Charlie Munger’s Words On Real Estate Being A “Lousy Investment” Show The Difference Between Knowledge And Wisdom

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It’s common knowledge that real estate is a solid investment which will speed up an investor’s ascent to financial freedom. So why is it that the late Charlie Munger, Warren Buffett’s right-hand man, is credited with saying he thought real estate was a “lousy investment?” Was he crazy? Benzinga takes a deeper dive into this famous quote and the best way it illustrates Munger’s profound wisdom about investing.

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Who’s Charlie Munger?

Charlie Munger is most well often called the previous Vice Chairman of Berkshire Hathaway, but his roots in investing and his relationship with the Buffett family go much deeper than that. Like Buffett, Munger was born in Omaha, Nebraska, where he worked in a grocery store owned by Warren’s grandfather, Ernest P. Buffett. After graduating from law school, he practiced law briefly before transitioning into wealth management.

He formed an investment firm called Wheeler, Munger, and Company, where he garnered a popularity as a serious investor. The firm eventually gained a seat on the Pacific Stock Exchange. Munger’s prowess as an investor came to Warren Buffett’s attention when Buffett noted that Munger’s firm had generated returns of nearly 20% from 1962-1975.

Wesco Financial and Warren Buffett

Munger eventually became chairman of Wesco Financial Corporation, a savings and loan on the time. Munger grew the company’s portfolio by buying and holding a small but diverse stock portfolio in firms that were well-suited to provide long-term growth. Warren Buffett’s Blue Chip firm eventually bought Wesco Financial Corp.

On the time of the merger, Wesco’s portfolio was price $1.5 billion and consisted almost exclusively of blue-chip stocks. That is equivalent strategy that Buffett has successfully adopted at Berkshire Hathaway. Buffett himself has called Munger an “architect” of Berkshire Hathaway in an interview with Fortune Magazine. It was in his capability as Vice-Chairman that Munger made his infamous quote about real estate being a “very lousy investment.”

Why Was Munger So Down on Real Estate?

Charlie Munger was speaking at a Berkshire Hathaway investor’s meeting in 2002 on the time, and the entire context of the quote explains his meaning barely more clearly. He was speaking about real estate’s fit throughout the Berkshire Hathaway portfolio. Munger said on the time that “real estate was a extremely lousy investment for firms like his.”

Munger went on to make clear a vital aspect of his investment strategy was finding undervalued assets to buy and hold. His experience with stocks and traditional investments gave him a bonus in that area. Nonetheless, he recognized when it came to real estate that other, more experienced investors were liable to be one step ahead of him in identifying good deals.

He also noted that the taxation structure of real estate investment trusts (REITs) would expose Berkshire Hathaway to “a whole layer of corporate taxes” that he desired to avoid. So, it shouldn’t be that Munger was down on real estate writ large; he just thought it was outside of his wheelhouse.

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What Investors Can Learn From Munger’s Thoughts

Charlie Munger’s thoughts on real estate investing show why he and Warren Buffett worked together so well. Munger has not only a knowledge of investing nevertheless the wisdom to acknowledge what’s an excellent investment for his shareholders and why. He didn’t must compete on a playing field that was tilted against him, least of all when he had a responsibility to act within the absolute best interest of his shareholders.

Keeping this mindset before investing and even considering it is going to possibly only serve you well in the long run. Whether it’s an actual estate investment trust, stocks, precious metals, and even cryptocurrency, your knowledge of what could make money need to be guided by the wisdom Charlie Munger was famous for.

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