Charlie Munger recounts the pivotal steps of his professional life
Here are various interviews and excerpts that recount the major transitions Charlie Munger went through during his professional life.
First, on how and why he started his career in law.
It seems like he started as a lawyer because, at the time, he hadn’t realized what he was particularly good at. The fact that his family was well-connected in the field seems to have contributed to his decision as well.
From a Caltech event in December 2020:
I went into law because I didn’t want to be a surgeon, I didn’t want to be a doctor, I didn’t want to be a college professor. I finally got through them, there was only one [option left]. I just went down the family path. And it wasn’t the wisest decision I ever ran.
Scott DeRue: So, when you went to Harvard Law — why law?
Munger: Well, my grandfather and father had been lawyers, and I knew I didn’t want to do everything else, it’s very simple. I didn’t want to be a doctor. I didn’t want all the blood and misery and so forth, and the repetitive work.
I knew I didn’t want to go to the bottom of a big organization, and crawl my way up. I’m a natural contrarian and that was not going to work for me. I found that people could tell me when I thought they were idiots, and that is not a way to rise in a big organization, and so I couldn’t do that.
So now I’m left with law. I admired my father and grandfather, and they had a good life for them, so I naturally drifted into it. I think people are still going to law school for that reason. It’s the least bad of options considering their interests and ability.
I guess now people go to business school, some of who would have gone to law school. Many of the people in this room, I think, thought they were going to go to business school because that was the least bad of their options. And all I can say that that’s the way it worked for me, and it’ll probably work for you.
DeRue: So, you moved to California you actually start a law firm and then practice law for some period of time.
Munger: I had no alternative, I had an army of children almost immediately. I painted myself into quite a corner.
Second, on how he started his own law firm and started investing.
In 1962, Munger had gone into partnership with his poker buddy Jack Wheeler. Wheeler was a trader on the Pacific Coast Stock Exchange, the Wild West version in miniature of what was going on back east: a floor full of screaming traders, aggressive men looking to make a killing the fastest way they could. He owned an investing partnership, Wheeler, Cruttenden & Company, which included two “specialist posts” on the exchange, where traders took orders from brokers to trade stocks on the floor. They renamed the business Wheeler, Munger & Co., and sold the trading operation to Rick Guerin (sidenote: Alice Schroeder writes: “Most of the traders at the stock exchange had ignored Munger’s arrival on the scene, but one of them, J. Patrick Guerin, took note. Guerin had bought the trading part of Wheeler’s partnership when Wheeler had spun it off and gone into business with Munger.
“A rough-and-tumble guy who was scrambling like mad to better himself, Guerin had grown up with a ‘divorced father,’ says Munger, ‘and his mother was a drunk, so he raised himself on the streets. He was high IQ, rebellious, and maladjusted.’
“After a stint in the Air Force, Guerin had worked as a salesman for IBM, then became a stockbroker at a couple of small firms that peddled third-class stocks because they carried the highest profit, or ‘spread,’ for the firm. This was a part of stockbroking Buffett had detested; Guerin, too, found it a relief to escape life as a ‘prescriptionist.’“
Also read Guerin’s obituary (a).) .
Munger continued his law practice but bolted from his old firm together with several other lawyers, among them Roy Tolles (a) and Rod Hills. They founded a new firm, Munger, Tolles, Hills & Wood, that suited their ideals of how a law firm should be managed. All along, Munger had naturally resisted following the rules of a law firm run by anyone but himself.
[Alice quotes Buffett:] “It’s no coincidence that the year he started his partnership was the same year he started his new law firm. The partners at the old firm found it abhorrent that a young lawyer in their firm would want to be a member of that gambling den, the Pacific Coast Stock Exchange. When Charlie and Roy left the firm, they sat down with the senior partners and said that they wanted these senior partners to understand that the day would come when every first-rate law firm had a member of the Pacific Coast Stock Exchange. This is probably apocryphal, but you can easily picture Charlie delivering that message to them as a parting shot.”
At their new firm, Munger and Hills imposed an elitist, Darwinian ethos designed to attract the brightest and most ambitious. The partners all voted on one another’s pay, which was circulated for everyone to know.
