B000U5KFIC EBOK

by Janet Lowe

  Despite his criticism and his insistence that there are corrupt practices afoot in the business world, Munger feels that overall, America and its businesses usually are honorable.

  "I would not agree that things are generally going to hell," said Munger. "Sure we've got some pockets of social pathology in our big cities, and we've got pockets of social pathology in the high reaches of business, but averaged out, I would say it's pretty good. If you take engineering integrity in products, when was the last time your automatic transmission went out? We've learned to do a lot of things with enormous reliability. You take a company like Boeing and all the hours that the airplanes stay in the air and the three back up systems behind every system that navigates that airplane. I would argue that there is a lot to admire in American business and a lot that's done right, And that these oldfashioned values, averaged out, are winning, not losing. It's too bad we have all that social pathology-hut we have it in the high reaches of politics, why shouldn't we have it in the high reaches of business."25

  A SHAREHOLDER ONCE ASKED BIIFFETT how he spent his days. Warren said he mostly read and talked on the telephone. "That's what I do. Charlie, what do you do?"

  "That [question] reminds me very much of a friend of mine in World War II in a group that had nothing to do," replied Munger. "A general once went up to my friend's boss, we'll call him Captain Glotz. He said, 'Captain Glotz, what do you do?' His boss said, 'Not a damn thing.'"

  "The General got madder and madder and turned to my friend and said, `What do you do?'"

  "My friend said, 'I help Captain Glotz.' That's the best way to describe what I do at Berkshire."

  CHAPTER TWENTY-ON E

  A TIME TO

  REAP REWARDS

  Charlie talks as much as he always did, the only difference is, now people listen.

  Nancy Munger

  F ANCY MUNGER HAS PLANNED A boat trip up to Little Rice Lake, one of the seven small lakes to which Cass Lake is connected. David Borthwick, her son from her first marriage, will drive the boat. Nancy and Charlie will be tour guides. It is an August day when the sky seems twice as wide as usual and the lake shimmers in the sun like blue lace woven with spun silver. The party motors out in the largest of Munger's boats, up the lake to examine the narrow reedy stream that is the infant Mississippi River, trickling down from its headwaters. There is a dam on the lake where the Mississippi leaves Cass Lake, but this year, 1999, the water is so high that a canoer could paddle right over the top. It's easy to imagine being a sixteenth century explorer or a French fur trapper first discovering the area. Borthwick motors up another small river, past a rustic inn, under a bridge where youngsters line up to wave at passing boats, and then jump into the river when all is clear. On and on, into more and more remote landscapes. Rice Lake lives up to its name, a pristine pond edged by wild rice paddies. The reeds ruffle in the breeze and here and there is a beaver dam.

  "Let's throw out a line and fish," says Charlie, instructing David to pull the boat near the mouth of a water course that is bigger than a stream but not quite a river. "Aren't we too close to the edge," a worried Nancy asks repeatedly. "Naw," says Charlie. He urges David to pull to one side of the stream, then let the boat drift across the mouth of the inlet, and then quickly motor back when the boat nears the shallow, reed-thick edge of the lake. It doesn't take long for an extra strong gust of wind to drive the boat into the deep, thick growth of rice plants. David whips the motor on, but stalks and weeds quickly wrap around the boat's propellor, making the motor whir uselessly, throwing out the smell of something that is about to burn. Charlie, David, and a houseguest bend over the back of the boat, stripping long green shreds from the propellor, trying repeatedly to clear a spot where the motor can run long enough to push the boat into deeper water.

  Rather than show her frustration, and perhaps to resist saying, "I told you so," Nancy Munger scans the sky for birds, and as luck would have it, spots an eagle hovering near a tall, distant pine. She is an avid birder and had been told there was an aerie near Rice Lake. When the bird wings away, conversation turns to her other interest, painting. "When you paint, you always notice that the dark side of clouds is on the bottom. The sky is light near the horizon, and darker as you look higher," explains Nancy.

