Like a steel bank vault door, the arched portals of the Omaha Club swung closed behind the bankers and insurance men and railroad executives of the city as George, the black doorman, welcomed them inside. The men loitered by the tiled fireplace in the front hall, chatting until the women entered through a separate side door in the building’s Italian Renaissance facade to join them. The assembled parties ascended the curving mahogany staircase to the second floor, passing on the way the life-size painting of a Scotsman catching a trout in a stream. The Omaha Club was where the town came to dance, to raise money, to get married, and to celebrate anniversaries. But above all, it was where the town came to do business, for at its tables you were left to talk in peace.
One summer Friday in 1959, Buffett strode through the club’s entrance to have lunch with two of his partners, Neal Davis and his brother-in-law Lee Seeman, who had arranged for him to meet Davis’s best friend since childhood. It was Neal’s father, Dr. Eddie Davis, who had said to Warren, “You remind me of Charlie Munger” when the Davises had joined the partnership. Now Munger was in town to settle his father’s estate.1
Munger knew only a few facts about the crew-cut Buffett kid, six years his junior.2 But, consistent with his expectations of life in general, his expectations of this meeting were not high. He had developed the habit of expecting little so as never to be disappointed. And rarely did Charles T. Munger meet anyone to whom he enjoyed listening as much as himself.
The Mungers had started in poverty, but by the latter part of the nineteenth century, T. C. Munger, Charlie’s grandfather, a federal judge, had brought the family to prominence, welcome in every drawing room in Omaha—rather than only at the back door, delivering groceries, like the Buffetts. Judge Munger, an iron disciplinarian, had forced the whole family to read Robinson Crusoe to absorb the book’s portrayal of the conquest of nature through discipline. He was known for giving longer jury instructions than any judge in the middle west.3 He liked to lecture his relatives on the virtue of saving and the vices of gambling and saloons.
Judge Munger’s son Al followed his father into the law, becoming a respectable but not rich attorney who counted among his clients the Omaha World-Herald and other important local institutions. Lighthearted, unlike his father, he was often seen enjoying a pipe, hunting, or catching a fish. His son later said of him that Al Munger “achieved exactly what he wished to achieve, no more or less … with less fuss than either his father or his son, each of whom spent considerable time foreseeing troubles that never happened.”4
Al’s wife, the beautiful, witty Florence “Toody” Russell, came from another clan raised on duty and moral rectitude, an enterprising family of New England intellectuals known for what Charlie referred to as “plenty of plain living and high thinking.”
Al and Toody Munger had three children: Charles, Carol, and Mary. A photograph of Charlie as an infant shows him already wearing the petulant expression so typical of him later in life. At Dundee Elementary School, his most prominent features were a pair of huge elfin ears and, when he chose to reveal it, a broad smile. He was recognized as intelligent, “lively,” and “too independent-minded to bow down to meet certain teachers’ expectations,” according to his sister Carol Estabrook.5 “Smart, and a smarty,” is how the Mungers’ neighbor Dorothy Davis recalls Charlie from his earliest childhood.6 Mrs. Davis tried to control Charlie’s influence on her son, Neal, but nothing tamed Charlie’s mouth, not even the sight of her with a switch in her hand, coming after the boys to lash their bare calves.
Warren had borne the indignities of childhood with only brief rebellion before learning to hide his misery and adopt artful strategies to cope. Too proud to submit, Charlie suffered through the woes of youth by employing his talent for wounding sarcasm. At Central High School, he gained the nickname “Brains” and a reputation for hyperactiveness—and for being aloof.7
From a family that treasured learning, he grew up intellectually ambitious and enrolled in the University of Michigan at seventeen, majoring in mathematics. He enlisted in the Army a year after Pearl Harbor, halfway through his sophomore year. While in the service he attended the University of New Mexico and California Institute of Technology for credits in meteorology, though he never actually graduated. After more coursework he worked in Nome, Alaska, as an Army meteorologist. Later, Munger would make a point of saying that he never saw active duty and would emphasize his luck in having been stationed out of harm’s way. The main risk that he took was financial: He augmented his Army pay by playing poker. He found he was good at it. It turned out to be his version of the racetrack. He said he learned to fold fast when odds were bad and bet heavily when they were good, lessons he would use to advantage later in life.
