Charlie Munger died on Tuesday at 99. Best known as Warren Buffett’s sidekick at Berkshire Hathaway (BRK.A, BRK.B), his official title at the $790 billion holding company was Vice Chairman. He served in that capacity since 1978.
In addition to his work with Berkshire, he was a director of Costco (COST) and the Daily Journal Corporation (DJCO) for 27 and 46 years, respectively. At the time of Munger’s death, his holdings in these three companies totaled $2.33 billion.
While Berkshire stock accounted for most of Munger’s wealth, he had a soft spot for Costco and Daily Journal. Only in March 2022 did the formally trained lawyer step down as Chairman of DJCO. However, like the true professional he was, he stayed on as a director until his death.
“‘I love everything about Costco,’ Munger said during The Daily Journal's annual shareholder meeting back in February, ‘I'm a total addict, and I'm never going to sell a share,’” Yahoo Finance reported Munger’s comments.
Daily Journal is the smallest by market cap at $440 million of the three stocks—more than anything that disqualifies it from consideration as Munger’s best bet.
That leaves Berkshire Hathaway and Costco.
Which was Munger’s best bet?
The Answer Is Obvious. Or Is It?
From a purely financial standpoint, I don't think there's any question that Berkshire Hathaway has had the most significant influence on Munger’s life. According to TheStreet.com, Munger had 18,829 Class A Berkshire shares in 1996. His net worth could have been five times larger if he hadn’t given away many of those shares for his philanthropic work in education and healthcare.
However, before crowning Berkshire the better bet of the two, let’s consider what Munger’s return on investment was for the wholesale club’s stock.
As of Oct. 22, Munger held 167,615 Costco shares personally and another 19,565 through the Alfred C. Munger Foundation, named for his father, Alfred Case Munger, also a lawyer. For this exercise, I’ve included both in the $2.33 billion value from earlier.
The 187,669 Costco shares are worth approximately $110.7 million. Munger joined the Costco board in January 1997. By the end of November 1997, he owned 83,884 shares of its stock. In November 1999, Munger owned 99,884 shares, which included 24,000 options to buy. In 2000, its shares split on a 2-for-1 basis. His share count as of Nov. 30, 2000, was 151,768 (excluding options).
Over the next 23 years, Munger exercised and sold many options, netting himself a nice profit. Determining how many shares he held at the height of his ownership is difficult, given the intermingling of these options.
My best guess would be at the end of 2010, when Munger held 203,268 shares, excluding options and restricted stock units (RSUs). Today, those shares would be worth about $120 million, slightly more than the actual $110 million.
Based on a high price of $39.63 in 1997, and a low of $24.13, I’ll suggest Munger paid $31.88 a share for the 83,884 bought in his first year as a director. That’s an outlay of $2.67 million.
Those shares today would be worth $99 million (83,884 * 2 (2-for-1 split) * $590 (share price), a compound annual growth rate (CAGR) of 16.3%, more than double the S&P 500’s 6.9% CAGR.
I’d say that’s pretty good.
What About Berkshire?
That’s even tougher to calculate.
While Munger became Vice Chairman in 1978, his financial investment in Berkshire didn’t begin in earnest until Diversified Retailing (Dec. 1978) and Blue Chip Stamps (July 1983) were merged into Berkshire.
Munger had been running Blue Chip Stamps for his partnership with Berkshire, Buffett, and Rick Guerin. It owned See’s Candies, Pinkerton’s, and some other businesses.
In July 1983, Berkshire acquired the remaining 40% of Blue Chip that it didn’t own, exchanging 0.077 shares of Berkshire for each share held in Blue Chip. That permanently brought Munger under the Berkshire umbrella with some stock to show for his efforts.
From there, Munger ran Berkshire’s Wesco Financial subsidiary, which it took control of in 1983 with 80% ownership. Two companies Wesco owned shares in at the time were General Foods and R.J. Reynolds. It was a major web of businesses.
Without the proxies from the late 70s and early 80s, it’s impossible to calculate Munger’s return on Berkshire. But I’m going to do it anyway.
Let’s assume that Munger got half the 18,829 Class A shares he had in 1996 -- the most he’s supposedly ever owned -- from the Blue Chip-Berkshire merger in 1983. Berkshire Class A shares averaged $1,029.74 in 1983. Given the merger was an all-stock deal, there was no cash outlay, but for this calculation, the cost was $9.7 million (18,829*0.5*$1,029.74).
Secondly, let’s assume that he bought the rest in 1996, when the average Class A share price was $33,500, for an outlay of $315.4 million (18,829*0.5*33,500).
Therefore, Munger theoretically spent $325.1 million for 18,829 shares, an average price of $17,265.63. Over 40 years (1983-2023), the compound annual rate is 9.0%, a little more than half the Costco CAGR.
This was a very back-of-the-napkin exercise. I’m sure the actual numbers aren’t nearly as distorted against Berkshire Hathaway, although Buffett’s best returns were in the 70s and 80s.
Either way, Munger lived one heck of a life. All will fondly remember him. I know I will.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
