“Table 5 is the record of a friend of mine who is a Harvard Law Graduate, who set up a major law firm. I ran into him in about 1960 and told him that law was a fine hobby but he could do better…"-- Warren Buffett's introduction to Charlie Munger in his essay: The Superinvestors of Graham-and-Doddsville.
This is the fourth part of a six part series on Warren Buffett's essay, The Superinvestors of Graham-and-Doddsville. Click to read the earlier articles on Walter Schloss, Tweedy, Browne and Bill Ruane.
Buffett's essay was a homage to the value investing philosophy of Benjamin Graham. It referenced seven of Graham's former employees who went on to become some of the greatest investors of all time. Fourth on the list is a man that later became Buffett's number two at Berkshire: Charlie Munger.
Charlie Munger: Starting out
Charlie Munger originally started out as a lawyer, before being (in the words of Warren Buffett) convinced that there was much more money to be made in managing other people's money. Charlie started his own investment partnership in 1962, after meeting Buffett in 1959.
Of all the 'Superinvestors', Munger is probably the most influential. He's widely credited as the man who helped change Buffett's strategy from a deep value, cigar butt approach, to a quality and value approach, helping Buffett to get to where he is today. Munger also favoured a highly concentrated portfolio -- three to four large holdings of quality companies -- rather than a well-diversified portfolio of 15 to 20 stocks. This approach worked extremely well, although it did make his record much more volatile.
Here are the returns of Charlie Munger's partnership over the thirteen years it was in business:
Year | Partnership Return (%) | DJIA Return (%) |
1962 | 30.1 | -7.6 |
1963 | 71.7 | 20.6 |
1964 | 49.7 | 18.7 |
1965 | 8.4 | 14.2 |
1966 | 12.4 | -15.8 |
1967 | 56.2 | 19.0 |
1968 | 40.4 | 7.7 |
1969 | 28.3 | -11.6 |
1970 | -0.1 | 8.7 |
1971 | 25.4 | 9.8 |
1972 | 8.3 | 18.2 |
1973 | -31.9 | -13.1 |
1974 | -31.9 | -23.1 |
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