With the help of well-oiled family connections, he brazened his way into Harvard Law School after the war without ever having finished his undergraduate degree.8 By then he was married to Nancy Huggins, an impulsive match entered into when he was twenty-one and she nineteen. He had sprouted into a medium-height, well-dressed young man whose close-cut dark hair and alert eyes gave him a polished look. But his most prominent feature—apart from his ears, now only slightly winged from his skull—was a hallmark skeptical expression. He wore it often while racing through Harvard—without learning anything, he says.9
Nancy was “willful, indulged,” says her daughter Molly, not exactly ideal traits given her new husband’s temperament.10 Within a few years their marriage was in trouble. Nonetheless, after Harvard they hightailed it back to her hometown with their son, Teddy, and settled in Pasadena, California, where Charlie became a successful lawyer.
By 1953, after three children and eight years of incompatibility, fighting, and misery, Munger found himself divorcing at a time when divorce was a disgrace. Despite their problems, he and Nancy worked out a civilized arrangement regarding their son and two daughters. Munger moved into a room at the University Club, bought a dented yellow Pontiac with a bad paint job “to discourage gold diggers,” and became a devoted Saturday father.11 Then, within a year of the separation, Teddy, now eight years old, was diagnosed with leukemia. Munger and his ex-wife scoured the medical community but quickly discovered the disease was incurable. They sat in the leukemia ward with the other parents and grandparents in different stages of watching their children waste away.12
Teddy was in and out of the hospital often. Charlie would visit, hold him in his arms, then walk the streets of Pasadena, weeping. He found the combination of his failed marriage and his son’s terminal illness almost unbearable. The loneliness of living as a divorced single father also chafed at him. He felt a failure without an intact family, and wanted to live surrounded by children.
When things went wrong, Munger would set out toward new goals rather than let himself dwell on the negative.13 That could come across as pragmatic, or even callous, but he viewed it as keeping the horizon in sight. “You should never, when facing some unbelievable tragedy, let one tragedy increase into two or three through your failure of will,” he would later say.14
So even as he cared for his dying son, Munger decided to marry again. His analysis of the odds of a successful match made him pessimistic, however.
“Charlie was despairing over whether he would ever meet anyone else. ‘How can I find somebody? Out of twenty million people in California, half are women. Of these ten million, only two million are of an appropriate age. From that group, a million and a half would be married, leaving five hundred thousand. Three hundred thousand of them are too dumb, fifty thousand are too smart, and of the remaining hundred fifty thousand, the number I would want to marry would fit on a basketball court. I’ve got to find one of those. And then I’ve got to be on her basketball court.’ ”
Munger’s mental habit of setting low expectations was well established. He equated this with the route to happiness, since he felt that high expectations led to fault-finding. Low expectations made it harder to be disappointed. Paradoxically, however, they could also confound success.
Out of desperation, Munger started reviewing divorce and death notices to find newly single women. That got his friends’ attention. Thinking this pathetic, they began to intervene. One of his law partners came up with another Nancy, a divorcée with two young boys. Nancy Barry Borthwick, a petite brunette, played tennis avidly, skied, and golfed. She was also a Phi Beta Kappa economics graduate of Stanford.
