The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [148]
Munger had invested in a Caterpillar tractor dealership and saw how it gobbled up money, which sat in the yard in the form of slow-selling tractors. To grow, the business had to buy more tractors, gobbling up more money. Munger wanted to own a business that did not require continual investment, and spat out more cash than it consumed. But what were the qualities of such a business? And what gave such a business an enduring competitive advantage? Munger was always asking people, “What’s the best business you’ve ever heard of?” But he was a man of no great patience, and inclined to think that people could read his mind.24
His impatience stood out more than any theory that was emerging inside his head. He wanted to get really rich, really fast. He and Roy Tolles made bets on whose portfolio would be up more than one hundred percent in a year. And he was willing to borrow money to make money, whereas Buffett had never borrowed a significant sum in his life. “I need three million dollars,” Munger would say, on one of his frequent visits to the Union Bank of California. “Sign here,” the bank would reply.25 With these huge sums, Munger did enormous trades like British Columbia Power, which was selling at around $19 and being taken over by the Canadian government at a little more than $22. Munger put not just his whole partnership, but all the money he had, and all that he could borrow into an arbitrage on this single stock26—but only because there was almost no chance that this deal would fall apart. When the transaction went through, the deal paid off handsomely.
Yet despite their different approaches, Munger regarded Buffett as the king of investing, and saw himself as merely a friendly pretender to the throne.27 “Vivian, get me Warren!” he shouted several times a day to whichever secretary had come to occupy Vivian’s desk.28 He cultivated Buffett like a garden he was tending. Buffett explained his philosophy: “You’ve got to coattail,” he said.29 But he did not want his friends to coattail him and considered it unethical when they did. Hence, while Munger, cultivating Buffett, was open about his trades—he got Buffett into his British Columbia Power deal, for example—Buffett always kept his trades to himself unless he was working an idea with a partner.
By the early 1960s, the Buffetts had begun to vacation in California, so that Warren could spend more time with Graham and Munger. Once Warren and Susie took the kids on a long trip up and down the coast, but usually when they came to visit, they’d settle into a motel on Santa Monica Boulevard, and he and Munger would talk stocks for hours. The differences in their philosophies made for long conversations. While Buffett made many of the same investments, he would forgo the chance of profits any day to avoid too much risk, and viewed preserving his capital as an almost holy imperative. Munger had the attitude that unless you were already wealthy, you could afford to take some risk—if the odds were right—to get rich. His audacity put him in a different category from all the others who cultivated Buffett, for his deference to Buffett was limited by his high opinion of himself. “Charlie would get so excited by his own words that he’d hyperventilate,” says Dick Holland, Buffett’s friend and partner, who was present at some of these California get-togethers.30
In his quest for the great businesses, Munger did not understand Buffett’s fascination with Ben Graham. “Because he is good at explaining Ben Graham,” Munger later wrote, Buffett was “behaving like the old Civil War veteran who after a few minutes of ordinary conversation always interjected: ‘Boom Boom, that reminds me of the battle of Gettysburg.’”31
Graham’s flaw, Munger felt, was that he considered the future “more fraught with hazard than ripe with opportunity.” Graham was a man, he said, “whose