  Molly Munger cheerfully announces that, based on past experiences of boating with her father, she has worn her swimsuit underneath her slacks and is prepared to jump in the lake and push the boat out into the channel if necessary. Finally, the men prevail over the rice, and the fishless fishing party is on its way hack down the string of lakes.

  Getting caught in the weeds or stuck on a sandbar when boating is only one of the Munger family traditions. With long-standing commitments, friendships, and homes to visit, the Mungers' life has settled into a series of rituals. The Mungers drive from Los Angeles to their Santa Barbara home on many weekends. "We love this house," said Charlie.

  The Santa Barbara "Mungerville" home sits in a wooded area, far enough from the beach that the sea view is somewhat restricted, but close enough to catch a breeze. The wood and stone house can best he described as California country French. There is a large sunroom in the center and a spacious wine cove just off the kitchen. Charlie's study has some of the same decorative elements as the Cass Lake house-a model sailing ship, carved wooden ducks, and stacks of books. Books by Somerset Maugham; biographies of Margaret Thatcher, Mark Twain, and Albert Einstein; The Moral Animal by Robert Wright; Tales from the Drone's Club by P.G. Wodehouse. And stacked on a side table, The Ultimate Rose Book and The French Interior.

  "BELIEVING THAT THE SECRET OF human felicity is to aim low, I promptly did that," said Munger, adding that he wanted to be able to say what Samuel Johnson said regarding the writing of his dictionary. "I knew very well what I was trying to do. And very well how to do it. And I have done it very well."

  Of course Munger means that as a bit of a joke, and he admits he overshot his mark somewhat. Although Munger may never have expected to be a billionaire and second in command of one of the most unique and closely watched corporations in the world, he aimed at a life of quality and strove diligently to bring that about.

  Buffett's life and his investment strategy seem to unfold effortlessly before him, but Munger's course has not been as easy. Both personally and professionally, he has encountered repeated obstacles and heartaches. That is what most people experience in life, Munger would say. Anyone who struggles to make the box of his life larger discovers that the box has walls that must be burst open.

  "It's ... necessary to accommodate a lot of failure, and because no matter how able you are, you're going to have headwinds and troubles," Munger told the employees at See's Candy on the company's 75th anniversary. "The Sees who created this business had failed at least once, and had seriously failed. But if a person just keeps going on the theory that life is full of vicissitudes and just does the right thinking and follows the right values it should work out well in the end. So I would say, don't be discouraged by a few reverses."'

  By heeding basic principles and being alert for opportunities, Munger matte the leap from a respectably successful lawyer to an individual investor who is known internationally for his expertise. His wealth has provided the independence he longed for as a young man.

  "It was a number of ideas, not just one. A lot of ideas. In the nature of things, really wonderful ideas are virtually sure to win. You can be sure that if you master the wonderful concepts you're going to get opportunities if you look for them.... But you won't get an unlimited number of good ideas-so when they come along, seize them."'

  Munger has said that accumulating the first $100,000 from a standing start, with no seed money, is the most difficult part of building wealth. Making the first million was the next big hurdle. To do that a person must consistently underspend his income. Getting wealthy, he explains, is like rolling a snowball. It helps to start on the top of a long hill-start early and try to roll that snowball for a very long time. It helps to live a
long life.

  Warren Buffett is known for an extremely simple lifestyle, with very few hobbies aside from reading annual reports, regular games of bridge, and a little golf. (In truth Buffett does a fair amount of travel to spend time with his wide circle of friends and to attend various business meetings.)

  Charlie Munger cannot be described as a lavish person, but he lives fully and even colorfully. True, he comes running when Berkshire has a crisis and needs him, and he tends to his duties at the Los Angeles Dail), Journal, Wesco Financial Corporation, Good Samaritan Hospital, and Harvard-Westlake School, but accompanied by Nancy, he also visits friends everywhere from Maine to Idaho, plays golf in Hawaii, and fishes on various continents and bodies of water for trout, bonefish, Atlantic Salmon, or whatever may be present and biting. He has traveled with friends Ira Marshall and Otis Booth to the Australian rain forest and with family to England, Italy, and other places. He reads voraciously about everything from dinosaurs, to black holes to psychology. With eight children who have families of their own, simply attending birthday parties, graduations, weddings, christenings, and holiday events gives him a busy social life.