On their first date he warned her, “I’m didactic.” The thought of a man infected by the urge to preach failed to put Nancy off, which augured well for their relationship. They started taking their children on outings. At first Teddy went along with them, but he soon became too ill. Later, thirty-one-year-old Charlie spent much of his son’s final weeks sitting by Teddy’s bedside. By the time Teddy died in 1955 at age nine, Charlie had lost between ten and fifteen pounds. “I can’t imagine any experience in life worse than losing a child inch by inch,” he said later.15
Charlie married Nancy Borthwick in January 1956. She quickly became his ballast. Nancy had moxie, pricking Charlie’s balloon without hesitation when it inflated with too much hot air. She was an excellent manager, observant, calm, reasonable, and practical. Nancy curbed his caprices when Charlie took off on occasional bolts of impulsiveness. In time, they added three sons and a daughter to his two girls and her two boys. She set about raising eight children while keeping house and taking care of Charlie.16 He became known to his children as a “book with legs,” constantly studying science and the achievements of great men. Meanwhile, he continued seeking his fortune at the law firm of Musick, Peeler & Garrett, but realized that the law would not make him rich. He began to develop some profitable sidelines. “Charlie, as a very young lawyer, was probably getting $20 an hour. He thought to himself, ‘Who’s my most valuable client?’ And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning, working on these construction projects and real estate deals. Everybody should do this, be the client, and then work for other people, too, and sell yourself an hour a day.”
“I had a considerable passion to get rich,” Munger said. “Not because I wanted Ferraris—I wanted the independence. I desperately wanted it. I thought it was undignified to have to send invoices to other people. I don’t know where I got that notion from, but I had it.”17 He saw himself as the gentleman squire. Money wasn’t a competition to him. He wanted to join the right clubs but he didn’t care whether the other members were richer than him. Beneath the surface arrogance, his deep respect for authentic achievement gave him a genuine humility that would be crucial in forming a relationship with the man he was about to meet.
That man who sat across from him in a private room of the Omaha Club and started to talk was dressed like a youngish salesman come to sell insurance to the gentleman squire. The worldly Munger by now was well ensconced in Los Angeles business and society, and looked the part. As soon as the Davises and Seemans had made the introductions, however, the two fell into a tête-à-tête. Charlie allowed that he had actually “slaved” a short stint at the Buffett grocery store, where “you were just goddamn busy from the first hour of morning until night.”18 Ernest had let the sons of favored customers like Toody Munger loaf, however, at least compared to the rest of the beleaguered clerks.19 After the pleasantries, the conversation picked up speed and the rest of the party listened, rapt, as Warren began to talk about investing and Ben Graham. Charlie grasped the concepts right away. “He had spent plenty of time thinking about investing and business by then,” Buffett says.
He told Charlie the story of National American insurance. Munger had gone to Central High with Howard and Hayden Ahmanson. He was amazed that someone like Buffett, who was not from California, could know so much about the Ahmansons and their savings and loan. Before long, the two men were talking simultaneously, yet they seemed to understand each other perfectly.20 After a while, Charlie asked, “Warren, what do you do specifically?”
Well, I’ve got these partnerships, Buffett explained, and I do this, and this, and that. In 1957, he said, his partnerships had earned over ten percent in a year when the market had declined over eight percent. The next year the partnerships’ investments had risen more than forty percent in value.21 Buffett’s fees so far from managing the partnerships, reinvested, came to $83,085. These fees had mushroomed his initial contribution of only $700—$100 contributed to each of the seven partnerships22—into a stake worth 9.5 percent of the combined value of all the partnerships. Moreover, his performance was well on its way to beating the Dow again in 1959, which would make him richer still and raise his stake again. Meanwhile, his investors were thrilled; new partners kept joining. Charlie listened. Eventually he asked, “Do you think that I could do something like that out in California?” Warren paused for a moment and looked at him. This was an unconventional question coming from a successful Los Angeles lawyer. “Yeah,” he said, “I’m quite sure you could do it.”23 As the luncheon wound its way to an end, the Seemans and the Davises decided it was time to go. When they got on the elevator, their last sight was of Buffett and Munger, still sitting at the table, engrossed.24
A few nights later, the two men took their wives to Johnny’s Café, a red-velvet steak joint, where Munger became so self-intoxicated at one of his own jokes that he slipped out of the booth and began rolling on the floor with laughter. When the Mungers returned to Los Angeles, the conversation continued in installments, the two men talking on the phone for an hour or two with increasing frequency. Buffett, once obsessed with Ping-Pong, had found something far more interesting.
“Why are you paying so much attention to him?” Nancy asked her husband.
“You don’t understand,” said Charlie. “That is no ordinary human being.”25