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Charlie Munger

Charlie Munger Pockets $70,000 a Year From a $1,000 Investment He Made in 1962 - And Has Likely Raked in Over $1 Million in Total

Charlie Munger Pockets $70,000 a Year From a $1,000 Investment He Made in 1962 – And Has Likely Raked in Over $1 Million in Total

In a remarkable display of the power of long-term investing, Charlie Munger, the esteemed business partner of Warren Buffett, has been cashing in on a $1,000 investment he made over six decades ago. 

Charlie Munger Pockets $70,000 a Year From a $1,000 Investment He Made in 1962 - And Has Likely Raked in Over $1 Million in Total
Image Source: finance.yahoo.com

During Berkshire Hathaway’s annual shareholder meeting, Munger disclosed the details of his lucrative oil royalty investment, which now nets him a cool $70,000 yearly, possibly accumulating to over $1 million in total earnings.

The story of Munger’s savvy investment began in 1962 when he crossed paths with a businessman named Al Marshall during a husband-and-wife golf tournament. At the third hole, Marshall divulged his plan to participate in a local oil royalty auction. Munger, known for his candidness, immediately offered his perspective, stating, “You’re doing it all wrong.”

Munger didn’t stop at offering advice; he joined Marshall’s bid, bringing his expertise to manage the intricate legal and financial aspects of their purchases. His investment was structured using an ABC trust, a tax shelter that has since been prohibited.

Marshall, reflecting on the investment, revealed in Janet Lowe’s book, “Damn Right!: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger,” “We only put up $1,000 each and we’ve each probably made a half a million out of it.”

Munger himself corroborated the story during Daily Journal’s shareholder meeting in 2016, shedding light on the unusual dynamics of the oil royalty market. “I soon realized that under the peculiar rules of an idiot civilization, the only people who were going to bid for these oil royalties were oil royalty brokers, who were a scroungy, dishonorable, cheap bunch of bastards who realized that nobody would ever bid at their price,” he quipped.

While the exact annual income from these royalties might vary—ranging from $70,000 to $100,000—Munger’s substantial earnings over the years are undeniable. This passive income stream partly explains why Munger has accepted a modest $100,000 salary from Berkshire Hathaway for many decades. Furthermore, he maintains most of his approximately $2 billion fortune in Berkshire stock, which doesn’t pay dividends.

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Warren Buffett added another intriguing layer to the story during the same shareholder meeting. He disclosed that Munger isn’t the only one benefiting from age-old oil royalties within their circle. Buffett’s own father invested $1,000 to $1,500 in similar royalties before his passing. Today, these royalties are held by Buffett’s younger sister, who continues to receive monthly checks, reinforcing the enduring appeal of such investments.

Charlie Munger’s journey from a $1,000 investment to a consistent annual income of $70,000 exemplifies the remarkable potential of long-term investments and the power of compounding. It serves as a valuable reminder that in the world of finance, patience and astute decision-making can yield incredible rewards over time.

Charlie Munger

Charlie Munger: The Mind Behind Berkshire Hathaway’s Triumphs

Charlie Munger, born in 1924, is the vice chairman and right-hand man of Buffett. Warren Buffett, a well-known investor, is the head of Berkshire Hathaway which is a “354.6 billion dollar” multinational corporation with its headquarters in Omaha, Nebraska.

Charlie Munger
Image Source: finance.yahoo.com

Charlie Munger has played a crucial role in the development of Berkshire into a massive, broadened holding corporation with subdivisions engaged in insurance, goods railway transportation, energy generation or distribution, production, and the retail sector. Munger has been Buffett’s very close partner in business and the right-hand man for over forty years.

Munger is Chairman of the Daily Journal Corporation Board, an authorized publisher based in Los Angeles with a software company that operates in the automated legal reporting sector, along with working as an independent director in Costco Wholesale Corp.

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He led Wesco Financial Company, a Berkshire Hathaway affiliate, as its chairman and chief executive officer from 1984 until 2011.

In 1959, Munger and Buffet first crossed paths at a dinner in Omaha, and they remained in contact over the years while Munger kept practicing real estate law and Buffett built his investing company.

On Buffett’s recommendation, Charlie Munger quit his law practice in the 1960s to focus on handling assets, including collaboration on real estate advancement with the wealthy newspaper executive Franklin Otis Booth.

Before joining Berkshire, Munger owned and operated his own investment company, which produced compound yearly gains of 19.8 percent between 1962 to 1975, a significant improvement over the Dow’s 5 percent annual growth rate throughout that period.

Buffett has long been a good investor, actively looking for and analyzing stocks that are trading below their actual worth. He learned this approach via his instructor, Benjamin Graham.

According to Buffett, he started his professional life as a type of cigar-butt investor, and Munger was the one who recognized the folly of that strategy long before he did.

Working with Charlie Munger, he eventually understood that a struggling company’s cheap price frequently turned out to be a fake bargain in the end, while any initial gain would be quickly diminished by low returns.

Munger and Buffett prefer to spend their money on a wonderful company for $1.25, which is presently worth $1 but certainly destined to be worth $15 within 10 years.