Flashback Friday: How Charlie Munger and Warren Buffett influenced each other for six decades

History has witnessed several 'right-hand men' - the second-in-command who are indispensable for the leader. Very often, the 'right-hand man' executes the vision of his leader while remaining in the background. Without the 'right-hand man', it is likely that several top leaders would not have reached the heights that they eventually did.

One such 'right-hand man' was Charlier Munger, the vice-chairman of Berkshire Hathaway, who died at the age of 99 on November 28, 2023. For all purposes, he was Warren Buffett's alter ego at Berkshire Hathaway. A lot that Buffett -- the oracle of Omaha -- has achieved is often credited to Munger's sage-like wisdom.

Had it not been for a dinner night in 1959, the world would have never witnessed the Buffett-Munger duo revolutionise the world of investments. Munger was 35 and Buffett 29. They both belonged to Omaha, Nebraska but had never met each other up to that point of time.

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In an interview to CNBC, Buffett remembered his first meeting with Munger: "In five minutes, Charlie was rolling on the floor laughing at his own jokes — and do the same thing." This, he said, made him realise that they were made for each other.

While that was the beginning of their six-decade-long partnership, Munger did not immediately begin his career as an investor. That happened three years later, when he decided to make a career switch.

In the 1950s, Munger was a successful lawyer, with his own law firm. Munger, Tolles & Olson, which he established in 1962, is now among the biggest law firms in the US.

Munger's interest in investing, however, precedes his collaboration with Buffett. In the 1950s, he bought part of a troubled transformer company owned by one of his legal clients. Munger's meeting with Buffett brought out the financial wizard in him.

Years later, he revealed during a media interaction: “The best advice I ever got from Warren was to stop practicing law.” Munger added that Buffett thought of law practice as a hobby but not as business.

In 1962, the year when he also established his law firm, Munger forged a partnership with his client Jack Wheeler to launch a hedge fund. According to Buffett, this fund beat the market average of 6.4 per cent and gave annual returns of 24.3 per cent from 1962 to 1975.

While not in a formal partnership till the mid-1970s, Munger and Buffet collaborated regularly.

It is believed that Buffett played a key role in influencing Munger to establish the hedge fund. In fact, more often than not, Munger's fund often invested in the same companies and securities as Buffett's.

Munger's transformation into an investor was so successful that he stopped practising law in 1965. But his transformation pales in comparison to his influence on Buffett's investor mindset.

Like Buffet's first mentor Benjamin Graham, Munger was a believer in value investing. This meant that he believed in putting his money on stocks that could be trading for less than their intrinsic value. But the lawyer-turned investor fine-tuned the idea by focusing on the quality and durability of the company.

Buffett summarised this idea in the following words: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Until Munger entered his life, Buffett focused on buying 'dirt cheap' companies which were nearing backruptcy. At a 1998 shareholders' meeting, Munger put forth his view on such companies - “It’s not that much fun to buy a business where you really hope this sucker liquidates before it goes broke.”

It is also to Munger's credit that Buffett turned into a long-term investor, holding stocks for years on end. For instance: Berkshire Hathaway has held millions of Coca Cola shares since 1988.

Reacting to his death, Buffett said, "Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation."The quintessential 'right-hand man' turned Berkshire Hathaway into a $785 billion giant, turning an ailing textile mill into a cash cow.

That sums up Munger's greatness as an investor, mentor, and institution builder.

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