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Berkshire Hathaway's Other Half

For those of us who are fascinated by Warren Buffett and his amazingly successful company, Berkshire Hathaway(NYSE: BRK.A), there has always been a big part of the story remaining mostly in shadow: Charlie Munger. Munger has long been Buffett's partner, and over the years Buffett has credited Munger with teaching him a lot. But most of us were left to wonder what Munger is like and to glean small snippets about him wherever we could. Enter Janet Lowe's new book, Damn Right: Behind the Scenes With Berkshire Billionaire Charlie Munger. It covers Munger's life and character as well as his professional career. It's also greatly entertaining, informative, and inspiring.

What follows is an interview with Ms. Lowe, which includes questions submitted by the denizens of our Berkshire Hathaway discussion board.

TMF: If superinvestor Warren Buffett and Charlie Munger really are partners, why do we hear so much about Buffett and so little about Munger?

Lowe: Buffett of course is the dominant shareholder, chairman of the company, and as such is the company's spokesman and public symbol. But it's also a matter of style. Buffett is a natural showman and handles publicity well. Munger prefers to have a quieter life and to work behind the scenes.

TMF: Some people say that Munger actually is the power behind the Buffett throne. Is this true?

Lowe: Munger and Buffett are two very smart men. They both were doing well financially before they met. When they joined forces, they both did much, much better. Munger often says that "lollapalooza" results are obtained when you put two or more big ideas (or big thinkers) together. Munger is clear, however, that as far as Berkshire is concerned, he is the junior partner, and this doesn't bother him at all.

TMF: What did Munger bring to the party that Buffett needed?

Lowe: As an experienced corporate lawyer, he brought a deep understanding of the best ways to create wealth, making the most of the legal system and taking best advantage of tax laws. But Munger also was a real estate developer and had operated several industrial companies, and he knew the nuts and bolts of business. Most of all, Munger was someone Buffett could talk to on his own level. Buffett had been deeply influenced by Benjamin Graham at Columbia University, but Munger was not, so he helped Buffett lift value principles to a level beyond Graham.

TMF: What can the everyday investor learn from Charlie Munger?

Lowe: Many things of course, but basically, how to structure your personal and financial life in a way that builds wealth. He lived below his means, reinvested profits, and like a poker player, folded early on bad hands but bet big on good hands. Munger points out that it's difficult to plan for the best investments -- they simply present themselves. You need to be ready, recognize the opportunity, and seize it.

TMF: Munger and Buffett are of an older generation and they won't even buy tech stocks. Do they have anything relevant to say to today's investors?

Lowe: Microsoft founder Bill Gates listens to them and venture capitalist Roger McNamee listens to them, as do many other high-tech players. While the Berkshire Hathaway family of businesses and its stock portfolio was built using the expertise they developed when computer-related technology was in its infancy, the principles Buffett and Munger use are sound in any type of market or when investing in any market sector. Both Buffett and Munger say that those who know about technology can apply value principles to that sector. It simply is not their area of expertise.

TMF: Buffett and Munger are value investors, but that style of investing hasn't done so well recently. Is it a dead theory?

Lowe: Buffett always warned investors that markets could be cyclical and that he would have down years. People stopped believing him when decade after decade, his performance soared. Then in the late 1990s when his prophecy came true, people had a difficult time believing that Berkshire Hathaway would recover. When the high-tech and Internet frenzy cooled in recent months, value investing began to regain its luster, proving that the theory survives.

TMF: Did Munger and Buffett agree to be interviewed for this book, and if so, what were the interviews like?
           
Lowe: Munger and Buffett both agreed to be interviewed. Because I had interviewed Buffett before, I knew what to expect. He has a talent for being quotable. The interviews with Charlie were fascinating, but went slowly. This is because he has so much to say on so many subjects that it was difficult to stay on the point and get the specific answer I was aiming for. One thing is for sure, the interviews were never dull. I had to ask Munger some painful questions regarding subjects such as the death of his first son, and personal ones, such as the cost basis of his Berkshire stock. After he read the first draft, I went to Los Angeles and spent a week in Munger's office reviewing the manuscript with him. He and his secretary were climbing on ladders in their storeroom, checking old files, filling in numbers and so forth. I felt that Munger tried hard to be candid.

TMF: What was the most difficult part of writing this book?

Lowe: So little had been written about Munger, the research was time-consuming and daunting. Once the research was completed, a massive amount of material had to be organized, facts checked, etc. This was a labor-intensive book.

TMF: What was the most fun about writing Damn Right?

Lowe: The interviews were enormously fun to do. Munger is surrounded by interesting and entertaining people. We joined the Munger family for a few days at their lakeside cabins. Many of the Munger children spoke to me there, giving up some of their precious family vacation time to help with the project. We had some great meals together. Many Mungers are great cooks.

TMF: Why did you choose this title for the biography?

Lowe: At one point I asked Munger a question, and he enthusiastically declared, "Damn right!" He holds strong beliefs, and wants very much to do the right thing, so the words, I believe, describe Munger himself.

TMF: There was a news report a year or so ago that Warren Buffett made the decision to acquire General Reinsurance without consulting Charlie Munger. This struck me as unusual, given the size and importance of the deal. In your research, did you learn anything about this?

Lowe: Both Buffett and Munger say that they did not discuss the General Reinsurance acquisition beforehand. The deal came up very quickly when both men were traveling and it wasn't easy for Buffett to reach Munger. However, Buffett is well-known for his insurance expertise, and the two have similar standards for this type of deal. Buffett says that from very early on when the two men worked together, they often made decisions alone that would affect both of them, because they have such a high level of agreement and trust. Additionally, both men say that in recent years, Munger has been less involved in the day-to-day business. This is partly because they are in a less entrepreneurial mode than when they started, and partly because Buffett's involvement in the business is so much deeper than Munger's. Munger has businesses of his own that require his attention.

Next: Part 2 »


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