  As he grows older and wealthier, Munger still avoids a showy life, but he is willing to accept a little ease. "Warren kids me about flying coach, which I used to do more often," said Munger. "Now, when traveling with Nancy, we usually go first class or business class." Finally in 2000 Munger signed up for a timeshare private jet service through the Berkshire Hathaway-owned company Executive Jet.

  A Munger family gathering in England.

  While shareholders come to Berkshire and Wesco annual meetings seeking financial wisdom, they also ply Munger with questions on how to properly raise a family, another subject in which he has vast experience.

  "I am quite pleased with all my children in terms of morality, behavior, and such," said Munger, but he's less certain about how to make them all hunger to work hard and become even richer than he has made them.

  "I've had kids in both moderate and immoderate circumstances," he said, "and to be honest, my children that were raised when we had less money have worked harder."

  The Munger children, most of whom see through their father's curmudgeonly exterior, are unlikely to be ruffled by such comments. As for his gruffness, "It's very much an act, it's self-parody, it's a joke on himself," said Molly Munger. "You know people who are stiff, ponderous. He's not. He doesn't expect you to believe it. He's utilizing that particular characteristic. He has a huge range. This was the one that suited him."

  The Munger children, despite their attraction to law as a career, are quite different from one another, yet each seems to have taken some characteristic from Charlie. Molly Munger is a vivacious, striking blonde whose face is shaped very much like her father's. Charles, Jr., like Charlie, Sr., is fascinated with science. Charlie, Sr. is famous for carrying a book and reading, no matter how wonderful the surrounding scenery might be. His daughter Emilie is the same. Emilie's husband once walked into their home and smelled smoke. When he checked around, he found smoke billowing from the kitchen, where food was burning in the oven. Emilie was sitting in the kitchen, so involved in a book that she was unaware of the pending disaster. On another occasion, she was waiting for a flight at an airport and went into a shop. Emilie found a book, sat on the floor and began to read. She became so engrossed that she missed her airplane. Finally, the terminal was closed and Emilie, still on the floor quietly reading, was locked in the store. She had to telephone for help to get out.

  Despite the fact that some of his children have adopted religious beliefs he doesn't embrace and others spend their life in activities that probably won't be highly financially productive, Munger swells with pride when telling of Charles, Jr.'s work in science education or his wife Mandy's election to her local school board.

  "He thinks I'm an ultra liberal, but part of that is for effect," said Molly, who spends an enormous amount of time on work her father would describe as left wing and who as an adult converted to Catholicism. "He likes to play the curmudgeon, but I don't think he thinks I'm a crazy person."

  MUNGER HAS SAID THAT HE and Buffett don't want to go down in history as shrewd, miserable accumulators. "We didn't want to be remembered by friends and family for nothing but pieces of paper."

  And so, Charlie has decided it's all right to be whimsical once in a while.

  "I'm building a boat," declared Munger in the fall of 1998. "We're within 60 days of finishing. Call it Munger's folly. It's not an economic activity, but it's very creative. Nobody has built a boat exactly like it."

  The 84-feet-long, 41-feet-wide catamaran was in a shipyard-of sorts-in Florida, being constructed of epoxy resin, composite materials similar to those used in aircraft, and Keviar. Briefly it was the largest boat of its kind in the world until someone built a catamaran with a mast just a few inches higher than the Channel Cat's 102-foot pole. The Channel Cat was completed in early 1999, but not without difficulty.

  King Williams-who along with Charlie designed the boat-says the story began one afternoon several years earlier when he was working on his fishing boat, which was moored at the long pier in Santa Barbara.

