In Part II of our Berkshire Hathaway Trilogy (!), we pick up the story with Warren wandering in the woods of Omaha, searching for his life's next chapter after retiring from the professional investing business at the top of his game at age 39. How does he emerge from those woods anew, transforming from Ben Graham's cigar-butt cocoon into the butterfly collector of Berkshire's wonderful businesses? (Spoiler: Charlie Munger.) And how did one rotten-to-the-core business nearly bring it all down — everything he'd ever worked for — in the span of one...
In Part II of our Berkshire Hathaway Trilogy (!), we pick up the story with Warren wandering in the woods of Omaha, searching for his life's next chapter after retiring from the professional investing business at the top of his game at age 39. How does he emerge from those woods anew, transforming from Ben Graham's cigar-butt cocoon into the butterfly collector of Berkshire's wonderful businesses? (Spoiler: Charlie Munger.) And how did one rotten-to-the-core business nearly bring it all down — everything he'd ever worked for — in the span of one terrible week? Tune in!
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Sponsors:
- Thanks to Tiny for being our presenting sponsor for all of Acquired Season 8. Tiny is building the "Berkshire Hathaway of the internet" — something they're so dedicated to, they even make and sell bronze busts of Warren & Charlie online! if you own a wonderful internet business that you want to sell, or know someone who does, you should get in touch with them. Just like Berkshire, they commit to quick, simple diligence, a 30-day or less process, and will leave your business to do its thing for the long term. You can learn more about Tiny here: http://bit.ly/acquiredtiny and find their Berkshire Nerds store here: http://bit.ly/acquiredbrknerds
- Thank you as well to Vouch and to Capchase. You can learn more about them at:
- https://bit.ly/acquired-vouch
- http://bit.ly/acquiredcapchase
The Charlie Munger Playbook: (also available on our website at https://www.acquired.fm/episodes/berkshire-hathaway-part-ii )
1. Change your mind. Evolve. Reinvent.
- Without Charlie's influence, Warren may have stuck to chasing cigar butts his entire career, and missed out on wonderful businesses like See's Candy, The Washington Post, Capital Cities, Geico (for the longterm) and Coca-Cola.
- Charlie's life experience taught him that the world can change on a dime, and what worked in the past won't necessarily work in the future. To succeed over the longterm you have to be a constant learning machine — which sounds obvious, but the difficult part is being willing to question your own deeply held assumptions and beliefs, and then discard them when they no longer fit reality.
2. Focus on getting a few simple things right — and the rest takes care of itself.
- Adapting his beloved grandfather's motto ("Concentrate on the task immediately in front of you, and control your spending."), Charlie learned early on that there are only a few bedrock sort of things in life that never change — and that if you just focus on getting those right, you'll do well. Find a great spouse who makes you better in life; buy wonderful businesses at fair prices; never get into a position where you're over-extended; be philanthropic when you can; have fun along the way. It's hard to argue much else matters.
- Reflecting back on his and Warren's success, Charlie says, "It isn't that we were so good at doing things that were difficult. We were good at avoiding things that were difficult — finding things that are easy."
3. Risk ≠ volatility. Risk = chance of going out of business.
- The Efficient Market Hypothesists of the 1970s-80s proposed that all investing risk could be reduced to "beta", or volatility relative to the market. This led to the 1980s' explosion of debt, derivatives and other "weapons of mass financial destruction" which people believed "riskless" because their volatility was hedged. Charlie and Warren recognized before anyone else that to the contrary, these instruments greatly ratcheted risk in the system! Operating with so much leverage, a single small but unexpected event could topple the whole house of cards. Unfortunately Warren and Charlie didn't listen to their own advice when entering the Salomon Brothers saga...
4. Never wrestle with a pig. You both get dirty and the pig likes it.
- Some people (and companies or even whole industries) are addicted to "getting dirty" — deceiving, betraying, evading, cheating, belittling, and generally pursuing their own self-interest above all else. It can be tempting to engage with such people, because they often have or promise great financial rewards. But you can't win in the long run. As the saying goes — you'll both get dirty, and the pig will like it. Unfortunately again, Warren and Charlie didn't always listen to their own advice...
