B000U5KFIC EBOK (14 page)

"Ed worked 90 hours a week" recalled Charlie. "He designed every
transformer in the early days. I can't tell you how close we were and what
a wonderful man he proved to be. We had troubles that made his hair fall
out. Terrible struggles. The worst trouble came from buying William
Miller Instruments, Inc. That was not a good idea. It produced a complicated cathode ray recording oscillograph. That business took forever to
get off the ground."

Finally the product started to move, and Hoskins and Munger sold
the company. It was none too soon. The cathode ray recording oscillograph rapidly was made obsolete by more sophisticated magnetic tape
technology.

"In the end all we had was the transformer business," said Charlie.
"That was a bad business when the war was over. We were stretched financially. With the help of Harry Bottle, the controller, we finally
righted it by firing all the customers who wouldn't let it make money and
downsizing to a much smaller company. It was a lot of struggle, a lot of
nerve pain. We damn near lost everything. We finally made it work out,
but not fabulously. But we got a very respectable return on investment
eventually."

Munger went into the partnership with Hoskins in the 1950s and got
out of it in 1960 and 1961. Munger got a good start on a business education during those years with Hoskins. For one thing, "I never went back to
the high-tech mode. I tried it once and found it to have many problems. I
was like Mark Twain's cat that, after a bad experience, never again sat on
a hot stove or on a cold stove either."

This, despite Munger's love and respect for science. Additionally,
Charlie began to realize that buying high quality businesses has certain
advantages: "It's not that much fun to buy a company that you hope liquidates at a profit just before it is destined to go broke."

He also learned how to define a good business: "The difference between a good business and a had business is that good businesses throw
up one easy decision after another. The had businesses throw up painful
decisions time after time."

The rabbit runs faster than the fox, because the rabbit is running for his life while the fox is only running for his dinner.

Richard Dawkins, The Selfish Gene

T WAS A BALMY NOVEMBER DAY in Southern California, cool enough to be
comfortable, warm enough to go jacketless, Charlie Munger eased his
sleek black Lexus LS400 between a row of garages, revisiting the
Pasadena condominium projects where he made his first real money.

Maneuvering the car wasn't as easy as it looked. At 75, Munger is
blind in his left eye and has little peripheral vision in the other. He has
adapted, developing tricks to figure out where traffic is, and when he has
a clear shot to enter or exit the flow. A powerful automobile engine allows him to act on his decisions quickly.

After searching for a while along the streets of a working-class Los
Angeles suburb that has changed little over the past 30 years, Munger
next located Alhambra Village Green, his largest real estate development
project. On this (lay three decades later, Charlie is visibly pleased to see
that the lawns are clipped, the spa and pool area swept, and several
elderly ladies are gliding back and forth in the blue water, doing their
daily exercise laps.

"Those olive trees?" he said, pointing across the grass. "We paid less
than $100 each for them. Got them from an olive grove that was being
torn out." Like the women swimming their laps, the olive trees had retired long ago, but they were still going strong.

Leaving Alhambra Village Green, Charlie looked around for somewhere to have lunch. "Usually a shopping center has some place," he said,
gunning the Lexus across the street to a strip mall that has obviously had several facelifts over the years. It was still no Houston Galleria, but it
swarmed with shoppers. He found a Baker's Square coffee shop and told
the hostess, "Oh, seat us anywhere," then changed his mind and asked for
a booth. A cheerful young Hispanic waiter introduced himself and enthusiastically described the chicken stir-fry salad, the stir-fry pita sandwich
with french fries, and the plain old stir fry. "Those are my favorites," said
Gabriel. Charlie ordered a club sandwich with french fries and iced tea.
"Save some room for pie," advised the zealous waiter. At the end of the
meal, Gabriel explained that although Charlie hadn't requested it, he'd
given him the senior citizen's discount.

"I'm not old enough for that," Munger chortled.

Charlie picked up the check and stopped at the cash register. Gabriel
dashed forward, "I'll take care of that for you, sir."

The young waiter had no idea that the gentleman in the chino pants
and tweed jacket built the entire city block of condominiums opposite the
coffee shop. He did not know that he'd just served a sandwich to a billionaire, and it was obvious that it wouldn't have mattered if Gabriel
did know. He would give the same service to anyone.

"Are you our waiter?" blurted Munger.

"Yes, sir."

"Well, keep the change then," said Charlie, shoving two $10 bills
across the counter for a bill that couldn't have been more than $15.
Munger then charged for the door.

"I don't look at waiter's faces, so I never recognize them later," grumbled Charlie. "It's a terrible habit to live with. Very embarrassing."

Why doesn't he look at people?

"I'm always thinking about other things. I forget to look around."

"Charlie has enormous powers of concentration," said Otis Booth,
Munger's partner on his first two real estate projects. "When he concentrates, everything else goes away."

