Berkshire Hathaway's Charlie Munger, who has worked alongside Warren Buffett for several decades, made a private investment in a Melbourne-based investment company because its founder is a "soulmate" to the conglomerate.
Munger, vice chairman of Berkshire Hathaway, invested recently in Stonehouse Corporation, an investment company that has flown under the radar and is operated by Charles Jennings, an American who lives in Australia. His strategy has been to mirror the conglomerate's policy of buying and holding businesses for several years.
The right-hand man of Buffett, Munger made the investment with his own personal wealth because Jennings operates in a similar fashion to Berkshire's employees, the billionaire told the Financial Review in Australia.
"I got interested in one Australian because I think he’s very much like the kind of people that are in Berkshire," Munger said. "Berkshire and Jennings are quite similar. He’s picky and manages things well. He has a mindset very much like ours."
Munger did not disclose the amount of the investment in Stonehouse, but said the company could seek deals in Australia more easily compared to the U.S. where buyers have to compete with conglomerates like Berkshire and private and venture capitalists.
With a net worth of $2 billion based on the calculation by Forbes, Munger hopes his new partnership will help put Stonehouse on the radar for companies planning to sell themselves.
"I did it because I admired him, and he’s a rare type and I thought it would help him," Munger said. "My experience has been that if I meet good people and get to know them and like them and help them a little bit, maybe someday it helps me or Berkshire."
Berkshire typically acquires a company because "the seller wants a good home and knows that Berkshire will be a good place for his employees who are transferred with the business will be fairly treated,” Munger said.
The business acumen of Jennings follows Berkshire's outlook on mergers and acquisitions.
"Jennings is operating the same way," Munger said. "He’s seeking a good home for these Australian businesses. It’s the Berkshire playbook all over again. You can see where I recognize the kindred spirit."
What he admires about Jennings is that the CEO follows a strategy that is similar to Berkshire Hathaway - conducting deals occasionally instead of following a more active buying and selling strategy like the private equity market.
Founded in 2012, Stonehouse has acquired only three businesses - Goldners Horse Transport, portable cooling manufacturer and distributor EvaKool and Prestige Plants, a supplier of high-quality plants in Australia.
"He’s got just three big businesses in 12 years," Munger said. "Berkshire’s top 40 deals in its whole history amount for most of our achievement. Life is a game where you work very hard and deal only occasionally.”
Jennings purchased companies that have "a pretty extreme decentralisation, which is very much like Berkshire,” Munger said. “It’s very hard to acquire unrelated companies, earn a higher return on capital and pay market prices for them. Most people who try and do that, fail."
Both Berkshire and Stonehouse have been successful in their acquistions is because they are "careful" in conducting due diligence of the companies and also limit the number of purchases, citing "we don’t do it very often."
Jennings said he views Munger as his “investment guru” and has attended Berkshire’s annual shareholder meetings since the 1990s. The company has “dry powder” to purchase more companies and manages $120 million of capital for the endowments of the University of Sydney and the University of Chicago and high net worth individuals.
“Having Charlie become involved in our business has been surreal,” Jennings told the Financial Review.
Munger also discussed his outlooks on the economy, oil, renewable energy and cryptocurrency with the Financial Review.
