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    Why Charlie Munger and Warren Buffett refused to buy companies with bad managers



    As a general rule, holding company Berkshire Hathaway does not buy companies run by bad managers. That’s a little bit unusual, former Fortune editor-at-large Pattie Sellers pointed out to company CEO Warren Buffett and his business partner Charlie Munger, who died at age 99 this week, in a 2014 interview. “A lot of people like to buy good companies with bad managers and then replace them,” she said.

    Not the approach at Berkshire Hathaway, the two responded. “We tried that, with predictable results,” Buffett said, adding that “life is so much more fun” when you work with good people instead of trying to reform bad ones. “I mean, who wants to spend their life trying to change people from their natural approaches?”

    That’s a universal lesson about partnership, the two agreed, and it goes for marriage, too. “If you want to ruin your life, spend it trying to change your spouse,” Munger said. “It’s really stupid.”

    “Marrying somebody to change them is crazy,” Buffett chimed in. “And I would say hiring somebody to change him is just as crazy, and becoming partners with them to change them is crazy.”

    Buffett, a legendary investor, has relied on the insights and opinions of his friend Munger, a lawyer, for fifty years. Buffett has credited Munger with reframing his outlook on investing—and on Berkshire Hathaway’s approach. “Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices,” Buffett once said Munger told him.

    Munger also frequently made clear his views on the importance of good managers—and the fact that bad managers aren’t worth the trouble of trying to reform. 

    “The reason that Berkshire has been successful as a big conglomerate—more successful than any other big conglomerate, so far as I know—is we try to buy things that aren’t going to require much managerial talent at headquarters,” he said at an event in 2017 at the University of Michigan. “Everybody else thinks they’ve got a lot of managerial talent at headquarters and that’s a lot of hubris.”

    If a sufficiently “lousy” business manages to nab a “wonderful” manager, the reputation of the business, rather than the manager, is what will remain intact, he went on. “You can’t fix these really lousy businesses. You can wring the money out—whatever comes in liquidation—and do something else with it, but most lousy businesses can’t be fixed.” 

    It’s a mindset that has clearly worked for the billionaire duo. Their company’s revenue topped $302 billion last year, notching 7th place on the Fortune 500. Munger, in 2017, said Buffett eventually agreed with him that it wasn’t worth the effort to scale lousy business, “and it was kind of scroungy and unpleasant when you’re firing people—who in the hell wants to do that?” Instead, they soon agreed to “just run the money out” in order to buy better businesses. “And we’ve been doing it ever since.”

    In 2021, Buffett called poor management the number-one threat to a company. “You get a guy or a woman in charge of it—they’re personable, the directors like ’em—they don’t know what they’re doing. But they know how to put on an appearance. That’s the biggest single danger,” Buffett said at a shareholder meeting, the Wall Street Journal’s Chip Cutter reported at the time.

    Then again, maybe the departed Munger, Buffett’s trusted right-hand man for decades, may have been a bit more forgiving on subpar leadership. As he once said, “My theory, Warren, is if it can’t stand a little mismanagement, it’s no business.”

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