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The Six-Decade Investment: How Charlie Munger Turned $1,000 into a Perennial Cash Cow

Charlie Munger, Warren Buffett’s right-hand man at Berkshire Hathaway, is no stranger to the world of extraordinary investment opportunities. But what if I told you that Munger makes $70,000 a year from an investment as modest as $1,000? Even by Munger’s standards, that’s an incredible ROI, and he’s likely amassed over a million bucks from this single investment alone.

The Power of the Right Connections

Picture this: The year is 1962, and Munger finds himself at a husband-and-wife golf tournament. While at the third hole, he meets Al Marshall, a businessman with a plan to participate in a local oil royalty auction. Ever the straight-talker, Munger doesn’t hesitate to tell Marshall, “You’re doing it all wrong.”

Rather than dismissing Munger’s blunt critique, Marshall invites him to join in on the bid, and the two work out the legal and financial intricacies of what would become an astoundingly profitable venture. Utilizing a tax shelter known as an ABC trust—a method no longer legal, by the way—they each invested a mere $1,000.

Big Rewards from Small Investments

The fascinating part? Marshall indicated that by 2000, each had probably netted half a million dollars from their original one-grand investment. During a Daily Journal’s shareholder meeting in 2016, Munger himself reminisced about the deal, criticizing the narrow scope of bidders who usually participate in such oil-royalty auctions.

“In an idiot civilization,” Munger said, “the only people who were going to bid were oil royalty brokers, a cheap and dishonorable bunch.” Their limited competition led to one of Munger’s most profitable ventures.

More Than Just Money

Yes, the income from this six-decade-old investment is noteworthy, but it also provides a key insight into Munger’s financial philosophy. Despite his billions, he has long been content with a $100,000 salary from Berkshire Hathaway, keeping most of his fortune tied up in Berkshire stock—a stock that does not pay dividends.

Not Just a Munger Tale

And here’s a little bonus tidbit for all you aspiring moguls and magnates: Charlie Munger isn’t the only one enjoying the spoils of long-term oil royalties. During the same shareholder meeting, Buffett disclosed that his own father had invested in oil royalties, now inherited by Buffett’s younger sister, who still receives checks to this day.

The Takeaway for Today’s Investors

While the story of Munger’s incredible return may sound like a once-in-a-lifetime occurrence, it provides some essential lessons for entrepreneurs and investors:

  1. Don’t Underestimate Small Investments: Sometimes, modest bets can lead to outsized returns.
  2. Network Wisely: You never know when a casual conversation might turn into a lucrative opportunity.
  3. Think Long-Term: Compounding works its magic best when given time. Patience is more than just a virtue; it’s an investment strategy.

So the next time you find yourself contemplating whether a “small” investment is worth your time, remember the tale of Charlie Munger’s $1,000 wager. It’s a stark reminder that smart investing isn’t always about the size of the bet but the size of the opportunity.