Munger and Buffettisms

I am currently making my way through Poor Charlie's Almanack, a collection of the writings and musings of Charlie Munger, the other genius behind the success of Berkshire Hathaway (BH), the guy who reoriented Buffett away from Benjamin Graham-style value investing towards picking great businesses, a style of/factor within investing that quantitative research has subsequently distilled, roughly, into what is known as "quality."

It is unquestionably a good read, and Munger a wise guy. In some ways reading it institutionalizes the wisdom of the prior generation of Republicans we loved, the guys like Mary's dad George Sr. or my mom's second husband David with whom we would argue over politics at the dinner table but who we knew were at their core super-solid human beings who worked their butts off and loved their families and communities and were tolerant of others. They just like low taxes and didn't view government as the best capital allocator.

But often as Buffett and Munger differentiate Berkshire Hathaway culture from that of other market participants (mutual funds, other corporations), their moralism and superiority can be grating. We have to remember they are -- like all investment managers -- talking their book, and that they are, like Vanguard, an example of a company and a culture which have been at once very successful, forces for good, but also genius marketers, which as a matter of course entails a tendency towards simplification that veers towards obscurantism. In the case of each of them, they write very little. Which I get, because they are not writers and writing is probably not the highest and best use of their time. But it means that when they do write, they are in such a rush to get it out that the gloss over a lot.

In a 1994 address to a class at USC's Business School, Munger talks about what made GEICO so great, which was a culture which focused on cutting out things that didn't work, until they got to the things that did work. OK. In fact we know from Buffett's letters over the years and from our own eyes that have been a number of things that contributed to GEICO's success. It perfected direct marketing (presumably in Munger's eyes that meant throwing away layers of sales force and support thereof), which in recent years means they have reinvented television advertising in an entirely unique way: if you see a commercial and it seems surreal and absurd, you know that in the end it will be selling GEICO. Also Lou Simpson, which managed its portfolio for 30 years, was as good an investor as Buffett and Munger, or at least in the same class, a fact that Buffett extols at length over the years.

Also, there is a moralistic didacticism in Munger's tone, and at times in Buffett's, but they are not always pure as the driven snow. A few instances

• In 2002 Gen Re, a BH subsidiary, was on the other side of the finite reinsurance scandal that eventually brought down Maurice Greenberg from the helm of AIG, leaving it organizationally weak (which was Greenberg's fault) and open to the type of mismanagement that allowed AIG Financial Products to happen in the run up to the financial crisis. The scandal stuck to Greenberg, but not BH
• There was the affair of Dave Sokol, one of the potential heirs to the throne at BH, but was bounced out in the mid-oughts after he broke some laws. BH basically buried that episode to the best extent possible
• More recently, there's been the disastrous transaction with 3G's acquisition of Kraft-Heinz and the zero-based budgeting that eviscerated its brands

I see I gotta get Graham somewhere. Anyway, Buffett and Munger ain't perfect but they do still kick ass and share wisdom, so it's worth reading them.