Warren Buffett’s career has been justifiably studied because of his extreme skill at the first, but Charlie Munger made a major contribution to Buffett’s track record by pushing him to reevaluate where he focused his energy. Buffett and Munger both did plenty of scrappy deals early in their careers, buying mediocre companies at a massive discount to their fair value and selling once that value had been reached. But it’s a lot harder to do that at scale. You can find profitable or potentially profitable companies trading at less than net cash if you’re looking at $50m market caps and below, but it’s not going to happen if your cutoff for a needle-moving investment is a $5bn or $50bn market cap instead.
Munger’s story is a good case study in skill and serendipity: he might have been a fairly successful LA-based real estate developer and lawyer with a reputation for loquacity if he hadn’t tied up with Warren Buffett. On the other hand, if Warren Buffett hadn’t gotten the message on quality businesses from Munger, perhaps he’d be an oddball Omaha fixture, a frugal guy who made millions but not billions investing in textiles, local banks, steel mills, and the like. Extreme success comes from mastering games and metagames, and in this case it was a team effort, with Munger handling the metagame and Buffett excelling at whatever the specific game happened to be.
One frustrating note about this book [Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger] is that it just doesn’t give enough detail about Munger’s transition from someone who earned a salary and made investments on the side to full-time capitalist. It’s surprisingly hard to find details about Munger’s hedge fund in the 60s and 70s (it’s easy to find their biggest positions, but one of those positions was a closed-end fund that Munger & Co. took over in order to redirect its investments into better businesses. But which!?). And the book sadly omits this story, about how Munger would be worth multiples of what he has today if he’d bought one more small block of an obscure oil company in the 70s, which sold for 30x his cost a few years later. (This is a good case study in why you shouldn’t overrate luck: in an alternate world where Munger had bought that stock, clever people might point out that 80% of his net worth ultimately derived from one decision to call a broker back and make a trade. Whereas what probably really happened was that not making the trade meant that it took a few more years for Munger’s capital base to reach the point where it compounded closer to 15% annually than 30%.)