How Charlie Munger fixed Warren Buffett’s ‘mistake’
that much Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) Annual Meetings are always an important event for investors because they provide shareholders with the opportunity to hear directly from Chairman and CEO Warren Buffett.
But this year’s annual meeting, held in Omaha on Saturday, was truly bittersweet as Buffett’s longtime partner Charlie Munger passed away on November 28 at the age of 99. Buffett paid tribute to his friend and partner. In their annual letter to shareholders, they called him “the architect of Berkshire Hathaway.”
The architect of Buffett’s house
If Berkshire Hathaway was the house Buffett built, Munger was the architect who laid out the plan. In 1965, before joining the company, Munger told Buffett that Buffett had made a “stupid decision” in taking control of Berkshire Hathaway. But since it was a done deal, Munger said he would show him how to fix his mistake.
“Nevertheless, Charlie immediately advised me in 1965: ‘Warren, forget about acquiring another company like Berkshire. But now that you control Berkshire, add to it the great companies you buy at fair prices, and give up buying fair companies at great prices. In other words, throw away everything you learned from your hero Ben Graham. It works, but only when done on a small scale.’ “I followed his instructions, even though I had to step back a lot.” Buffett wrote in his letter:
About a decade later, Munger joined his longtime friend Berkshire Hathaway, and the two ran the company until Munger’s death last year.
“In reality, Charlie was now Berkshire’s ‘architect’ and I served as the ‘general contractor’ constructing his vision on a daily basis. Charlie never tried to take credit for his role as its creator and instead let me say hello and receive praise. In some ways his relationship with me was part older brother, part loving father. “He gave me control even when he knew he was right, and when I made a mistake, he never reminded me of my mistakes,” Buffett wrote.
He added that Munger’s legacy as an architect should continue.
“In the real world, great buildings are associated with their architects, but the people who poured the concrete or installed the windows are soon forgotten. Berkshire has become a great company. “I have been in the construction workforce for a long time, but Charlie deserves eternal credit as an architect,” Buffett concluded.
next generation
In the letter, Buffett also discussed the next generation of leadership, Vice Chairman Greg Abel and Ajit Jain, and his relationship with Omaha.
“Greg Abel, who runs all of Berkshire’s non-insurance businesses and is every bit as ready to be Berkshire’s CEO tomorrow, was born and raised in Canada (he still plays hockey). But in the 1990s, Greg lived just a few blocks from me in Omaha for six years. During that time I never met him. “More than a decade ago, Ajit Jain, born, raised and educated in India, came to live with his family in Omaha, just a mile or so from my home (where I have lived since 1958),” he wrote.
All three sat on stage Saturday and answered questions from shareholders. One of the shareholders asked who would make the final decision on the stock portfolio. She said Buffett would be Abel.
“He understands business,” Buffett said, Yahoo reported. “The blame must fall squarely on Greg.”
Last year, the portfolio returned 15.8%, lagging the S&P 500’s 26.3% return, but as Buffett said, Berkshire Hathaway is built and designed for the long term.
“I believe Berkshire can handle a much bigger financial disaster than we have ever experienced. This is an ability we will not give up. When economic turmoil occurs, Berkshire’s goal is to function as an asset to the nation, as it did in a very minor way in 2008-09, and to help put out the financial fires rather than becoming one of many. These are the companies that, inadvertently or not, sparked the conflagration,” he wrote.
Since 1965, the company’s portfolio has nearly doubled the performance of the S&P 500, returning an average of 19.8% per year compared to the S&P 500’s 10.2%.
