows them to assert dominance over their circumstances. 12

  Munger brought more than comradeship to the mix. Though Buffett had inherited a group of former Graham-Newman investors and was busily recruiting money from Nebraskans, Munger spread the word about Buffett's skills in California, bringing millions more dollars into his investment pool. To a large extent, Berkshire's early success was due to the acquisition of Blue Chip Stamps, See's Candy, and other California companies, most of which were discovered by Munger and his circle of West Coast investors.

  Just as Munger looked on in amusement at Buffet parochial food preferences, Buffet came to understand Munger's unusual personality. In 1967, in one of their early ventures, Munger and Buffett went to New York to buy a small company called Associated Cotton Shops. Buffett recalls walking along a street in Manhattan with Charlie, talking about the business deal. Suddenly Buffett looked around and discovered he was talking to himself. Charlie was gone. Later Buffett learned that Munger remembered he had to catch a plane, and just walked off.

  Despite Munger's ungraceful abruptness, said Buffett, "He is a sensational friend. The niceties are not there. None of the superficial acts, but all of the real ones. We've never had an argument. We've disagreed at times and we've done a lot of things together, but there's never been one time we've been mad or irritated or anything. If you talk about ideas, he's not going to get emotional about it. But if he has superior facts or reasoning, he won't back off. We both think the other one is worth listening to."

  His OWN LIFE, insists Munger, is "not a big story-long dull stretches are possible. To finish first you have to first finish. Don't get in a position where you go back to go. What's interesting is that some guy whose grandfather was a lawyer and a judge-hurriedly going to Harvard Law with a wave of veterans-I was willing to go into so many different businesses. I was constantly going right into the other fellow's business and doing better than the other fellow did. The reason it was possible? Selfeducation-developing mental discipline, big ideas that really work."

  Munger's life story reveals a number of large, though perhaps loosely organized, ideas that served him well: Live within your income and save so that you can invest. Learn what you need to learn. As Buffett likes to say, "if it's trite, it's right."

  Warren Buffett often counsels college students to develop early the right habits of thought and behavior, since most of the time, people act on habit. This goes hand in hand with another big idea promoted by Munger-always act as honorably as possible. "How you behave in one place," he says, "will help in surprising ways later."

  C H A P T E R T W O

  THE LAKEA PLACE THAT

  DEFINES MUNGER

  There are a lot of things in life way more important than money. All that said, some people do get confused. I play golf with a man who says, "What good is health? You can't buy money with it."'

  Charlie Munger

  t IS THE LAST SUMMER OF the twentieth century and Charles and Nancy Munger clamber from the motorboat onto the dock at their Star Island house, greeting a chattering gaggle of children and grandchildren. A flaxen-haired three-year-old says "Hi Grandad, hi Grandad," and when Charlotte fails to get Charlie's attention, she simply takes his hand and quietly walks beside him. Minutes later Charlie begins talking to the little girl, as if he'd known all along that she was there. Charlotte glows, clearly pleased that her strategy paid off. This is a big family, and competing for the attention of the patriarch is a common occurrence.

  Daughter-in-law Sarah calls from the kitchen, "Charlie, Warren called. Call him back."

  "Okay," shouts Charlie, but instead of going to the telephone, he gives directions to his sons and to the houseman, Felipe Velasquez, as to where various pieces of luggage (including an unwieldy bag of fishing rods) are to be deposited.

  Felipe holds up a sturdy, plastic bait box that had been checked as luggage on the Munger's three-leg flight from visiting friends in Maine to Bemidji, the nearest airport to the Munger family lake houses in Northern Minnesota. "Look," Felipe grins with delight. "Not dented!" The box holds a collection of newfangled lures that Charlie Munger, a certified billionaire, ordered from a television fishing show.

  When the fuss and flutter of his arrival at the Cass Lake retreat settles, Charlie goes to the only telephone in the house, which hangs on the wall in the kitchen. There a gang of adult children (led by Sarah who is a professional chef) is preparing dinner for the thirty family members and friends on hand. A preteen granddaughter, Mary Margot, solemnly peels carrots, alert for any mention of a fishing trip. Mary is smitten with fishing and is restless to check out the lake with her grandfather.

  Charlie glances around the kitchen, as if calculating the odds of carrying on a reasonably private conversation with his pal and business partner, the second richest man in the world, the Sage of Securities, Warren Buffett. Nancy Munger comes to her husband's rescue. "It's a walk-around phone Charlie. Just take it wherever you want and dial the number." As if unconvinced that the phone has enough range to work outside or from an upstairs bedroom, Charlie goes just around the corner into the living room and punches in the telephone number that he knows by heart. Pandemonium continues in the rest of the house as Charlie plops down in a lumpy upholstered chair to chat with Warren.

  "Mumble, mumble, mumble."

  Silence.

  "Mumble, mumble."

  Silence.

  "So it's the pri
ce that bothers you?" asks Charlie.

  Silence.

  "If you wait, I think you'll get your price."

  Silence. "Okay." Click.

  Though Charlie Munger's story begins in Omaha, Nebraska, on January 1, 1924, he clearly considers Star Island home. It is the place where he has knotted a rope between his past, present, and future. The summer cottage has brought the family together during sad times, extremely busy times, and especially later as the children grew up, scattered around the world, and created families of their own. Charlie's grandparents vacationed there, his parents vacationed there, and over the years, this collection of cabins on the small island in the middle of Cass Lake, Minnesota, has become the family seat for Munger's eight children, fifteen grandchildren, and an assortment of aunts, uncles, nieces, nephews, and cousins.

  The Munger family that gathers at the island each summer is an amalgamation of his, hers, and theirs. Charlie has two daughters from his first marriage-Molly and Wendy. His wife Nancy has two sons from her first marriage-Hal and David Borthwick. Charlie and Nancy have four children together-Charles Jr., Emilie, Barry, and Philip. All are married with children now, except Philip, who is a graduate student in New York City.

  We all think the island is central to the family," said Wendy Munger. Star Island is the sort of community that is difficult to form in today's hectic urban centers. "If you've got a hole in the roof," said Wendy, "the neighbors come help fix it. If your boat breaks down, they help. It's very communal. There is a connection to your neighbors, a lot of sharing of everything."

  The island is a place of precious memories to the Munger children because their work-absorbed, ambitious father made a ritual of spending time with them there each summer.