  Williams is a former submariner and deep sea diver, first for oil companies, then on his own. He made his living diving for sea urchins in the Channel Islands, where the best specimens in the world are found. The urchins were sold in Santa Barbara and shipped overnight to Japan, where they are a culinary delicacy. Unfortunately, Williams had spent too much of his career under water and was beginning to suffer the bends when he was diving.

  Williams's old East Coast lobster boat attracted a lot of attention from tourists strolling along the dock. "These two older men were looking at my boat, admiring it," said Williams. "They introduced themselves. Charlie Munger and a friend. I had no idea who they were." The two men asked all sorts of questions, and after a while Williams offered to take them out for a spin on the boat.

  After that Charlie called occasionally and he and Williams went out for lunch and talked mostly about two subjects Munger finds everfascinating-fishing and boats. Gradually, the two became friends. As he had done before, senior financier Charlie Munger found an unlikely ally, King Williams III, a deep sea diver whose hobby is hang gliding off the Santa Barbara cliffs.

  Williams is a big, easy-going fiftyish man with a ready laugh, who seems to have no fear of anything physical. Munger does not intimidate him either, but Williams has learned a lot in the relationship. "Charlie used to ask me a question, and I'd shoot back an answer," said Williams. "A couple of days later I'd think, `why did I say that? That's not what he wanted to know.' Now I think carefully before answering him. I like to say that now I'm up to just one day behind him."

  Their conversation occasionally took a philosophical turn.

  "Charlie once asked me, `King, if you could do anything in the world, what would it be?' I said I'd build the biggest catamaran I could and sail off across that ocean and you'd never see me again." Munger then quizzed him about why he would build a catamaran, and they got to talking about that type of boat and what made it good and had. Though Williams was unprepared for what happened next, like the typical adventurer, he was game for it. "One day he said, `go find a catamaran.'" Unfortunately the boat they discussed did not exist, and the luxury tax had pushed many yacht builders out of business, making U.S. builders difficult to find. Williams finally located a yacht manufacturer who said he could do the job in Green Cove Springs, a small town in Florida.

  Three months into the project, things went off track. To be sure, Williams and Munger wanted to do some things with the boat that were outside the realm of ordinary experience. Problems at the original shipyard were such that Munger complained there were "rogues, scallywags and pirates in Florida."

  "I went down, things weren't going well," said Williams. "Charlie said, 'Well, you can build a boat.' So I fired the guys."

  Williams and his wife Rachel quickly packed up and went to Florida to take charge of
the work. The unfinished boat was already so big that moving it would be awkward, but there was no other choice. Williams had to go into the shipyard with the sheriff, a warrant, and house movers. He arranged for a power company crew to drive down the road ahead of the boat, lowering power lines so that the boat would not snag them.

  Williams rented land along the St. Johns River, not far from the original boat yard. He leased several truck tractor trailers to be used as offices. Because of the pollution created by the boat's materials, Munger and Williams were forced to build a hangar. "We made our own shipyard," Williams said.

  As for the boat itself, "Charlie designed it, pretty much," said Williams. "Every week he'd send two to three drawings. I built it for him-with help from a marine engineer and 46 other guys."

  Munger scrawled his notes, using a ruler and a black marker because they were easier for him to see. He drew a scale model of the main dining room, complete with tables and chairs, carefully measuring the exact space needed for comfortable seating. Williams saved all of Munger's instructions and deposited them among the ship's papers. "I cherish those drawings," he said.

  Munger often called Williams on the telephone and the minute he had said what he needed to say, Munger would abruptly hang up. It has never been his habit to indulge in small talk. Williams learned not to be surprised or to take offense.

  Charlie went to Florida at one point to see how the boat was progressing. He took a barrel, placed it in the upstairs room, and after sitting there for awhile looking out, insisted the windows were too high. Williams had installed relatively small windows for safety at sea. But he removed the windows and put in expansive windows that would allow people to sit in easy chairs or at tables in the main lounge and still take in a view of the water.