Charlie Munger: The Complete Investor
Tren Griffin
Columbia University Press (2015)

“Make everything as simple as possible but no simpler.” Albert Einstein

Briefly, Charles Thomas Munger (born January 1, 1924) is an American business magnate, lawyer, investor, and philanthropist. He is Vice-Chairman of Berkshire Hathaway Corporation, the diversified investment corporation chaired by Warren Buffett; in that capacity, Buffett describes Charlie Munger as “my partner.” The material that Tren Griffin provides in this book has three primary sources: Benjamin Graham, Warren Buffet, and Munger. Born Benjamin Grossbaum (1894-1976), Graham was a British-born American economist and professional investor. He is considered the father of value investing, an approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book Security Analysis. Buffett and Munger have frequently cited Graham as their “teacher” — Buffett was one of his students at Columbia — and fully embrace the core principles of what Graham characterizes as “value investing.” Einstein’s recommendation explains the essence of that approach to investments.

Tren Griffin’s focus is on how Munger thinks as an investor. “He has called being a successful investor a ‘trained response.’ He believes that if you can learn to overcome behavior that drives poor decisions, you can gain an advantage over other investors. Much of the context will be about Munger invests, but the discussion is just as applicable to making decisions in other aspects in life.” It is noteworthy that Buffett has repeatedly insisted that “investment is simple but not easy.” Munger agrees, observing “it’s remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

Griffin carefully organizes his material within seven chapters that, in this order, (1) explain the basics of the Graham Value Investment System, (2) explain the principles of that system, (3) provide “worldly wisdom,” (4) examine the psychology of human misjudgment, (5) identify “the right stuff,” (6) identify and discuss the seven variables of the GVIS, and (7) examine “the right stuff” in a business. He then shifts his attention to “Berkshire Math,” “Moats,” and “Value Investing vs. Factor Investing.” I commend him on his skillful selection and placement of quotations by Graham and Buffet as well as by Munger throughout his lively and eloquent narrative. In fact, Munger provides most of them and these reflect Einstein’s influence:

o Value investing is a very simple set of ideas and the reason that our ideas about investing have not spread faster is they’re too simple. The professional classes can’t justify their existence if that’s all they have to say.

o I think the reason why we got such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, “My God, they’re purple and green. Do fish really like these lures?” And he said, “Mister, I don’t sell to fish.”

Here are some other of Munger’s insightful observations:

o I don’t let others do projections for me, because I don’t like throwing up on the desk.

o People calculate too much and think too little.

o You really can learn to make fewer mistakes than other people — and how to fix the mistakes faster when you do make them.

o I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.

o The iron rule of nature is that you get what you reward for. If you want ants to come, put sugar on the floor.

o Almost all good businesses engage in “pain today, gain tomorrow” activities.

o If you want to get rich, you’ll need a few decent ideas where you really know what you’re doing. Then you’re going to have to have the courage to stick with them and take the ups and downs. Not very complicated, and its very old-fashioned.

o There are actually businesses that you will find a few times in a lifetime, where any manager can raise the return enormously just by raising prices — and yet they haven’t done it. So they have huge untapped pricing power that they’re not using. That is the ultimate no-brainer.

As I worked my way through Griffin’s narrative, I was again reminded of a passage in Lawrence Cunningham’s Introduction the Second Edition of The Essays of Warren Buffett: Lessons for Corporate America: “The CEOs of Berkshire’s various operating companies enjoy a unique position in corporate America. They are given a simple set of commands: to run their business as if (1) they are its sole owner, (2) it is the only asset they hold, and (3) they can never sell or merge it for a hundred years.” With regard to investment thinking, “one must guard against what Buffett calls the `institutional imperative.’ It is a pervasive force in which institutional dynamics produce resistance to change, absorption of available corporate funds, and reflexive approval of suboptimal CEO strategies by subordinates. Contrary to what is often taught in business and law schools, this powerful force often interferes with rational business decision-making. The ultimate result of the institutional imperative is a follow-the-pack mentality producing industry imitators, rather than industry leaders – what Buffett calls a lemming-like approach to business.”

In all phases of Berkshire Hathaway’s vast and complex operations, especially when selecting a value investment or overseeing the management of the companies it owns, Buffett and Munger do indeed practice what Einstein preaches: “Make everything as simple as possible but no simpler.” I agree with Tren Griffin: “Learning about Munger’s ideas and methods will forever change the way you think about investing and about life. You will make better, decisions, be happier, and live a more fulfilling life.” To learn more about him, I highly recommend these two sources: Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger, Expanded Third Edition (2005), Peter D. Kaufman, Editor, and Janet Lowe’s Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger (2003).