AT THE 1998 BERKSHIRE HATHAWAY ANNUAL MEETING, a shareholder asked
why Warren and Charlie shied away from real estate investments:

"Here's an area in which we have a virtually perfect record extending over many decades," said Munger. "We've been demonstrably foolish
in almost every operation having to do with real estate that we've ever
touched. Every time that we had a surplus plant and didn't want to accept
the bid of some developer that planned a development, we'd have been
better off later if we'd accepted the bid and done something with the sales
proceeds in a field where we had expertise."

It is true that Berkshire seldom puts money into real estate ventures
as a passive investment, although after Munger made this statement
Buffett invested an undisclosed sum in motels operated by the Red Roof
Inns chain. While it is quite possible that Berkshire has a poor record in
managing the real estate properties that become surplus to normal operations of its companies, it is misplaced modesty to say that Munger personally has a certified record of failure in real estate.

In fact, the story is quite different. While Charlie was at first fascinated with industrial companies, he found that making money in manufacturing was fraught with danger. On the other hand, people were
moving to Los Angeles at the rate of 1,000 per week in the 1960s. With
Southern California's explosive growth and plentiful land, Munger could
see that people were becoming wealthy as land developers.

"How IT HAPPENHI) Is AN INTERESTING s,rcniv," recalled Munger. "I had a
client-two, a father and son. The father's father had owned the end of a
city block across from Caltech. The father had no use for the propertywe were supposed to sell it off in probate."

Those clients were Otis Booth and his father. Otis Booth is a greatgrandson of Harrison Gray Otis, who in 1894 founded the Los Angeles
Times. Booth calls himself a "shirt tail" cousin to the Chandler family,
who recently sold the newspaper to the Tribune Co., owners of the
Cbicago Tribune. Booth's father was an oil wildcatter and rancher and
once worked fora talc-mining company. Like Munger, Booth went to the
California Institute of Technology, where he earned an engineering degree. He and Munger attended college at the same time though they were
in different programs and didn't know one another. Later Booth went to
Stanford business school, where he may have met the second Nancy, but
didn't get to know her well.

Booth first met Munger in the late 1950s when he went to consult
with his father's attorney. Roy Garrett, because he hoped to buy a printing
plant. "Roy said, 'I've got a young guy here about your age, why don't I
turn you over to him.' " Munger and Booth were both in their mid-thirties.

"Charlie was the same then as he is now," said Booth. "Hungrier,
more aggressive. We did run around, the two of us together, and made this
deal, which was buying a rotogravure printing plant. The printing plant's
major customer was the Los Angeles Times Sunday magazine, then called
the Home magazine."

Because Booth worked at the newspaper and the Times was the
plant's largest customer, he, of course, had to advise his employer of his intentions. Booth planned to quit the Times and run the printing plant.
Because the Times had no labor unions and the plant was unionized,
Booth thought that the newspaper's management would not want to buy
it and would be pleased to have him own it as a reliable supplier of services to his former newspaper.

"But at that juncture in the Times' history they were just beginning
to diversify their holdings. They brought in McKinsey & Co. to advise
them. The partner in charge was Jack Vance. Jack looked at the terms of
the deal and said, 'Hell, you didn't buy it, you stole it.' He said, `we'll
take it. You'd better cooperate.' The LA Times was crazy to take it on,
but they did buy it. I had the pleasure of bailing it out for them later,"
said Booth.

"In the course of the deal, I got to know Charlie very well. It took us
several visits to negotiate with the owner. We developed a considerable
liking for each other. And I, at least, found we thought along parallel
lines. If he started to say something, I knew what he was going to say."

The Mungers introduced Booth to his wife Dody. "A couple of years
after, I called him for lunch at the California Club. I said, `I want you to be
the first to know-Dody's pregnant.' I wanted to have another child in
this second marriage. I was 44. Charlie grinned and said, 'I think there's
something you should know. Nancy's pregnant.'"

Booth's wife gave birth to a daughter, Stephanie, and the Mungers
had a son Philip and the couples became godparents to one another's children. Since those early days Booth and Munger have fished together in
New Zealand, Australia, and other distant waters. Munger goes every
year to a trout fishing club Booth discovered in northwest Colorado, Rio
Blanco Ranch, which is on the headwaters of the White River above
Meeker. They celebrated the year 2000 fishing in Tierra del Fuego at the
tip of South America, where Munger caught an 18-pound brown trout.

"He's my best friend in the world," said Booth. "Very much so."

It was around 1961 when Booth came to Munger to handle the probate settlement, and Charlie instantly advised Booth to keep the property
and develop it.

"I said to Otis, build your own apartments." said Munger. "You
should not allow those two houses forming the whole end of the block to
go into other hands. You buy them. Tear them down, re-zone, build, and
sell own-your-own apartment units. Otis said, `Charlie, if this is such a
good idea, and you're so sure it will work, why don't you put up some of
the money and join me. I won't do it without you.'"