I’m re-reading “Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger” by Janet Lowe and came across a passage that illustrates exactly the sort of thing I’m talking about when I harp on acquiring assets that constantly churn out piles of cash for you spend, redeploy into new investments, give to charity, or pass on to your children. The anecdote can be found in the first edition on pages 65 and 66 for those of you who own the book.
Charlie and Al were introduced at the first tee. On the second hole, Charlie asked, “What do you do?” Marshall had worked for Shell Oil and some small independent oil companies. The oil business was in a rocky period, and Marshall didn’t want to make too much of the fact that he was unemployed. Instead he told Charlie about some oil rights he was bidding for. On the third hole, Charlie asked how Marshall was going about the bidding. When Marshall told him, Charlie replied, “You’re doing it all wrong.”
“I said okay, if you’re so smart, why don’t you do the legal and financing work and I’ll do the rest.” said Marshall. Munger structured the deal in an ABC trust, which was a type of tax shelter that was legally correct at the time, but was so much abused that is has since been outlawed. But Marshall said that their ABC trust was properly done and has held together.
“I’m still getting two to three thousand dollars a month from that. We only put up $1,000 each and we’ve each probably made a half a million out of it.”
The Marshalls still own their shares, but Munger gave his to his children.
When Charlie was buying shares of Berkshire Hathaway and Blue Chip Stamps, investing in real estate and seeking out undervalued stocks, it was the collection of assets like this sending piles of fresh cash his way that funded those purchases. You have to get your hands on things that generate money. Then, you need to work to make them generate a lot of money. Wash. Rinse. Repeat. It’s so simple. The first $100,000 is the hardest. It gets progressively easier thereafter since your money begins to make money and you don’t have to rely solely on your own labor and selling your time in the form of wages and salary.