Buffett's Most Important Partner

Buffett considered renaming his helicopter 'Charlie Munger' in tribute to him. Buffett said, 'I have fallen in love with this helicopter and want it to be buried with me.' However, Buffett remembered Munger's advice. When Buffett acquired NetJets in 1998, he sold the helicopter.

Another reason Buffett admires Munger is that besides respecting Benjamin Franklin, Munger possesses qualities, knowledge, ethics, and virtues unique to intellectuals. 

Buffett said, 'When we discuss investment topics, Munger doesn't hesitate to express his views, despite me being a genius investor. He fearlessly engages in constructive debates.'

Among all the high-IQ people I know, only Munger has this quality. I haven't seen anyone better than Munger in value investing,' said Buffett.

Inspired by Buffett's remark that 'Investing is more fun than law,' Munger set up his own investment fund in 1962 and started his journey as an investor. However, his relationship with Buffett had a deeper connection.

In the late 1960s, when they were purchasing Blue Chip Stamps' stock, Buffett bought the stock through Berkshire Hathaway and purchased it in his capacity. This company was one of the diversified retail companies left behind by Buffett and Berkshire when they dissolved their partnership.

Blue Chip Stamps provided a service where they collected stamps from supermarkets and gas stations in exchange for points. Consumers could use these points to redeem household appliances like toasters, and supermarkets actively promoted and issued stamps to boost sales. Blue Chip Stamps used the fees from issuing exchange cards to invest in securities, generating additional income. Blue Chip Stamps could freely utilize the fees before consumers exchanged the stamps and points for goods.

Moreover, as people often lost stamp collection cards, Blue Chip Stamps had endless business opportunities.

During the 1960s to 1970s, Buffett was the largest shareholder of Blue-Chip Stamps, with Munger as the second largest. This partnership fostered a strong friendship, and they engaged in various analyses and acquisitions. For example, in 1972, they jointly acquired See's Candies Group through Blue Chip Stamps for $25 million. It was Buffett's most significant investment at that time. They subsequently acquired Wesco Financial Corporation, a savings and loan institution (S&L), and The Buffalo News.

The acquisition of See's Candies was a significant turning point for Buffett. According to his mentor Graham's value investing principles, an investment must have sufficient safety, and the stock price must be below the net asset value, which is the total assets minus liabilities. This is equivalent to the shareholders' equity; in other words, the amount that would be paid to shareholders if the company were to be dissolved, thus known as the "liquidation value."

During the acquisition of See's Candies, Munger's most significant influence on Buffett was encouraging him to invest three times more money than he initially intended. Munger believed that buying exceptional businesses at a low price was better than purchasing poor ones. This was a concept that Graham's theory couldn't fully comprehend.

As a result, in 1978, Buffett and Munger became official partners. That year, Berkshire Hathaway also merged with Buffett's holdings of 56% in diversified retail companies. The new structure had Buffett's holdings making up 13% and Berkshire Hathaway holding 58% of Blue Chip Stamps. In the same year, Buffett, as a major shareholder, brought Munger, the chairman of Blue Chip Stamps, into Berkshire Hathaway as Vice Chairman. From that year onwards, these two exceptional investors steered the most dazzling investment achievements of the 20th century.