In 1963 [Munger] and Buffett were not partners. Munger had just opened a partnership of his own after waiting until he had accumulated a fair amount of money — around $300,000 — by investing in real estate. But this was peanuts by Buffett’s standards, a fraction of Warren and Susie’s wealth [at the time].
[Buffett, again:] “Charlie had a lot of children early on. That hindered him a lot in getting independent. Starting early with no encumbrances is a big advantage. Even when I came back from Graham-Newman (a) [in 1956] I had my 174,000 bucks, I felt like I could do what I wanted to do. I could take courses with my father-in-law the psychologist. I could go out there to the university and sit in the library and read all day.”
In fact, Buffett had been encouraging Munger to think seriously about investing as a career ever since they first met. He would say to him, “It’s nice to be a lawyer and to do real estate on the side, but if you want to make some real money, you ought to start something like my partnerships.”
Third, on how and why Munger switched from law to full-time investing.
From The Snowball:
Even as [his law] firm launched, however, Munger was already spending a significant amount of time at the Pacific Coast Stock Exchange. Within three years, when he was forty-one, he abandoned the law altogether to work full-time at investing. But he still consulted to the firm and kept an office there, where he remained an important, almost spiritual presence. Tolles, too, shifted most of his attention to investing. Hills, by far the most ambitious and dedicated to law of the three, ran the firm and kept it going.
From the 2020 Caltech event interview:
Munger: There were things I didn’t like about law practice, but I had an army of children to support, and no family money or anything to start with. So I had to make my way in life for this army of children.
What happened was: my pitifully small earnings as a young man I kept underspending them, and I kept investing fairly boldly and fairly smartly. And at the end of my first 13 years of law practice I had more liquid investments than I made in all those years of law practice pre-tax!
I’d done that [growing the investments] in my spare time with these little tiny sums. So it was natural for me, partly prompted by Warren Buffett’s success, to think I should just start working for myself instead of for other people. [If I had done that] in my spare time, I thought, “Well, what will happen if I do it full time?”
From the 2017 Ross interview:
DeRue: So you practice law, and then you leave law, in the firm that you helped found, and move over to investments?
Munger: Well, that sounds miraculous. In fact, it was rather interesting. I probably got paid about $350,000 in my first 13 years of law practice, total. And I had an army of children, and no capital to start with. When I chose this alternative career, I had over $300,000 in liquid instruments, and that was 10 years of living expenses, so I was not a courageous venturesome or some admirable man. I was a cautious little squirrel, saving up more nuts than I really needed it and not going very deep into my pile of nuts.
It wasn’t that courageous, and I kept one foot in the law firm while I tried my capitalist career, but as soon as the capitalist career succeeded I intended to lift that second foot. Because I recognized that the potential of law practice, as I saw it then — I didn’t anticipate the boom that came to the big [law] firms. I just saw it as being more difficult [than investing].
I wanted more independence than I was going to have as a lawyer. I hated sending other people invoices and needing money from richer people. I thought it was undignified. I wanted my own money, not because I loved ease or social prestige, I wanted the independence.
DeRue: So you founded Wheeler, Munger, & Co, so that was the investment firm.
Munger: Yes, and I had 5 real estate projects. I did both side by side for a few years. And in a few years I had three or four million dollars.
Fourth, on why he closed his investment partnership in 1976 and started to manage only his own money.
From the 2017 Ross interview:
DeRue: And for a number of years you outperform the market 2x, 3x, and so why did you then leave Wheeler, Munger, & Co? And then move to now what you’re doing?
Munger: Well, I had three or four million dollars, which was a lot of money then. I also knew how to handle that three or four million dollars very well by that time. I knew I didn’t need to get fees and override some other investors.
And I found that when you got into things like this 1974-75 crunch, which was the worst since the 1930s, I didn’t suffer. I knew everything was going to work out. But the quoted prices of these things really went down to ridiculous levels. And some of my investors were suffering, because they needed the money. Of course, I have enough of fiduciary gene that pained me greatly.
It was like when they asked my grandfather how he felt after my aunt divorced my uncle. He said, “I feel just the way I did when they lanced my carbuncle.” I had a carbuncle. My fiduciary gene was giving me pain, and I lanced the carbuncle and I just lived on my own money. No fees, no overrides, no salary. Just seemed more manly to do when I knew it would work.