Turns out Charlie Munger has one more huge investment that we didn’t know about, a stake in a $1.2 billion California apartment business. Bloomberg writes about Charlies investment, and the story also appeared in Yahoo.
About 15 years ago, a neighborhood kid brought Charlie a Hebrew Bible, they struck up a friendship, and a decade and a half later they have a $1.2 billion apartment business. It’s an incredible story and another example of Charlie Munger’s propensities to bet infrequently, bet big when he bets, and to partner with a great operator who makes excellent use of his capital. This investment is pure Charlie.
I learned some investing lessons from this article, and I’ll share those below. But first, a quick real estate lesson. In Damn Right, a great biography of Charlie, I learned that with his first apartment complex in the 1960s, he invested in beautiful landscaping to attract tenants and it helped him increase his rents. He said that spending money on flowers and landscaping was a cheap way to make real estate more valuable, and we saw this strategy again with Charlie’s investment in Afton Properties. In the article, Charlie talks about how they spent $600,000 on trees in order to improve the condition of their properties and that reminded me of his affinity for landscaping improvements that I read about in Damn Right.
Onto the investing lessons.
Win Friends and Influence People
First, it must be said that like any business, the investing business is a people business and relationships matter. You never know where someone is going to go in life, and it pays to be kind to people, to be likable, and to make friends. Charlie and his neighborhood kid friend didn’t know they’d create a $1.2 billion company when they met a decade and a half ago. They were just meeting a neighbor and making a friend. But look at what it turned into, look at the wealth their friendship created for both of them.
Their friendship turned business partnership reminded me of the book How to Win Friends and Influence People. Warren Buffett has also talked this book and how impactful the Dale Carnegie course was for him, and this story about Charlie and his neighborhood friend has motivated me to reread that book.
Few Bets, Big Bets, Infrequent Bets
This story also reminded me of Mohnish Pabrai’s lecture from 2017 on “Few Bets, Big Bets, Infrequent Bets.” Charlie’s career is a story of few bets, big bets, and infrequent bids.
- Charlie’s bets throughout his career:
- Apartment complex – Made a big bet on developing an apartment complex in the 1960s, lots of hard work, but it paid off.
- Investment partnership – Bet on himself, left the legal profession, and ran his investment partnership in the 1960s and early 1970s.
- Buffett’s right hand man – Bet on Buffett and became his partner.
- Auto parts business from Barron’s – Read Barron’s for fifty years, finally made an investment from something he saw in there, and bet big.
- Parlayed into Li Lu investment – Took the 8-bagger he got on the auto parts company and gave it to Li Lu to manage, went up 15 times, and his initial bet on the auto parts business got parlayed into a 100-bagger.
- Costco – At some point, he bet on Costco, and wow, that was a good bet.
- Apartments with his neighborhood friend – And now he’s a part owner of a $1.2 billion apartment business.
That’s the list of major Charlie Munger investments that I’m aware of. It’s a list of infrequent, big, and successful bets.
My takeaway from this investing style is that the job is to sit, and read, and think, and so on, until once every five to ten years a great opportunity comes up and when you get one of those you bet big. Sure, in the interim there’s some investing activity. You’re investing, you’re running your portfolio, you’re making some bets. But when one of these five to ten year opportunities come up, they’re different, and you bet big to make the most of them.
The other Charlie theme I’m seeing here is his use of partners. Charlie Munger has made a career out of identifying great investors and then partnering with them. As I get older, I’m realizing more and more the importance of and the need for having great partners. In business, you can probably do it all yourself, but it’s easier to do it with great partners, and you can create a lot more value with great partners than you can with just your own efforts. And Charlie is a perfect example of this.
He partnered with Buffett in the 1960s, he invested his capital into Berkshire Hathaway, and then he let Buffett primarily run the show for over fifty years, while of course adding lots of value throughout the years as well.
Then he gave a chunk to Li Lu and let Lu invest his capital.
And now we see he identified one of his neighbors as a great apartment investor and operator and they built a $1.2 billion business.
For those of us with inclinations, temperaments, and personalities similar to Charlie, he’s a great example of how much wealth can be created if you choose the right partners that are a good compliment to yourself.
Should I be betting bigger?
Finally, this story about Munger’s apartment business has me wondering if I should be betting bigger. Recently I made bets on Reysas Logistics and Alibaba, and while of course there are reasons to be worried (there always are), given the risk vs reward profile of each investment, I like my bets. I like them a lot right now, and I’ve had a nagging feeling that I might need to be betting bigger.
Of course if I bet big, I’m going to do it smart like Buffett. Buffett has structured Berkshire Hathaway in a way where cash is always coming in, the assets and income sources are very diversified, and he always holds enough cash to be able to pay unlikely, but possible, massive bills that could come due anytime due to the insurance businesses that they’re in. I like that model. The conservative nature of Berkshire’s diversified investments and businesses, the high cash holdings, and constant income streams allow Buffett to be liberal with his bet sizes and allocation sizes once some of those large bets, like the 15% to 20% bet on Apple, become massive allocations when they grow (Apple is now over 40% of Berkshire’s stock portfolio).
And if I’m going to bet big, I better be right, and Charlie always seems to be right. So I’ll continue to clone Charlie and learn from him and that’ll help me be right more and more often.