Links:
- Chuck Rickershauser's corporate flow chart: (left half) (right half)
Carve Outs:
Episode Sources:
- http://www.studioz7.com/stamps.html
- https://cmqinvesting.substack.com/p/damn-right-behind-the-scenes-with
- https://cmqinvesting.substack.com/p/damn-right-behind-the-scenes-with
- https://dealbook.nytimes.com/2014/03/12/with-deal-for-tv-station-buffett-shrinks-ties-to-graham-family/
- https://en.wikipedia.org/wiki/Ajit_Jain
- https://en.wikipedia.org/wiki/Berkshire_Hathaway
- https://en.wikipedia.org/wiki/Black_Monday_(1987)
- https://en.wikipedia.org/wiki/Blue_Chip_Stamps
- https://en.wikipedia.org/wiki/Charlie_Munger
- https://en.wikipedia.org/wiki/Eugene_Meyer_(financier)
- https://en.wikipedia.org/wiki/Fritz_Beebe
- https://en.wikipedia.org/wiki/Harvey_Seeley_Mudd
- https://en.wikipedia.org/wiki/John_Gutfreund
- https://en.wikipedia.org/wiki/John_J._Byrne
- https://en.wikipedia.org/wiki/John_Meriwether
- https://en.wikipedia.org/wiki/Katharine_Graham
- https://en.wikipedia.org/wiki/Liar's_Poker
- https://en.wikipedia.org/wiki/Michael_Lewis
- https://en.wikipedia.org/wiki/Nebraska_Furniture_Mart
- https://en.wikipedia.org/wiki/Phil_Graham
- https://en.wikipedia.org/wiki/Salomon_Brothers
- https://en.wikipedia.org/wiki/See's_Candies
- https://en.wikipedia.org/wiki/Thomas_Charles_Munger
- https://fortune.com/1997/10/27/warren-buffett-salomon/
- https://fundooprofessor.wordpress.com/2012/12/06/httpsdl-dropbox-comu28494399bloglinksfloats_and_moats-pdf/
- https://markets.businessinsider.com/news/stocks/warren-buffett-berkshire-hathaway-dream-business-is-sees-candies-2019-7-1029916323
- https://moiglobal.com/tom-murphy-2018/
- https://moneyisboring.com/2019/10/03/a-case-study-of-why-warren-buffett-bought-disney-in-1966/
- https://seekingalpha.com/article/4175060-time-for-berkshire-and-mclane-to-part-ways
- https://static.fmgsuite.com/media/documents/1bae1ba7-c2f2-4af5-ac1f-c0429dc7e5f0.pdf
- https://www.amazon.com/gp/product/0471446912/
- https://www.amazon.com/Liars-Poker-Norton-Paperback-Michael-ebook/dp/B003E20ZRY
- https://www.amazon.com/Poor-Charlies-Almanack-Charles-Expanded/dp/1578645018
- https://www.amazon.com/Snowball-Warren-Buffett-Business-Life/dp/0553805096
- https://www.berkshirehathaway.com/1999ar/FortuneMagazine.pdf
- https://www.fool.com/investing/2019/12/29/heres-how-much-money-warren-buffett-has-made-in-ge.aspx
- https://www.fool.com/investing/best-warren-buffett-quotes.aspx
- https://www.gurufocus.com/news/1344156/why-warren-buffetts-blue-chip-stamps-deal-was-so-revolutionary-
- https://www.multpl.com/s-p-500-pe-ratio/table/by-month
- https://www.sees.com/timeline/
- https://www.washingtonpost.com/business/warren-buffett-to-step-down-from-washington-post-co-board/2011/01/20/ABWJ9NR_story.html
- https://www.youtube.com/watch?v=jMuX_-hE7SQ
- https://youtu.be/QSGz4Y8CP2I
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