B000U5KFIC EBOK (20 page)

Charlie changed, the profession of law was changing, but even if he
had stayed in the practice, he probably would have been dissatisfied.
There is now more money to be made from law, but less time to enjoy it.

"I think many lawyers now have love-hate relationships with themselves and their profession and it is definitely the case now that you really
have to work very hard to have traditional relationships with your
clients," said Borthwick. "Because things have really changed a lot in law
practice. It is now a business where you have to he a good lawyer and a
good businessperson to survive. Before, you could just be a nice person
with a good sense of values."

Borthwick, a member of Charlie's hang out, the California Club, says
that 20 to 25 years earlier, after lunch the club lounges were full of men
playing cards or dominoes. Today there is practically nobody there in the
early afternoon. The lawyers and brokers and other professional people
often take lunch at their desks, or if they do go out it is for a business
lunch and they rush back to their offices as soon as possible. "It's a different deal now," said Borthwick. "The gentility has gone out of these things
and you have to make the best with a limited amount of time."

Although Munger is disassociated from the profession of law, his connection with his former firm remains solid.

"You know, even though he hasn't drawn any income out of that firm
for probably 35 years, he's always had his name on the door, he's always
had an office there or near," Borthwick continued. "He's used that firm
heavily. He's just changed his relationship to the firm. He's a client instead of a lawyer."

Ron Olson says that the lawyers at MTO consider Munger a resource
as well as a client. The lawyers gather for lunch in the office's cafeteria three times a week, and on Mondays they bring in an outside speaker. The
speakers have included the mayor of Los Angeles, a writer for the television show Frasier, Robert Kenney, Jr., and of course, Munger. "He will
periodically be asked to talk to the assembled lawyers. He does this about
once a year. We have yearly retreats to discuss longer term issues, and he
has participated in those as a panelist. He's part of our social life. He
comes to the annual holiday party."

And because Berkshire Hathaway leases office space there for Charlie
to use, "He's physically here, very accessible, his door is always open. He
likes it, is stimulated by it. He loves to think about problems."

As for Munger's name still being on the door, Bob Denham said,
"From the firm's standpoint, it would be crazy to change it. From Charlie's point of view, it gives him a certain satisfaction."

As HIS LAW CAREER WAS PHASING. OUT, Munger discarded the elements from
his life that no longer worked for him, and built upon those he found
valuable. Relationships with his colleagues continued to be central to his
success.

When Molly Munger returned to Los Angeles to begin her own legal
career, she said, "The law firm was up and running. It was prestigious. I
quickly learned it was a very hot firm. I've benefitted my whole career
from being Molly Munger. Nobody in my business life realized my father
wasn't over at Munger, Tolles practicing law."

Molly once thanked the managing partner at Munger, Tolles for building such a respected firm, one that even though she didn't work there,
allowed her to walk proudly in its reflected light.

"It's okay," said the lawyer. "In the early days, Charlie put me in his
business deals. I think we're square."

The opulence at the head office is often inversely related to
the financial substance of the firm.

Charlie Munger, paraphrasing Parkinson

'r-. USED TO PLAY cc>u' in a pick-up foursome. You know how personable and charming Charlie can be," said one of his earliest
business partners, Al Marshall. He and Charlie would meet someone new
and the four of them would have a great game of golf. "The next day we'd
be in the elevator at the office, and one of those golfers would get on the
elevator and say hello to us. Charlie would just stare straight ahead.

"Why didn't you say hello to that guy?" asked Marshall.

"What guy?"

"The guy we played golf with yesterday," Marshall explained.

"Oh. I didn't see him," Charlie replied.

"This was even before he had his eye operation," said Marshall. People sometimes became angry at Charlie when he seemed to ignore them,
especially members of the California Club or the Los Angeles Country
Club, places where members don't expect to be snubbed. Marshall, usually without success, would explain to the offended party that Munger did
not act with malice, but simply was lost in a world of his own thoughts.
But, conceded Marshall, Charlie also occasionally needled people consciously, subtly, and with a purpose in mind.

"We used to play golf with this Army officer, a West Point guy," recalled Marshall. A few moments before the officer was to address the ball,
out of the clear blue sky, Charlie commented, "I don't know, but I think a little communism is good for the military." The West Pointer's face reddened and he missed his putt.

WHEN THE 1960s dAWNED, the young John F. Kennedy was the newly
elected president of the United States and the Viet Nam War was still a
whisper in the back halls of the Pentagon. Charlie Munger was 36 years
old, practicing law and was in the midst of promising real estate development projects. The connection he had made with money manager Warren
Buffett proved deep and abiding, and Buffett assured Munger that he, too,
could earn a living as an independent investor. Charlie realized, however,
that he would be taking a big risk.

