Charlie Munger once revealed that Berkshire Hathaway's (NYSE:BRK) (NYSE:BRK)long-standing aversion to shorting stocks came from Warren Buffett's early experience investing in what he called "lousy companies" — and from a shared belief that investing should be both profitable and pleasant.
From Cigar Butts To Quality Businesses
In the 2017 HBO/Kunhardt Film Foundation documentary "Becoming Warren Buffett," Munger reflected on Buffett's evolution as an investor.
He said the Buffett "made millions and millions of dollars value investing in lousy companies that he bought very cheaply."
In Buffett's early years, following mentor Benjamin Graham's cigar butt philosophy, he often purchased struggling businesses trading below their working capital, earning steady but uninspiring returns, said Munger.
However, Munger said the experience was hardly enjoyable. "It's unpleasant to watch lousy companies you don't like," he explained, noting that both he and Buffett found more satisfaction in backing strong, well-run firms.
"It's much more fun to watch somebody you like and admire succeeding than watching some jerk half-mismanage some company that's very cheap," he added.
That realization also shaped their decision to avoid shorting stocks altogether.
"It’s the reason we don’t short stocks. Even if we made a lot of money doing it, I don’t think either one of us would bother," Munger said. "You're crazy if you're rich and deliberately go out and do a lot of unpleasant things you don't have to."
The See's Candies Turning Point
Munger credited their 1972 purchase of See's Candies as a turning point. "In See's, we bought a really good company," he said, adding, it had a wonderful product, a powerful trademark and a good culture — and it made so much money.
The investment opened Buffett's eyes to the true power of quality and brand strength.
"I don't think that Warren would have made all the money that Berkshire made in Coca-Cola if he hadn't bought See's," Munger said. "He learned from See's that he should buy Coca-Cola."
Munger said that investors truly grasp the power of a strong brand when they buy a company at a low price and still earn massive returns.
He said getting 300% per year in cash from such an investment makes it clear just how valuable a brand can be.
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Warren Buffett's Closest Ally, Charlie Munger
Munger, the billionaire investor, attorney, and longtime business partner of Buffett at Berkshire Hathaway, passed away in November 2023 at the age of 99.
He first met Buffett in 1959 at a dinner, marking the beginning of a partnership that would span more than six decades.
Together, they built Berkshire into one of the world's most successful conglomerates, with Buffett serving as chairman and Munger as vice chairman.
Munger also shared his insights and philosophy through his writings, including "Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger" and "On Success."
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