[To those unaware, Charlie is Warren’s right-hand man and arguably the most intelligent person in the investment arena. Actively staying away from the limelight, his brilliance is only known by a few; but is he actually better than the Oracle of Omaha?]
It’s interesting how Howard Buffett (Warren’s son) had the following to say about Charlie Munger:
“I’ve been quoted in the past (out of context, of course) as saying my father is the second smartest person I’ve ever known, Charlie being the first. To keep peace in my family, I have no comment on such reports” – Poor Charlie’s Almanac, pg.50
Many fans of value investing may know; Warren has been investing for an extremely long time. He started investing at the age 11, worked with Benjamin Graham at the Graham-Newman Partnership, and then started his firm the Buffett Partnerships in 1956.
Charlie to the contrary, studied mathematics at Michigan, dropped out of college at 19 years old (another successful drop out) – so that he could join the US Army Air Corps – then went on to study meteorology at Caltech and finally went to Harvard Law School. Thereafter he became a lawyer, a real estate investor and then finally got into the stock market.
You see, Warren is ‘considered’ better because he’s been in the investing arena longer, while remaining committed and outperforming most benchmarks. Charlie on the hand, has been hell bent on developing ‘worldly elementary wisdom’. Simply putting it, Charlie is more of a polymath, he wants to engineer boats, design buildings etc., Warren just wants to invest.
It’s no surprise then, that Charlie is satisfied with playing second fiddle. Any fan of Charlie would know; he says things like they are. If Charlie thought he was better than Warren at investing, he would never work under Warren as Vice-chairman. He would either fight for Warren’s position or begin his own company.
A comparative analysis: – Buffet Or Munger?
If you compared the performance of Buffett Partnerships with that of the Wheeler, Munger & Co., you would see the two partnerships clashed only for the time period of 1962–1969. What’s interesting is that Charlie beat Warren in 5 out of those 8 years!
However, Buffett Partnerships returned an annualized compounded rate of 29.5% for its entirety; whereas, Wheeler Munger and Co., returned at an annual compounded rate of 19.8%. for their entirety. So what gives?
Wheeler, Munger & Co. had much more volatile investments, they lost 31.9% in 1973 and then lost 31.5% again in 1974 (due to the bear market). They bounced back in 1975 to virtually recover almost the entire loss amount, but the decline was significant enough for them to have to shut-down the partnership.
Interestingly enough, Buffett Partnerships had retired in 1969. This gave him time to invest his own money, at a time when securities were at depressed levels. He bought the Washington Post in 1973, the exact year when Munger experienced a -31.5% return. When Buffett was buying depressed assets through his own company’s capital, Charlie was facing problems handling other’s money.
In conclusion luck and experience have been on Warren’s side; and if you still have doubts, don’t forget who pushed Charlie to invest full-time – Warren.