When he'd ventured into real estate, said Munger, The situation
seemed less risky. "I never thought I'd lose everything. Real estate took
leverage, but the development process always had risk limits in place. The
big loans had clauses that we'd guarantee completion, but we didn't have
to pay the money back if the completed project couldn't be sold above
cost." In case the condominiums didn't sell, the bank might take ownership of the property and Munger would be dented but he would not be ruined. However, Munger was not satisfied with his dual career as a member
of a new law firm and a real estate developer. In 1962, Munger made the
commitment to spend at least part of his time acting as a professional investor using other people's funds. He took the step that Buffett had repeatedly suggested to him. Charlie, along with his poker pal and legal
client, Jack Wheeler, established Wheeler, Munger & Company, an investment partnership similar in format to Buffett's partnership. Wheeler, a
Yale graduate, was by profession a stock exchange floor trader and a coowner of two specialist posts at the Pacific Coast Stock Exchange.

Wheeler, Munger acquired the specialists posts, locations on the exchange floor where buy and sell orders are called out and trades are
made. The posts help smooth out the market, making certain that there
are ready buyers and sellers for listed securities. Often, one post is the exclusive market-maker for a particular stock, and in that case, owning a
post can be highly profitable. The posts generated a generous amount of
excess income and when that was combined with the capital Charlie
raised from family, friends, and former clients, there were funds well
above those needed for trading. It was Charlie's job, with help from his
law partner Roy Tolles, to invest the excess capital.

Wheeler, Munger, and many of the people at the Pacific Coast Stock
Exchange were small operators who purchased memberships so that they
could maximize their trading profits.

"In the 1960s there was a fixed commission system," said Rick
Guerin. "The only way to beat that was to be a member of the stock exchange. You could then trade without commission. Those little costs are
significant."

It was a low-budget, make-do arrangement. Wheeler and Munger
worked out of a tiny mezzanine office at the stock exchange, which was
on Spring Street amid the headquarters of major financial institutions,
but also very near the Skid Row section of Los Angeles. Munger and his
partner shared it pipe-riddled, but larger front office while their secretary
worked in a tiny private room in the hack, adjacent to the toilet. The entire office suite had only two windows, each looking out over a grubby
alley. It suited Munger because the rent was cheap, $150 per month with
all utilities included.

The penny-pinching wasn't entirely necessary. When Wheeler,
Munger was formed, Munger had accumulated a net worth of about
$300,000, which was more than 10 times his annual rate of personal expenditure. A fair amount of the money had come from investments in
securities.

By the time Charlie started Wheeler, Munger, he and Buffett were
talking often, discussing approaches and spinning investment ideas by
one another. Nevertheless, Jack Wheeler was Munger's first formal partner in the securities game. Before and after this, Munger also invested informally with others, among them, Rick Guerin and Roy Tolles. He met
Guerin while he and Wheeler were setting up their business.

"In 1961 it friend called and said he was going to buy into a downtown (LA) trading firm because someone was selling out," said Guerin.
Rick decided that he too would join in the investment and would help run
the company.

The seller was Jack Wheeler who was disposing of his portion of
Wheeler, Cruttenden & Company because he planned to go into a new
arrangement managing money with Charlie Munger. When Guerin arrived to settle the deal, Munger was present. They started to talk. "I was
just going to this meeting for the closing. I was going to deliver a check
and take a stock certificate. We were joking with Munger, when this light
went on in my brain. `I'm on the wrong side of this transaction.' "

Guerin realized he wanted to be where Wheeler was going, not
where he had been. Guerin's intuition was correct. In part, Wheeler was
selling his interest because he was not seeing eye-to-eye with his partner.
Arrangements between investment partners are tricky and rely on a combination of brains, judgment, and trustworthiness. If partners are incompatible in any of these areas, even a small issue grates like sand in a shoe. Munger had advised Wheeler to simply get out of his former arrangement
and concentrate full-time on Wheeler, Munger. Using the only $40,000 he
then had, Guerin bought into the less promising half of a splitting partnership and later lost the entire investment.

"But by then," said Munger, "he'd learned a lot and was doing
very well."

WITH THE ADVENT OF WHEELER, MUNGER, Charlie's business life took on a
new direction, as did his social life.

"Charlie started to go down to the stock exchange very early every
day," said Buffett. "First he would check the hoard, then he and his
friends would roll dice to see who would pay for breakfast. They had a
ritual of eating breakfast at the Stock Exchange Club on the top floor of
the Stock Exchange Building. Rick had some fairly modest job there but
was always listening in. In it sense, he was attending class."